THE TAX FOUNDATION
Cecilia Perez WeigelPolicy and economic differences among OECD countries have created variances in how they raise tax revenue, with the United States deviating substantially from the OECD average on some sources of revenue.
Different taxes have different economic effects, so policymakers should always consider how tax revenue is raised and not just how much is raised. This is especially important as the economic recovery from the pandemic continues.
In the United States, individual income taxes (federal, state, and local) were the primary source of tax revenue in 2021, at 42.1 percent of total tax revenue. Social insurance taxes (including payroll taxes for Social Security and Medicare) made up the second-largest share, at 23.8 percent, followed by consumption taxes, at 16.6 percent, and property taxes, at 11.4 percent. Corporate income taxes accounted for 6 percent of total U.S. tax revenue in 2021.
U.S. Tax Revenue by Type - See Below
Sources of Government Revenue in the United States, 2021
Tax TypePercentage Individual Taxes42.1%
Social Insurance Taxes23.8%
Source: OECD, “Revenue Statistics- OECD Countries: Comparative Tables.”
Compared to the OECD average, the United States relies significantly more on individual income taxes and property taxes. While OECD countries on average raised 23.9 percent of total tax revenue from individual income taxes, the share in the United States was 42.1 percent, a difference of 18.2 percentage points.
This is partially because more than half of business income in the United States is reported on individual tax returns. Relative to other OECD countries, the U.S. approach to taxing business income boosts the share of tax revenue from individual income taxes in the U.S. and reduces the share of corporate tax revenue.
The OECD on average raised 5.6 percent of total tax revenue from property taxes, compared to 11.4 percent in the United States.
The United States relies much less on consumption taxes than other OECD countries. Taxes on goods and services accounted for only 16.6 percent of total U.S. tax revenue, compared to 32.1 percent in the OECD.
This is because all OECD countries, except the United States, levy Value-Added Taxes (VAT), usually at relatively high rates. State and local sales tax rates in the United States are relatively low by comparison, but they are on a different tax base.
Countries also have different levels of government at which taxes are collected. The U.S. and nine other OECD countries have a decentralized political structure where state or regional governments play an important role in tax collection.
Nearly half of U.S. tax revenue is raised at the state and local levels.
Every country’s mix of taxes is different, depending on factors such as its economic situation and policy goals. However, each type of tax impacts the economy differently, with some taxes being more harmful than others.
Generally, consumption-based taxes are a more efficient source of revenue because they create less economic damage and distortionary effects than taxes on income. As the U.S. economy recovers from the pandemic, policymakers should avoid enacting harmful tax increases that place unnecessary burdens on U.S. workers and businesses.
THE TAX FOUNDATION: Many countries’ personal income tax systems tax various sources of individual income—including investment income such as dividends and capital gains. Today’s map shows how dividend income is taxed across European OECD countries.
A dividend is a payment made to a corporation’s shareholders from corporate after-tax profits. In most countries, such dividend payments are subject to dividend tax.
Ireland has the highest top dividend tax rate among European OECD countries at 51 percent. Denmark and the United Kingdom follow, at 42 percent and 39.4 percent, respectively.
Estonia and Latvia are the only European countries covered that do not levy a tax on dividend income. This is due to their cash-flow-based corporate tax system.
In many countries, corporate profits are subject to two layers of taxation: the corporate income tax at the entity level when the corporation earns income, and the dividend tax or capital gains tax at the individual level when that income is passed to its shareholders as either dividends or capital gains.
Some countries, however, have integrated their taxation of corporate and dividend/capital gains income to eliminate such double taxation.
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Michael Lodge is a Nationally Certified Professional Mediator specializing in business disputes, as well as family conflicts. He has written three books and hosts an international podcast on IHeartRadio and other podcast media stations.