Explain something to me (Europe US Tax Rates)

[WorldResident]

How is it that Europe has lower tax rates than America, yet still has lower income inequality?

A second question is why is Europe's per Capita GDP lower than the US if it does have lower tax rates? Is this just an effect of past market inefficiencies that will probably correct itself in the future?

http://www.eurotrib.com/?op=displaystory;sid=2007/3/15/194745/798

[Taxloss]

1. Europe doesn't generally have lower tax rates than the USA.

It varies from country to country and from tax to tax, of course, but generally Europe's taxes are higher, and that's how we fund better state welfare than the USA.

[hfojvt]

2. you seem to buy into some serious spin there

that lower tax rates mean higher per capita GDP in the medium or long run. That's what Reaganites would have you believe and Bush has been preaching it, but it just ain't so.

[TahitiNut]

3. Try again

http://en.wikipedia.org/wiki/Tax_rates_around_the_world

:eyes:

[uppityperson]

4. European countries don't have lower tax rates. nt

[On the Road]

5. If You Include the VAT,

I think Europe's taxes resemble the US more closely. America does have high tax rates, but spends more on the military than on health and social services.

Europe's slower growth rate is due to several things, including:

--EU monetary policy is tighter, which strengthens the currency but depresses growth.
--The US has higher deficits, which are stimulative in the short term.
--The US attracts more foreign capital and investment.
--The US is better at creating business in growth industries.
--For historical reasons, US currency, stocks, and government bonds are all valued above their underlying value compared with other developed countries.
--The US is less unionized and has a cheaper and more flexible work force.
--Americans spend more freely and save less.
--American companies have gotten very good at maximizing profits.
--The real estate boom in the US has created a lot of new paper wealth based on asset values.

Not all these are good, and some of them are unsustainable. But they all contribute to continued growth in the US economy and lack of a recent recession. In particular, the effect of the joint monetary and fiscal stimulus is tremendous. In the past, you wouldn't even see double-digit growth in M2 and $300B deficits that in a recession.

[papau]

10. Agree on all but unions correlating with lower growth - correctly measured the growth

does not correlate to having more or less unionization. Indeed Germany seems to grow quite nicely.

As to correctly comparing growth rates, what is the current US GDP growth rate if you use the EU inflation adjustment methods - removing both Greenspan's quality improvement adjustment, and his substitution adjustment - and perhaps factoring in the better health care and health care results from a single payer system - indeed factoring in the better quality of life?

[On the Road]

13. Maybe, But I Was Going by Your Depiction of

the US having inexplicably higher growth rates than other developed countries. EU countries are probably the biggest example. (I guess I should say "core" EU countries, since there so may new ones with different backgrounds.)

I think Europeans themselves see unionization and business startups as big differences between the US and Western Europe economies which it has helped the US to grow more quickly even as it caused other problems. Unionization does take a toll in efficiency, although provides a more skilled workforce with more disposable income.

To me, it's a question of mixing the best of different systems. I am coming to think that the best way to increase worker protection and compensation (the ultimate goals of unions) may be to legislate for all workers rather than depend on labor negotiations for individual groups. The Family Medical Leave Act is a small example. Government health care is a bigger one. A big rise in the minimum wage ($11-12 an hour) would help both labor and the economy.

This not has the advantage of spreading benefits to everyone rather than a unionized minority, but in preserving business flexibility than makes the US competitive.

[papau]

14. An economic social responsibility set of laws makes sense - but w/o unions the

corporations will stop them from passing.

The fact "US having inexplicably higher growth rates than other developed countries" means the calculation of the growth rates in the US are off compared to other countries.

Indeed if memory serves, since 73 - and likely before that -we have had better growth rates than EU countries, but since then they have come from behind and now have a better life style than we do. The calculation has to be the problem. Indeed I wonder what our real unemployment is, since our unemployed have no reason to announce themselves since there is no equivalent to the EU "dole".

[On the Road]

15. I Think the Disconnect is No So Much the Statistics

but the distribution of wealth. Working class Europeans have a much better lifestyle than working class Americans because they get more of the benefits. Upper class Americans OOH have a much better lifestyle than their European couterparts.

Higher wages at the low end and higher income taxes at the upper end are needed to correct this.

