The US tax system causes a lot of stress and frustration every year. It leads to countless complaints regarding complicated processes, high-rates, and more, and if you ask the average US citizen they’ll tell you that the US system is one of the least forgiving and the most complicated in the world.
But how true is that? In this guide we’ll look at several key areas to see how US taxes compare to taxes in other countries.
How Much Does US Tax Generate?
Taxes in the United States account for around a quarter (25% to 28%) of gross domestic product (GDP). In other developed nations, the average is a little higher, at between 33% and 35%, and some nations, France and Denmark included, generate close to half of their GDP via taxes.
Around half of all US taxes are generated via personal income and business taxes, which is much greater than the 35% global average, with other countries relying more on sales and property taxes than the United States.
Around $3.7 trillion is generated through income taxes and payroll in the United States, and once you add business taxes and other taxes, the total sum is around $6.6 trillion. This figure places the US at the top of the list when it comes to total tax revenue generated, and this high figure is not simply a result of population. Japan, for instance, has around 40% the population of the US, yet it generates around 1/10th of the total tax revenue.
The US does not tax as heavily, or rely as much on tax income, as France, Germany, Sweden, Denmark, and several other major European countries, but it’s still one of the biggest taxers in the world.
Personal Tax Rates
US tax rates are high and have led to a lot of complaints from struggling families and self employed individuals, but they begin to look decidedly better when you compare them to some tax rates in northern Europe.
The average rate of tax for US citizens earning an average wage with no defendants is 25.6%. The same rate in Belgium is a staggering 42%, while Germany, Denmark and Austria all have basic tax rates of around 35%. You’ll also see some eye-watering personal tax rates in France, Sweden, Norway, and many other countries. In fact, the US barely makes it into the top 20 when it comes to these average rates, and that’s before you consider the higher tax rates that Northern European countries charge their high earners.
In the US, the highest rate is 37% and you need to earn over half a million before you start paying this, in many European countries you’ll start paying 40% before you hit $100,000, and in some of them you’ll hit 55% long before you make half a million dollars. Even in the UK, which is not considered to have the highest tax rate, you’ll hit 40% at earnings of £50,001 (around $70,000).
The Tax Filing Process
The US has some of the most complicated tax laws in the world, making it very difficult for even the average citizen to file their taxes every year. Tax laws in general are complicated as there is a lot to consider, but in most countries there are systems in place to simplify this.
Take the UK as an example, as they have a similar tax process to most other countries in Europe. As a UK employee, you won’t need to file any taxes as your employer will do everything for you. You will need to make a note of any capital gains taxes and profits from shares/interest if there are any, but the process for filing these is neither lengthy nor complicated.
It can be a little different for self-employed individuals, but even then it’s not very difficult. There is a system in place that allows all UK self-employed individuals to submit a single file at the end of the year. They can do this online, before making a payment with a credit/debit card and then drawing a line through their taxes for the year. It’s designed to make it easy to note earnings and expenses, and it takes just a few minutes.
The US system is much more complicated and time consuming and there are many more factors to consider, leading to a lot of confusion for EU citizens who move to the US and start working there.
It’s a different story with businesses, however. The UK, and many other EU countries, have very strict laws regarding compliance that can make it difficult to start a business there, much more so than the US. The US system is also more preferable to systems in place in China, Russia, and a number of other major economies.
Article Provided by: Nicky Sarandrea. Nicky is a freelance writer who has written extensively on accounting in the healthcare sector, including a large guide on How to Use Strategic Management.