7 ms·

Taxes per Person

25 points by cwan 17y ago

houseabsolute 17y ago
I don't understand why GDP is part of this calculation. It can be done more directly with (taxes/persons). Also, although greater taxes may depress GDP somewhat, there are other factors at play that makes the U.S. the home of the most productive workers. I still think the more interesting metric is tax burden as a proportion of total income, not absolute taxes paid per person.
ErrantX 17y ago
Im not convinced by those figures; it doesn't reflect my experience of paying tax here in the uk (for example: I am above averagely paid and still not hitting the 13,000 quoted here)
- gjm11 17y ago
  He's looking at total tax revenues. Some things you might not be taking into account, from most likely to least: 1. Corporation tax. You wouldn't be paying that directly. 2. Value added tax. You do pay that kinda-directly, every time you buy something with VAT on it, but unless you keep more careful records than most people it's hard to assess just how much you pay. 3. National insurance. Effectively an addition to income tax that doesn't get reported as income tax and that (unlike income tax) is regressive rather than progressive. Back of envelope: Consider someone paid £30k/year (modestly above the national average). They'll pay about £7k in income tax and a bit less than £3k in national insurance. The corporation tax rate is comparable to the income tax rate, and nationally profits are something like half of wages, so probably this person's share (so to speak) of their employer's corporation tax is about £3k or so. Call it £3k. This person's take-home pay is about £20k. Perhaps half of that will go to things like food, utility bills, mortgage/rent payments, etc., that aren't subject to VAT, leaving £10k; perhaps they'll manage to invest £3k of that, leaving £7k; then VAT at 17.5% on the remainder is about another £1k. So, crude estimate: this person accounts for about £14k of tax. That seems to fit well enough with Mankiw's figures.
  - ErrantX 17y ago
    Ah gotcha. I included NI but not the other two. Based on the tax I'm paying currently your figures do seem about right. EDIT: actually your income tax figure might be a bit high. I'd say it's about 4.5-5K
    - gjm11 17y ago
      Personal allowance is ~£6.5k, leaving £23.5k. Then basic rate is 20% of that which is, er, £4.7k. I have absolutely no idea where I got £7k from. Sorry about that. So yes, my numbers are too high by ~£2k. So presumably it matters that I didn't include some other more obscure taxes -- inheritance tax, stamp duty, import duties, etc. Key point: there are lots and lots of taxes, and what Mankiw is looking at is the ratio of total tax revenue to GDP, or population, or whatever.
      - ErrantX 17y ago
        Oh yes, sorry, I wasn't querying the total :) just thinking out loud as it were. (thinking tangentially are we including employers contribution to NI as individuals tax? because that could account for any defecit)
        gjm11 17y ago
        I was deliberately not including it, because I was thinking the employer's contribution is quite a bit smaller than the employee's. But I was wrong; they're about the same size.
        ErrantX 17y ago
        Yeh that surprised me too. I found a nifty tool to help work it all out actually: http://listentotaxman.com/ http://listentotaxman.com/
- fhars 17y ago
  You forgot to take VAT and other indirect taxes into account.
gjm11 17y ago
By the definition Mankiw is offering: 1. a vastly rich country with GDP $1M/person and taxes at 2% of GDP would be a "high tax country"; 2. an impoverished country with GDP $1k/person and takes at 99% of GDP would be a "low tax country". Mankiw's only justification for this is that "high tax rates tend to depress GDP". Perhaps they do, but it seems to me that his proposal waaay overcompensates for any such effect. The question of whether moderately higher tax rates depress GDP at all seems to be controversial among economists, which seems like good evidence that they don't depress GDP much.
- esspem 17y ago
  What would you say about this correlation between GDP growth and government spending? http://mol-eng.com/growthsm.png http://mol-eng.com/growthsm.png (taken from: http://www.foresight.org/nanodot/?p=3012 http://www.foresight.org/nanodot/?p=3012 )
