Is America Overtaxed? How We Compare to Europe

Some Americans cherish high taxes, especially when it does not affect them. Politically, those on the left like to argue that the “rich” are not “paying their fair share.” Those on the right, by contrast, argue that taxes are too high for everyone across the board, including the average American.

When we compare the United States to other countries in Europe, however, we get a different picture of the tax situation. This does not detract from arguments coming from those on the left or right, but it illumines the picture of vastly different societies between Americans and Europeans.

Income Taxes

The “Organisation for Economic Co-operation and Development” (OECD), which is composed of over 100 countries, asserts that America is actually on the lower end of the tax scale compared to Europe and the rest of the world. It found that 25.5% of the country’s gross domestic product (GDP) in 2020 came from taxes, whereas the average for other countries was 33.5%.

Countries like Denmark, France, Belgium, and Italy tax over 40% of GDP, according to the organization’s statistics.

When it comes to the top income tax rate, the latest rate for the U.S. in 2022 was 37%. That is lower than rates in 17 out of 27 European countries, with the highest rates being in Denmark (56%) and Austria (55%).

Consumption Taxes

Consumption taxes are referred to as sales and goods tax and appear on retail goods and services. Contrary to income taxes, which are applied when one earns money, consumption taxes are applied when one spends money.

The U.S. does not have a national consumption tax rate, as this is determined by states and localities, but the idea was backed by former President George W. Bush.

Switching from a progressive income tax to a national consumption tax would allegedly penalize spenders and reward savers. The idea obviously never gained a foothold in America.

Compared to Europe, America is again the lowest when it comes to taxes on goods and services, making up 18% of U.S. revenue in 2018. In 38 OECD countries, the average rate is 32%.

All countries in the OECD, except for the U.S., have what is called a “value-added tax.” This is a type of consumption tax and is the difference between “what a producer pays for raw materials and labor and what the producer charges for finished goods,” according to Investopedia.

Tax Competitiveness Ranking

Despite having some of the lowest taxes across the board, the U.S. ranked 22 on the OECD’s 2022 International Tax Competitiveness Index. Ranked first was Estonia, whose corporate tax rate is sitting at a whopping 2%, compared to the U.S.’s 22%.

Suddenly, America’s tax system is looking at least a little more progressive than that.