Why are taxes so much higher in Europe, consuming 46 percent of economic output compared to 32 percent of GDP in America? Is it because nations such as France, Greece, and Sweden have adopted the kind of class-warfare policies that Obama wants for the United States?
Surprisingly, the answer is no.
As explained by Veronique de Rugy, the United States actually has a more “progressive” tax code than European nations. The corporate tax rate is higher in the United States than in any European country, and the double taxation of dividends and capital gains also is far above the European average. Western European nations tend to impose higher tax rates on personal income, so the overall tax burden on the “rich” is roughly comparable on both sides of the Atlantic.
Since the United States and European nations impose somewhat similar tax burdens on upper-income taxpayers, what accounts for higher tax collections in Europe? Simply stated, the Europeans collect a lot more from the middle class.
- The value-added tax, which averages 21 percent in Europe, is a huge shadow income tax on lower-income and middle-income European taxpayers.
- Europeans pay higher payroll tax burdens.
- Energy taxes in Europe are much higher than they are in the United States.
- European nations impose much higher income tax rates on middle-income taxpayers – as seen in the chart, which doesn’t even include the punishing impact of the value-added tax.