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United States Is Outlier in Tax Trends in Advanced and Large Emerging Economies

Summary:
In this comparative analysis of tax systems in advanced and large emerging economies, the United States stands out as an anomaly. Over the past 30 years the average corporate income tax rate in the 46 countries studied has fallen to about 20 to 25 percent, nearly every country has introduced carbon taxes, and personal income taxes have stabilized around 35 to 45 percent. By contrast, the US tax system relies primarily on high direct personal and corporate taxes and has no value-added tax (VAT) or carbon tax. The US Congress should cut the corporate tax rate by 10 to 15 percentage points, to reach the OECD average and boost US competitiveness. Lawmakers can further consider a shift to indirect taxes like the VAT, to make up for revenues that would be lost under a reduced corporate tax

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In this comparative analysis of tax systems in advanced and large emerging economies, the United States stands out as an anomaly. Over the past 30 years the average corporate income tax rate in the 46 countries studied has fallen to about 20 to 25 percent, nearly every country has introduced carbon taxes, and personal income taxes have stabilized around 35 to 45 percent. By contrast, the US tax system relies primarily on high direct personal and corporate taxes and has no value-added tax (VAT) or carbon tax. The US Congress should cut the corporate tax rate by 10 to 15 percentage points, to reach the OECD average and boost US competitiveness. Lawmakers can further consider a shift to indirect taxes like the VAT, to make up for revenues that would be lost under a reduced corporate tax rate.

Simeon Djankov
Simeon Djankov, nonresident senior fellow at the Peterson Institute for International Economics, was deputy prime minister and minister of finance of Bulgaria from 2009 to 2013. In this capacity, he represented his country at the Ecofin meetings of finance ministers in Brussels. Prior to his cabinet appointment, Djankov was chief economist of the finance and private sector vice presidency of the World Bank.

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