  - encoderer 17y ago
    I'd say that there's a lot more variables that you didn't control. It seems fair to say that a big contributor to our economic success in the 50's and 60's was due to every other first world nation having been reduced to rubble in the 1940s. Manufacturing and innovation in Japan and Europe didn't really roar back until the late 60s and 70s.
    - yummyfajitas 17y ago
      That chart looks at all countries in the OECD (not just the US) and also looks at the 60's and 70's (not the 50's).
  - gjm11 17y ago
    Not very much until I know the source of the data and whether I can actually trust it. However, it's certainly not inconceivable that such a correlation might be highly misleading. Here are two simple thought experiments to illustrate this. 1. Suppose that in every country, in every year GDP growth is exactly proportional to government spending the previous year. In other words, spending more produces immediate GDP gains. And suppose that government spending generally changes quite slowly, within certain limits. Then low spending at the start of a decade will correlate with increasing spending over the decade (because of regression to the mean) and therefore with increasing GDP growth over the decade (because of the assumed relationship between spending and GDP growth). So we'll get a graph rather like that one despite the fact that the real relationship between spending and GDP growth is positive. 2. Suppose that GDP growth is entirely independent of government spending, and that it depends on some other characteristics of a country; that high-growth countries tend also to be rich ones (as they would, having grown faster in the past); that all countries would (with equal patterns of taxation and government spending) have roughly equal levels of inequality, so that poorer countries have more really poor people; and that government spending is dominated by attempts to give the poorest people a decent life. Then the poorer countries will spend more, because they have more people who need government assistance to keep out of severe poverty; they will also have less growth (by our assumptions); so we'll see a correlation like the one in the graph, even though there is (by assumption) no causal relationship between government spending and GDP growth. Of course these are both likely to be much simpler than the truth. But then, so is the model you're implicitly relying on if you point to the graph and say "see, government spending inhibits growth" without further analysis. (That model would be something like: GDP growth is purely a function of government spending over the previous decade, and nothing else.)
ytilibitapmoc 17y ago
I thought the comment at http://www.bigstartups.com/wac6/blog/1273/Will-the-Last-Startup-Leaving-Dodds-America http://www.bigstartups.com/wac6/blog/1273/Will-the-Last-Star... by "heretic" was someone merely trolling the comments. However using the equation and data sets from this blog post (http://gregmankiw.blogspot.com/2010/03/taxes-per-person.html http://gregmankiw.blogspot.com/2010/03/taxes-per-person.html) results in: * Ireland: 34.0% × 39,441 = 13,409.9 * New Zealand: 36.5% × 26,625 = 9,718.1 Add to the above data that both countries score better than the United States in the Economist Intelligence Unit's "Democracy Index" (http://en.wikipedia.org/wiki/Democracy_Index http://en.wikipedia.org/wiki/Democracy_Index), the Reporters Without Borders "Press Freedom Index" (http://en.wikipedia.org/wiki/Worldwide_Press_Freedom_Index http://en.wikipedia.org/wiki/Worldwide_Press_Freedom_Index), and the Transparency International "Corruption Perceptions Index" (http://en.wikipedia.org/wiki/Corruption_Perceptions_Index http://en.wikipedia.org/wiki/Corruption_Perceptions_Index). The only bright spot for the United States are the two indices of economic freedom: the Heritage Foundation's "Index of Economic Freedom" (http://en.wikipedia.org/wiki/Index_of_Economic_Freedom http://en.wikipedia.org/wiki/Index_of_Economic_Freedom) and the Fraser Institute's "Economic Freedom of the World" (http://en.wikipedia.org/wiki/Economic_Freedom_of_the_World http://en.wikipedia.org/wiki/Economic_Freedom_of_the_World); wherein Ireland and New Zealand alternate in bracketing the United States. I'm beginning to think "heretic" wasn't trolling the comments.
