Tim Pawlenty -- Minnesota's outgoing Republican governor and a likely candidate for president in 2012 -- met with Washington reporters on July 26, 2010, for a wide-ranging discussion of politics and policy. One of the things he said made it into the reports of at least two journalists in attendance, Ruth Marcus of the Washington Post and John Dickerson of Slate..
Asked what his reaction would be if a presidential commission on the national debt were to recommend a mix of spending cuts and tax increases, Pawlenty said, "Not good. I don't think the argument can be credibly made that the United States of America is undertaxed compared to our competitors."
In an opinion column published the following day, Marcus took aim at Pawlenty's remark.
"Actually," Marcus wrote, "the United States is on the low end in terms of the overall tax burden -- 28 percent of gross domestic product in 2007, according to the Organization for Economic Cooperation and Development, compared with an average of 36 percent in the 30 OECD countries. Only South Korea, Mexico and Turkey were lower."
By locating the OECD chart -- which is exactly what we would have done -- Marcus ably did much of our work for us. But we still wanted to check with a few tax experts to make sure that she didn't miss anything in her analysis.
Three experts we queried -- Daniel J. Mitchell, a senior fellow at the libertarian Cato Institute, William Ahern, the director of policy and communications at the Tax Foundation, a tax research group, and Dean Baker, co-director of the liberal Center for Economic and Policy Research -- all agreed with Marcus's conclusion, though Ahern and Mitchell took the opportunity to add some additional context.
Ahern said that tax-burden-to-GDP ratios -- the data that underlies the OECD chart -- should be used carefully because they can obscure deficits. A country with a low tax-to-GDP ratio may have a substantial deficit, and in time, that deficit will put upward pressure on taxes. So nations with low tax-to-GDP ratios may not find those ratios sustainable over the long term.
Mitchell, for his part, agreed with Marcus' point about the overall tax burden, but he noted that in the U.S., the burden from different types of taxes varies. Some types of taxes, such as corporate taxes, are among the highest of the OECD nations. Others are closer to average, such as the top income tax rate and the capital gains tax rate.
"The big reason the U.S. has a lower aggregate tax burden when measured as a share of GDP is that we don't -- yet -- have a value-added tax," Mitchell said. "Our payroll taxes also tend to be lower than average."
Indeed, when we contacted Pawlenty's camp, a spokesman cited the high rates of corporate taxes in the U.S. "This unacceptably high corporate tax rate makes the U.S. less competitive by encouraging companies to shift investment to nations with lower corporate tax rates," said spokesman Alex Conant.
Despite the caveats from our experts, we see no reason to undercut Marcus' finding that the U.S. ranks low among other developed countries in total tax burden. Corporate taxes are comparatively high in the U.S., and that's a worry for businesses and, indirectly, for their employees and customers. But corporate taxes only accounted for 12 percent of federal tax revenues in 2008, so we don't think it's valid to focus on that factor to the exclusion of the broader tax burden. While we won't take a position on the the question of overtaxation, we think that, contrary to what Pawlenty said, there is a credible argument to be made that the U.S. is undertaxed compared to its competitors. So we rate his statement False.
Ruth Marcus, "Why Congress should let the Bush tax cuts expire" (Washington Post op-ed), July 28, 2010
Slate, "Let the Pre-Pre-Pre-Campaign Begin: Tim Pawlenty makes his plans for 2012," July 26, 2010
Organization for Economic Cooperation and Development, Revenue Statistics 1965-2008, 2009 Edition, accessed July 29, 2010
Laffer Associates, "The Remarkable Global Supply-Side Revolution" (paper by Daniel J. Mitchell), Jan. 14, 2008
Chris Edwards and Daniel J. Mitchell, Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It (Cato Institute), Sept. 2008
Urban Institute/Brookings Institution Tax Policy Center, "The Numbers: What are the federal government’s sources of revenue?" (briefing paper), accessed July 29, 2010
E-mail interview with Daniel J. Mitchell, senior fellow at the Cato Institute, July 28, 2010
E-mail interview with William Ahern, the director of policy and communications at the Tax Foundation, July 28, 2010
E-mail interview with Dean Baker, co-director of the liberal Center for Economic and Policy Research, July 28, 2010
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