[OPE] Taxes in the United States

One of the things I discovered in my Phd research in the 1980s is that the
presentation of the tax burden in official statistics is rather mystified.

Why? Because the statistical tables cite the total government tax revenue,
or total government expenditure, as a percentage of GDP. This type of ratio
suggests, that the tax figure or expenditure figure cited in the tables
represents "a component of gross product".

In reality, this is not the case, because GDP conceptually includes only the
"direct tax impost" on production, or the government expenditure "directly
related" to production - in other words, the direct tax cost of the "factors
of production". This is made explicit in national accounts manuals, and
textbooks on the subject.

If, say, a resident owns a house and pays property tax on it, or pays tax as
a consumer on his personal vehicle, this tax is in principle not included in
GDP, because it has conceptually nothing to do with production. Many taxes
(such as estate taxes etc.) are quite unrelated to productive activity.

It is difficult to identify accurately the total tax impost on production,
separate from the total government taxation. In the US in recent years,
total government taxation as a percentage of GDP varied from about 26% to
28%, but you can guesstimate from available figures that the actual tax
impost on production was roughly only about two-thirds of that percentage,
i.e. in the 17-18% range.

In other words, you can guesstimate roughly one-third of the US tax take is
unrelated to direct costs of production activities (various property taxes,
vehicle taxes, fuel taxes, transport axes, customs duties, taxes from the
rest of the world etc.). Of course, enterprises not only pay taxes, but
also, as acknowledged in the national accounts, receive subsidies from the
government. This reduces the net tax impost on production.

Irrespective of how you would estimate the true net tax impost on
production, the effect of the official tabulation is to make the tax burden
on productive activity seem larger than it really is. It "looks like" all
producers together pay a quarter or so of the value of what they produce in
taxes (or, in the case of the Heritage Foundation, 28%), but in reality it
is much less, it is very likely only about one-fifth or one-sixth. That's
simply because not all tax is levied directly on productive activity, and
because producers also receive subsidies.

Jurriaan

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Received on Mon Dec 27 07:00:59 2010