I periodically explain that a European-sized welfare state can only be financed by huge taxes on lower-income and middle-class taxpayers.
Simply stated, there aren’t enough rich people to prop up big government. Moreover, at the risk of mixing my animal metaphors, those golden geese also have a tendency to fly away if they’re being treated like fatted calves.
I have some additional evidence to share on this issue, thanks to a new reportfrom the Tax Foundation. The research specifically looks at the tax burden on the average worker in developed nations
The tax burden on labor is referred to as a “tax wedge,” which simply refers to the difference between an employer’s cost of an employee and the employee’s net disposable income. …The OECD calculates the tax burden by adding together the income tax payment, employee-side payroll tax payment, and employer-side payroll tax payment of a worker earning the average wage in a country. …Although payroll taxes are typically split between workers and their employers, economists generally agree that both sides of the payroll tax ultimately fall on workers.
In some cases, such as the unfortunate Spanish household I wrote about back in February, the government steals two-thirds of a worker’s income.
So which country is best for workers and which is worst?
Suffice to say, it’s not good to be dark red.
But that map doesn’t provide a complete answer.
To really determine the best and worst countries, the Tax Foundation made an important correction to the OECD data by including the burden of the value-added tax. Here’s why it matters.
The tax burden on labor is broader than personal income taxes and payroll taxes. In many countries individuals also pay a value-added tax (VAT) on their consumption. Because a VAT diminishes the purchasing power of individual earnings, a more complete picture of the tax burden should include the VAT. Although the United States does not have a VAT, state sales taxes also work to diminish the purchasing power of earnings. Accounting for VAT rates and bases in OECD countries increased the tax burden on labor by 5 percentage-points on average in 2018.
The best country, assuming we’re limiting the conversation to rich countries, is Switzerland, followed by New Zealand, South Korea, Israel, and the United States.
By the way, this report just looks at the tax burden on average workers. We would also need estimates of the tax burden on things such as investment, business, and entrepreneurship to judge the overall merit (or lack thereof) of various tax regimes.
Congratulations to Hungary, Israel, and Sweden.
I’m not surprised to see Mexico galloping in the wrong direction, though I’m disappointed that South Korea and Iceland are also deteriorating.
P.S. The bottom line is that global evidence confirms that ordinary people will be the ones paying the tab if Crazy Bernie and AOC succeed in expanding the burden of government spending in America. Though they’re not honest enough to admit it.