Taxes--Country by Country

There will be a lot of debate in the next few years over taxes.  Some tax cuts expire in 2010, I think, and two--the 15% tax on capital gains and 15% tax on dividends-- have been extended for at least two years.  People get all exercised about taxes with the fat cats not paying their share (actually 5% of the taxpayers pay about 50% of the taxes) or somebody yelling about taxes killing them.

So when things get complicated, I go looking for simplicity.  And found it.  I have long held the premise that the higher the tax rate, the lower the productivity.  And I am right--nine times out of ten.  Forbes (another unabashed commercial for the best business magazine) has compiled the Tax Misery and Reform Index.  Basically, it takes a countries various tax rates and adds them up.  The components are:

-Corporate Income Tax

-Personal Income Tax

-Wealth Tax

-Employer Social Security

-Employee Social Security

-Value Added Tax or Sales Tax

Obviously, the higher the number, the higher the misery index.  And the winner is FRANCE with a misery index of 166.8.  Rounding out the top ten are:

Belgium

Sweden

Italy

Spain

Argentina

Greece

Germany

Brazil

Not exactly economic powerhouses.  There is one surprise as the list above totals only to nine.  The country that is actually Number 2 in the Misery Index is, and this is a total surprise, is China.  Forbes says China is up there because 'of its extraordinry social security and pension rates.'  I don't want to appear too cynical but China may have high rates but, in reality, nobody pays them.  Just a guess.  But the bottom line is that the countries with the highest tax rates are pretty much economic basket cases.  One could argue about Sweden and, while certainly not a basket case, it is not an economic powerhouse.

So if the top ten in taxes are not economic powerhouses, one would think the bottom ten would be and so let's take a look.

The top ten, with number 1 having the lowest misery index, and then so on are:

-United Arab Emirates

-Hong Kong

-Singapore

-Russia

-Taiwan

-South Africa

-Indonesia

-India

-USA (Texas)

-South Korea

Some pretty good economies and some with real potential like Indonesia, South Africa and Russia.  Direct links between taxes and growth are difficult because there are a lot of other variables.  But as one of my bosses put it, if the numbers go your way, use them. 

And I will.  Lower taxes make for stronger economies. 

And one final note.  Please note that USA (Texas) is number 9 in lower taxes.  USA (New York) was number 13 in higher taxes.  Which means if you live in New York and want to lower your taxes, move.  Welcome to the Lone Star State.

Comments

[Rich]

Yeah, I could see your point Andy--if that's how life were, but it's not. You aren't given a role, position or income bracket at birth; if you pick a free country out of those lists, you have the possibility to go wherever your work ethic and determination take you. The job of the government is to stay out of the way. The Forbes list was basically an indicator of how good the government was at staying out of your way.

[andy]

Hi Bill,
Here via CotC. Nice blog.

Thought I'd pick up on your main point.

I'm not sure what a definition of 'economic powerhouse' is - it's obviously not size, so I'm guessing you're looking at growth rates. In which case, comparing France and Spain with the UAE and Indonesia is hardly comparing apples with apples.

But I thought a more interesting test was this.

Imagine you haven't yet been born. You have to choose which country you have to be a citizen of.

The rules are, you don't know what role, position or income bracket in society you will have (i.e. you might not be king). The only choice you have is whether the country you're in is in pot A (the top ten), pot B (bottom 10).

I've been to 11 of the 20 and it's a no brainer for me....