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In a May 26, 2011, column in the Wall Street Journal, Stephen Moore, one of the editorial page editors, argued that the United States had low taxes compared to its rivals when Ronald Reagan was president, but now ranks among the world’s highest-taxed nations.
"In the late 1980s," Moore wrote, "the U.S. was nearly the lowest taxed nation in the world, and a quarter century later we're nearly the highest."
The claim came within a column that argued that proposals by President Barack Obama could effectively raise the marginal tax rate for the nation’s wealthiest taxpayers to 62 percent. We recently checked a similar claim by Rep. Paul Ryan, R-Wis., who said that Obama policies would lead to a top rate of 44.8 percent. (Ryan’s claim -- which earned a rating of Mostly True -- used less expansive parameters than Moore's did.)
After a reader suggested that we look at the column, we zeroed in on Moore’s claim about comparative international taxes.
We should start off by noting that most comparisons like these are not made with every nation in the world but rather with countries that belong to the Organization for Economic Cooperation and Development, or OECD, a group of nearly three-dozen large, industrialized democracies. This makes it a fairer comparison.
Because Moore was writing in the rest of the column about marginal personal income tax rates, we first turned to international comparisons of those rates for the OECD nations. We looked at data for 1988 -- Reagan’s last year in office, and a year when top U.S. marginal tax rates reached a new low -- as well as 2010.
For 1988, the highest marginal tax rate for U.S. taxpayers was 28 percent. Of the 20 countries in the OECD comparison, only one had a lower rate -- Switzerland, at 11.5 percent.
So using this statistic, Moore is correct.
However, top marginal tax rates are an imperfect statistic for this kind of comparison. Perhaps the most important problem is that they only take into account national taxes. Some OECD nations levy relatively light taxes at the national level but heavy taxes at the state and local level. This makes international comparisons using only the national statistic incomplete.
So we turned to another yardstick -- tax revenues as a percentage of gross domestic product. This measure shows how big the total tax burden is compared with a nation’s economy. It incorporates national, state and local taxes of all types, rather than just income taxes.
OECD statistics are available for 1985, in a study of 26 nations. In the U.S., total tax revenue accounted for 25.6 percent of GDP. Only six nations had a lower percentage -- Mexico, Korea, Greece, Portugal, Switzerland and Turkey -- and several of those were not among the top ranks of industrialized nations in 1985.
So here too, Moore’s has solid backing for his claim that in the 1980s "the U.S. was nearly the lowest-taxed nation in the world."
But what about today? Here, the backing is less solid.
Looking strictly at top marginal tax rates, the U.S. rate of 35 percent was solidly in the middle of the pack -- tied for 18th among the 34 nations studied.
Moore’s claim doesn’t hold up any better if you use taxes as a percentage of GDP.
In 2006 -- the most recent year for which an OECD comparison is available -- taxes accounted for 28 percent of U.S. GDP, up modestly from what it was in 1985. All told, 25 nations had a higher percentage than the U.S., while just four -- Mexico, Japan, Korea and Turkey -- had a lower percentage.
That hardly makes the U.S. "nearly the highest" taxed nation in the world. In fact, in order to rank in the top five nations on the 2006 list, the U.S. would have needed taxes to account for 43 percent of GDP -- about one and a half times their actual share.
When we asked Moore if there was any data we were missing that would prove his point about the U.S. tax burden today, he said, "today our corporate tax rate is highest and our personal income tax with the Obama proposals (included) would be well above average."
He’s basically correct that our corporate tax rate is the world’s highest -- we’ve ruled that claim Mostly True in the past, although for many companies, loopholes and other tax rules bring down the rate they actually pay. Even so, nowhere in the column does Moore bring up corporate or business taxes, so we don’t think that’s strong support for his claim.
As for potential tax increases under Obama, those are speculative. Because of that, we don’t see them as justification for stating that "a quarter century later we're nearly the highest" in taxation. Moore would have been on safer ground if he’d written, "If the increases I’ve outlined here are enacted, we might end up with some of the highest tax rates in the world." But even this would be speculative, since we wouldn’t know what other countries’ tax rates will be if and when the U.S. hikes Moore opposes are enacted.
We have no quarrel with Moore’s characterization of the late 1980s as a period when U.S. taxes were low compared with its rivals. It clearly was. But Moore's main point, that taxes have gone up significantly since the late 1980s, is a stretch. To the contrary, we find convincing evidence that the U.S. today remains a relatively low-tax nation compared to its industrialized competitors. U.S. tax rates might go up over the next few years, but that's speculation, not established facts. On balance, we rate Moore's comment Barely True.
Editor's note: This statement was rated Barely True when it was published. On July 27, 2011, we changed the name for the rating to Mostly False.
Stephen Moore, "A 62% Top Tax Rate?" (Wall Street Journal column), May 26, 2011
Organization for Economic Cooperation and Development, "Personal income tax rates and thresholds for central governments (Table I.1-- updated with 2010 data)," accessed May 27, 2011
Organization for Economic Cooperation and Development, "Table A. Total tax revenue as percentage of GDP," accessed May 27, 2011
E-mail interview with J.D. Foster, senior fellow at the Heritage Foundation, May 27, 2011
E-mail interview with Chuck Marr, director of federal tax policy with the Center on Budget and Policy Priorities, May 27, 2011
E-mail interview with Bob Williams, senior fellow at the Urban Institute-Brookings Institution Tax Policy Center, May 27, 2011
E-mail interview with Gary Burtless, senior fellow at the Brookings Institution, May 27, 2011
E-mail interview with Stephen Moore, member of the editorial board of the Wall Street Journal, May 27, 2011
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