DougWebb 17y ago
A professor of economics ought to know that if your equation is x/y * y/z, then it doesn't matter at all what Y is. He could use anything he wants for GDP and it won't make a difference in the result. A more interesting point, which I think he was trying to get at, is the idea that US citizens pay around the same taxes per person as other countries, but we produce a much higher GDP per person. We're more productive. Is that good or bad? Is it cause or effect? Discuss.
- mseebach 17y ago
  I think the point is that x/y and y/z is the readily available input data.
fakelvis 17y ago
I wanted to see the results of this calculation for more countries. Using the data available on the Wikipedia entries Mankiw used I have created a Google spreadsheet: https://spreadsheets.google.com/ccc?key=0ApvbK1Yd5hPzdFhSZVZQdUpsSmZfLUl6Z2lOWS1ZblE&hl=en_GB https://spreadsheets.google.com/ccc?key=0ApvbK1Yd5hPzdFhSZVZ... It has the information for all the countries listed. OECD average for tax revenue as a percentage of GDP is 36.0 -- I have not calculated the OECD average for GDP per capita.
TorKlingberg 17y ago
I think his idea is to measure how much tax income the government has per person, which basically means how much money it can spend on services per person. The problem is that goverment costs for the same services differ. I imagine a doctor in the U.S. cost more than a doctor in Italy, so 12,478 in Italy can pay for more doctor time than 13,097 in the U.S. His tax level measure is also very sensitive to currency valuations. If the U.S. dollar goes up, then the tax level relative to other countries will appear to go up, even though the economy has not actually changed.
- adnam 17y ago
  What's incredible is that Americans pay all these taxes, but get few of the benefits. The average UK citizen pays $617 more tax, but gets healthcare, and decent public infrastructure (see ASCE's infrastructurereportcard.org). Also, US healthcare eats up 16% of GDP, compared to ~10% in the UK and ~12% in France (source: Economist).
  - anamax 17y ago
    > Also, US healthcare eats up 16% of GDP, compared to ~10% in the UK and ~12% in France (source: Economist). Would you rather live in a country with $1M/person GDP that spends 50% on healthcare or one with $1K/person GDP that spends 5% on healthcare? Feel free to assume equal lifespans. I ask because that difference in healthcare spending is dwarfed by the difference in after-tax income. Also, the US spends a lot of money on things that those other countries don't, specifically obesity and "right before death" spending. The former can't be reduced with healthcare spending and the latter is a choice, albeit one that doesn't significantly affect lifespan. However, changing it is "treating grandma as shovel-ready".
pw0ncakes 17y ago
Why does anyone think comparing tax rates across countries makes any kind of point? The methods of taxation, and the benefits provided, are different across countries. Europeans pay higher taxes. They also get a lot more in terms of government services. I'd gladly pay 7-10% more in taxes for cheap transporation, free healthcare, and free higher education in this country. Few Europeans, except for rich right-wing assholes, seriously complain that they pay too much in taxes (aside from the nonspecific gripe that everyone has against taxes). If anything, we pay too much in taxes in the US when you consider how little we get and how much is squandered (e.g. the Iraq war).
jkmcf 17y ago
The problem with taxes per person is it doesn't take into account how a country spends its money. If, as a percentage, we spent as little on the military as those other countries our taxes per person would drop significantly.
SnoopDougieDoug 17y ago
If what matters is the money you take home at the end of the day, the USA is still vastly superior to any other countries in his list. If you look at the % of USA GPD/Person and compare that against the % of USA take-home/person, only Japan has an increase (from 70.7% to 71.4%). What does this mean? That it's pretty d@mned good to live in high-income/low taxes USA. I'm going to take a look at the rest of the G8 countries.

