Americans have a unique phobia about taxes. Years ago, politicians told us that we could have more stuff by paying less money, and we liked that. And so, we believe it despite all evidence to the contrary. And now, our country faces massive deficits and a budget that cannot be cut.

The choice is between raising taxes or cutting Medicare, Social Security, and the Department of Defense. Both are bad politically, but taking an ax to spending will be worse. And although I would rather not see my taxes go up, I am also not happy about living in a rich country where some people have no health care, our educational system is below world standards, and there is at least one person out there who would rather vandalize a church than acknowledge that some Americans go to bed hungry at night.

The first question, of course, is what goes into a tax base. Some jurisdictions tax income (corporate, individual, investment), other s tax consumption through sales or luxury taxes, and still others tax wealth through property taxes, estate taxes, or ownership permits. And, of course, quite a few do a mix of all three.

Every jurisdiction has de-facto taxes in the forms of red-light cameras, lotteries, permit expenses, and application fees.  These are mandatory costs imposed by the government for getting certain things done; they let governments improve their finances without any elected officials taking responsibility for increasing taxes or cutting spending. In addition, many countries have hidden taxes in the form of corruption. If you have to pay income taxes and bribes to government officials in order to stay in business, then those bribes may as well be a tax.

The next question is figuring out the rates. Many tax jurisdictions have rates than kick in only for people with a certain amount of income or property. Some very high rates apply to very few people, so they aren’t a good way to look at the total amount of taxes paid.

The Organisation for Economic Cooperation and Development

This is not a magic money machine.

This is not a magic money machine.

collects information on tax burdens in its thirty member countries, which are almost all developed economies. It looks at total government revenue collected as a percentage of gross domestic product. This method takes into account the differences in tax bases and tax rates. In 2007, tax revenue in the United States was 28.3% of GDP. Very few countries paid less, including Mexico, at 20.5%; Turkey, at 23.7%; and Japan, which was not included in 2007 but had a rate of 27.9% in 2006. Mexico and Turkey are at much lesser stages of economic development than the United States. Japan is not allowed to have an army other than a small self-defense force; the U.S. takes care of that for them.

Citizens in every other country in the survey, 26 in all, pay more in taxes as a percentage of gross domestic product than the United States. They do not always have significantly more, though. Germany is at 36.2%, Canada at 33.3%, and Switzerland at 29.7%.

The U.S. economy is more diversified and creative than those in many other places. We don’t want to kill that, and some very high new taxes could. But an enormous deficit could kill the economy, too. Moderately higher taxes might help us solve this deficit and give us some of the things that we want, like better health insurance or improved public schools.  And, moderately higher taxes would still keep us competitive in global markets.

And frankly, I’d rather just pay higher income taxes then get nickeled-and-dimed with parking tickets, turnpike tolls, and school activity fees.

The first step is for Americans to accept that there is no magic money machine that generates more cash through tax cuts. The money to pay for our government has to come from somewhere. We can either cut spending or increase taxes. If we’re going to protect huge blocks of spending from cuts, such as Medicare or the Department of Defense, then we’re going to have to increase taxes. This is fiscal responsibility. I’d rather not pay more in taxes, but I also think it was a stupid idea to cut taxes, start two wars, and increase Medicare benefits. The U.S. government did just that, and now it’s time to pay the bills. The beautiful thing is that we can pay up and still get off cheaper than most of our developed-world counterparts.

About the Author

Ann Logue

Ann Logue is a freelance writer and consulting analyst who is fascinated by business and technology. She has a particular interest in regulatory issues and corporate governance. She is the author of "Emerging Markets for Dummies" (Wiley 2011), “Socially Responsible Investing for Dummies” (Wiley 2009), “Day Trading for Dummies” (Wiley 2007), and “Hedge Funds for Dummies” (Wiley 2006), and has written for Barron’s, Institutional Investor, and Newsweek Japan, among other publications. As an editor and ghostwriter, she worked on a book published by the International Monetary Fund and another by a Wall Street currency strategiest. She is a lecturer in finance at the University of Illinois at Chicago. Her current career follows 12 years of experience as an investment analyst. She holds a B.A. from Northwestern University, an M.B.A. from the University of Chicago, and the Chartered Financial Analyst designation. How's that for deathly dull?

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