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A new report shows that corporate tax rates around the world continue to level off. “We aren’t seeing a race to the bottom, we’re seeing a race toward the middle,” said Sean Bray, EU policy analyst at the Tax Foundation.
Governments often justify higher tax burdens with more extensive public services. However, the cost of these services can be more than half of an average worker’s salary.
Designing tax policy in a way that sustainably finances government activities while minimizing distortions is important for supporting a productive economy.
Denmark (55.9 percent), France (55.4 percent), and Austria (55 percent) have the highest top statutory personal income tax rates among European OECD countries.
To recover from the pandemic and put the global economy on a trajectory for growth, policymakers need to aim for more generous and permanent capital allowances. This will spur real investment and can also contribute to more environmentally friendly production across the globe.
The EU countries with the highest standard VAT rates are Hungary (27 percent), Croatia, Denmark, and Sweden (all at 25 percent). Luxembourg levies the lowest standard VAT rate at 16 percent, followed by Malta (18 percent), Cyprus, Germany, and Romania (all at 19 percent).
It’s unlikely these implemented and proposed windfall taxes will achieve their goals of raising additional revenues without distorting the market. Instead, they would penalize domestic production and punitively target certain industries without a sound tax base.
In most European OECD countries, corporate income is taxed twice, once at the entity level and once at the shareholder level.
To make the taxation of labor more efficient, policymakers should understand the inputs into the tax wedge, and taxpayers should understand how their tax burden funds government services.
Although the U.S. has a progressive tax system and a relatively low tax burden compared to the OECD average, average-wage workers still pay more than 30 percent of their wages in taxes.
Instead of reforming and hiking the wealth tax, perhaps policymakers should consider whether the tax is serving its intended objectives, and, if not, consider repealing the tax altogether.
As tempting as inheritance, estate, and gift taxes might look—especially when the OECD notes them as a way to reduce wealth inequality—their limited capacity to collect revenue and their negative impact on entrepreneurial activity, saving, and work should make policymakers consider their repeal instead of boosting them.