[papau]

16. true - and perhaps it's due to unions and/or social responsibility laws - but the

calculation is very different

Greenspan's Reagan era inventions on substitutions, and his expansion of quality improvements decreasing inflation beyond what anyone can justify, imho, has tossed comparability out the window.

[WritersBlock]

6. But which tax, though?

If you mean income tax, I reckon on about 1/3 of my salary going for income tax & national insurance (UK). And that's PAYE (Pay As You Earn), so unless you're self-employed or on a lot higher salary than mine, you don't file a return. You also don't get to itemize deductions, though there are tax credits for families, etc. I don't qualify for any, so I can't say what they are.

I can't remember if 1/3 of my salary when I was in the US went for taxes, but I have the feeling it wasn't that much. I could be wrong. I have a lousy memory.

But there are other taxes are definitely higher here - gasoline, for example. We pay the rough equivalent of about $6/gallon, and it's my understanding that most of that is taxes.

[Warren Stupidity]

7. Our taxes aren't that different.

When you add everything up including state/local income sales and property taxes, we pay about the same as the europeans, we just get a whole lot less services. Cost of empire etc.

[coyote]

8. I agree with you there

I live in Germany and pay approximately 42% for income taxes. However, when you add up all the taxes in the US...33% federal, 5% Massachusetts state (I used to live there), high property tax bills (I pay 100 Euros a year in Germany compared to $5000 in Mass), higher insurance rates (car, health, etc)...it really works out to be the same.

[OHdem10]

9. Some have explained it this way

Both Europe and US hold the values of
Liberty and Equlatity.

Imagine a scale with Liberty on One side and Equality
on the other.

In the Us, the scale is tilted more heavily in favor
of Liberty.

In Europe, the scale tilts more favorably toward Equality.


Equality is foremost in establishing policies in Europe
Libery is foremost in the US.

Economics are at the base in both groups.

Economic Liberty drives US policy--the ablity to make and
spend one's own money with no obligation to others.

Other influences. Most European countries except Britain
have a more pacifist bent. Do not spend as much on
defense or building up military strength. This money
is directed into social programs--health care etc.

Some sarcastically say--'they want us to fight for them".
with our strong military. i rather think we like
the idea of being a military superpower whkile it lasts.

[Lydia Leftcoast]

12. And even Britain and France, the most militarized of the EU countries,

don't spend NEARLY as much of their national income on the military as the U.S. does.

The U.S. spends more on its military than the entire rest of the world combined.

[gravity]

11. Income equality isn't as simple as tax rates

What the tax money is spent on is also just as important. We would probably have less income inequality, or at least less poverty if we spent more money fighting poverty than fighting wars.

There are a lot of other things that affect income equality too, like culture and economic opportunity.

[muriel_volestrangler]

17. Your link is talking about corporate tax rates

After months of negotiations, the Christian Democrats and Social Democrats - which form the unwieldy coalition currently governing Germany - decided to reduce the average rate from 38.7 percent to about 29 percent beginning on Jan. 1, 2008.
...
With an average corporate tax rate around 29 percent, Germany will be on about the same footing as Britain, which stood at 30 percent at the beginning of the year, according to the consultancy KPMG. France is now slightly higher, at 33 percent, while Italy at 37 percent.
...
Austria, whose economy is closely linked with its eastern neighbors, dropped its tax rate to 25 percent from 34 percent in 2004 - a sign that the mood was changing in richer parts of Europe. Now, the view that countries have no choice but to play the reduction game seems to have arrived in Germany.
...
This puts much of Europe below US corporate tax rates of 35%, though to really compare one would have to look at the impact of graduated tax rates in the US and other countries, as well as available tax deductions.

working link

I suspect most people haven't looked at the link, since the semicolon in it throws the DU software off.

Note that Britain announced on Wednesday it is dropping its raye from 30 to 28%.

Why do you think corporate tax rates should be linked to income inequality? As the piece says, it's more a question, especially in the EU, of competition between countries to attract multinational companies to base themselves there (rather like states in the US compete for corporate headquarters).

"why is Europe's per Capita GDP lower than the US?"

There are huge numbers of reasons. Yes, markets are not perfect, but no, there's no reason to believe they will be in the future. But you may as well point out that state 'GDPs' in the US are also unequal. Different places have different established businesses, different resources, different economic rules and laws, and so much more. Economists could write books on why the US's GDP per capita is different from the European average, and few of them would agree with each other.