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Are U.S. taxes low compared to the rest of the industrialized world?

Dear Cecil:

Taxes were a big deal in this election season. "The other guy wants to raise them while I want to lower them," the ads said. No matter what their convictions, nobody's saying that taxes are at the right level, and I'd like to catch a glimpse of the politician who's suicidally courageous enough to say that they're too low. Aren't taxes in the United States some of the lowest in the industrialized world? Compared to other countries, are we getting our money's worth?

Chris, via the Internet

Illustration by Slug Signorino

Cecil replies:

You already did catch a glimpse of a politician suicidal enough to say taxes are too low. His name was Walter Mondale. ‘Nuff said.

You’re right that U.S. taxes are low compared to other developed nations. Check out the following charts, put together by Straight Dope Science Advisory Board member Sam, a partner at a major U.S. consulting firm specializing in employee compensation. (Monetary amounts in U.S. dollars, exchange rates as of January 1, 2000.)

Income tax rates


Top Rate

Kicks In At

Soc. Sec. Rate

Soc. Sec. Ceiling

Canada (Ont.) 40% $40,500 3.9% $25,400
Denmark 60% $34,200 9% None
Germany 51% $112,000 16.5% $50,300
Hong Kong 17% $13,400 NA NA
Italy 46% $23,200 9.9% None
Japan 37% $170,000 12.8% $115,000
Netherlands 60% $46,700 29.9% $21,300
Sweden 60% $42,000 7% $34,000
U.K. 40% $43,100 10% $42,200
U.S. 39.6% $288,350 7.6% $72,600

Includes average state or provincial income tax. Social security rate doesn’t include employer contributions. Ceilings estimated; formulas can be complex.

Average pay after taxes


Married, 2 Children

Country $40K $100K $40K $100K
Canada (Ont.) 76% 64% 76% 64%
Denmark 65% 48% 65% 48%
Germany 69% 65% 80% 71%
Hong Kong 98% 90% 99% 91%
Italy 68% 60% 69% 61%
Japan 83% 75% 83% 77%
Netherlands 64% 59% 64% 59%
Sweden 60% 53% 60% 53%
U.K. 76% 70% 76% 70%
U.S. 78% 74% 84% 77%

Pay after taxes doesn’t exactly correspond with the top tax rate because of complicated tax laws. Figures don’t include property, sales, or value-added tax (VAT in Europe typically is in 15 percent range).

In short, the U.S. is at the low end of the scale in terms of tax bite. While I don’t want to get into the question of whether taxpayers are getting their money’s worth, as a rule you get what you pay for. One reason Hong Kong’s taxes are low is that it has few social services. One reason they’re higher elsewhere is that most developed countries pick up health-care costs, while the U.S. leaves that to the private sector.

That’s part of a larger pattern — the U.S. leaves more to the private sector than most other developed countries and, for that matter, many less-developed ones. Government expenditures here account for just 22 percent of gross domestic product (source: World Bank, 1997), the lowest of any of the ten countries listed above for which that information was available (high: Italy, 49 percent; average exclusive of U.S., 40 percent).

Are U.S. taxes too low? You’re not going to find many people making that argument in a time of budget surpluses. But even setting surpluses aside, many economists believe that relatively low U.S. taxes, and the comparatively low cost of doing business in the U.S. overall, explain why the U.S. has had the most dynamic economy of any major developed nation over the past decade, without the sluggish growth or double-digit unemployment that has afflicted other countries. While the presidential candidates might have argued about whether to tax or spend more or less, the actual differences between them were small. Compared to other developed countries, we don’t pay much in taxes and we don’t get much — and for the foreseeable future that’s not likely to change.

Cecil Adams

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