Sunday, 2 May 2004
I probably shouldn’t go around interpreting OECD statistics, as I’m not an economist (I just play one on the Web). However, the OECD’s Centre for Tax Policy and Administration has made some excerpts of its 2002/2003 edition of “Taxing Wages” available, and there’s some interesting reading therein.
The Man Giveth, The Man Taketh Away
Let’s start by comparing taxation and wages in developed countries.
The average production worker in the United states will pay 16% of their gross wages in taxes, and a further 8% for social security, for a total of 24%. Their wage will be $33,459.
In Australia, that same worker pays 24% in taxes and 0% in government-mandated social security. The interesting thing here is that if you believe — as I do — that the current generation of US workers will never see a dime of social security money, these figures are equal; the American and the Australian effectively pay the same taxes.
I think it’s fair to make this kind of assumption about Social Security, because the US congress has, for several years, treated it as an alternate source of funding for regular programs; they’re treating it like a tax, not as the savings of the American people. Therefore, Social Security is effectively a tax.
What’s interesting is that the Australian’s wage, when thought of in terms of purchasing power parity (i.e., adjusting for the cost of goods and services locally), is higher — to the tune of $37,396. In other words, your average worker in Australia will be taxed the same as his American counterpart, but will be paid more.
(Anitra debates this, by the way; she says that based on comparisons between her and Inger — her twin sister / control subject — consumer goods in AU are much more expensive.)
The Scandinavian Factor
Turning to everybody’s favourite whipping-country when it comes to taxes — Sweden — we see that our hypothetical average worker pays 24% in taxes (the same as Australia, and the same as the US, if we make the same assumptions about Social Security there), and 7% for social security (that they will see some day, presumably).
This debunks the popular notion that Swedes are taxed at an incredibly high rate. The average wage is lower, however; when adjusted for purchasing power parity, it’s only $25,111.
One interesting thing here, though, is that, as far as I can tell, the PPP for each country focuses only on consumer prices; it’s not adjusted for the variation in the services that governments provide to their taxpayers. So, even though our Swede makes less in PPP than their Australian or American counterpart, they get more direct benefits for their tax dollars, that arguably translates to a higher quality of living.
For example, an American will shell out big bucks for childcare — something on the order of $12,000 a year — and get a comparatively meagre tax break for their trouble. The Swedish government, on the other hand, requires localities to provide adequate, high-quality and price-capped day care for all children. In effect, this lowers the cost of being Swedish, at least for those with children.
(Anitra thinks I’m just obsessed with living in Sweden. She may be right, but there’s a reason for it.)
These numbers, of course, are averages; as with all statistics, YMMV. If you’re not an “average production worker,” you may be better off in one place than another.
This is where countries really differentiate themselves. Groups like high wage-earners, retirees, families and investors will be advantaged or disadvantaged according to the tax and benefit structure of each country. This is only right; the function of government is to represent the interests of its people, and different peoples have different priorities.
The question, I think, is to carefully consider what interests your government — wherever you live — is promoting, in terms of who it gives tax breaks to, and who it hands money and benefits out to.
For example, Ireland and Luxembourg like single-earner, two-child families so much, they have an effective negative tax load; instead of giving money to the government, they get it. Sweet deal if you can get it.
So, what does my American tax dollar buy me? As far as I can tell, I get a fairly small subsidy for having a child, some degree of a penalty for being married (the amount is an issue of debate), and a huge incentive to buy a house. On the other side, my tax dollars are used to generate lot of suburban sprawl, well-fed automotive and oil industries, and the ability to project power across the globe. Hmm.
Sweden, on the other hand, seems to have a strong emphasis on education, family and building a community. It’s remarkable to walk around a city like Stockholm and see the public-mindedness of its people, a crèche in every neighborhood, and lots of public museums and events.
Australia is somewhere in the middle, although it seems to be swinging towards the States.
All of these are impressions, because AFAIK OECD doesn’t compare how governments allocate their budgets; does anyone know of another organisation that does (the UN, perhaps)?
In any case, it’s clear to me that Americans, at least, spend too much time complaining about the amount of taxes they pay, and not enough thinking about how they’re used.