25 points by cwan 17y ago

I don't understand why GDP is part of this calculation. It can be done more directly with (taxes/persons). Also, although greater taxes may depress GDP somewhat, there are other factors at play that makes the U.S. the home of the most productive workers. I still think the more interesting metric is tax burden as a proportion of total income, not absolute taxes paid per person.

ErrantX 17y ago

Im not convinced by those figures; it doesn't reflect my experience of paying tax here in the uk (for example: I am above averagely paid and still not hitting the 13,000 quoted here)

gjm11 17y ago
He's looking at total tax revenues. Some things you might not be taking into account, from most likely to least: 1. Corporation tax. You wouldn't be paying that directly. 2. Value added tax. You do pay that kinda-directly, every time you buy something with VAT on it, but unless you keep more careful records than most people it's hard to assess just how much you pay. 3. National insurance. Effectively an addition to income tax that doesn't get reported as income tax and that (unlike income tax) is regressive rather than progressive. Back of envelope: Consider someone paid £30k/year (modestly above the national average). They'll pay about £7k in income tax and a bit less than £3k in national insurance. The corporation tax rate is comparable to the income tax rate, and nationally profits are something like half of wages, so probably this person's share (so to speak) of their employer's corporation tax is about £3k or so. Call it £3k. This person's take-home pay is about £20k. Perhaps half of that will go to things like food, utility bills, mortgage/rent payments, etc., that aren't subject to VAT, leaving £10k; perhaps they'll manage to invest £3k of that, leaving £7k; then VAT at 17.5% on the remainder is about another £1k. So, crude estimate: this person accounts for about £14k of tax. That seems to fit well enough with Mankiw's figures.
- ErrantX 17y ago
  Ah gotcha. I included NI but not the other two. Based on the tax I'm paying currently your figures do seem about right. EDIT: actually your income tax figure might be a bit high. I'd say it's about 4.5-5K
  - gjm11 17y ago
    Personal allowance is ~£6.5k, leaving £23.5k. Then basic rate is 20% of that which is, er, £4.7k. I have absolutely no idea where I got £7k from. Sorry about that. So yes, my numbers are too high by ~£2k. So presumably it matters that I didn't include some other more obscure taxes -- inheritance tax, stamp duty, import duties, etc. Key point: there are lots and lots of taxes, and what Mankiw is looking at is the ratio of total tax revenue to GDP, or population, or whatever.
    - ErrantX 17y ago
      Oh yes, sorry, I wasn't querying the total :) just thinking out loud as it were. (thinking tangentially are we including employers contribution to NI as individuals tax? because that could account for any defecit)
      - gjm11 17y ago
        I was deliberately not including it, because I was thinking the employer's contribution is quite a bit smaller than the employee's. But I was wrong; they're about the same size.
        ErrantX 17y ago
        Yeh that surprised me too. I found a nifty tool to help work it all out actually: http://listentotaxman.com/ http://listentotaxman.com/
fhars 17y ago
You forgot to take VAT and other indirect taxes into account.

gjm11 17y ago

By the definition Mankiw is offering: 1. a vastly rich country with GDP $1M/person and taxes at 2% of GDP would be a "high tax country"; 2. an impoverished country with GDP $1k/person and takes at 99% of GDP would be a "low tax country". Mankiw's only justification for this is that "high tax rates tend to depress GDP". Perhaps they do, but it seems to me that his proposal waaay overcompensates for any such effect. The question of whether moderately higher tax rates depress GDP at all seems to be controversial among economists, which seems like good evidence that they don't depress GDP much.

esspem 17y ago
What would you say about this correlation between GDP growth and government spending? http://mol-eng.com/growthsm.png http://mol-eng.com/growthsm.png (taken from: http://www.foresight.org/nanodot/?p=3012 http://www.foresight.org/nanodot/?p=3012 )
- encoderer 17y ago
  I'd say that there's a lot more variables that you didn't control. It seems fair to say that a big contributor to our economic success in the 50's and 60's was due to every other first world nation having been reduced to rubble in the 1940s. Manufacturing and innovation in Japan and Europe didn't really roar back until the late 60s and 70s.
  - yummyfajitas 17y ago
    That chart looks at all countries in the OECD (not just the US) and also looks at the 60's and 70's (not the 50's).
- gjm11 17y ago
  Not very much until I know the source of the data and whether I can actually trust it. However, it's certainly not inconceivable that such a correlation might be highly misleading. Here are two simple thought experiments to illustrate this. 1. Suppose that in every country, in every year GDP growth is exactly proportional to government spending the previous year. In other words, spending more produces immediate GDP gains. And suppose that government spending generally changes quite slowly, within certain limits. Then low spending at the start of a decade will correlate with increasing spending over the decade (because of regression to the mean) and therefore with increasing GDP growth over the decade (because of the assumed relationship between spending and GDP growth). So we'll get a graph rather like that one despite the fact that the real relationship between spending and GDP growth is positive. 2. Suppose that GDP growth is entirely independent of government spending, and that it depends on some other characteristics of a country; that high-growth countries tend also to be rich ones (as they would, having grown faster in the past); that all countries would (with equal patterns of taxation and government spending) have roughly equal levels of inequality, so that poorer countries have more really poor people; and that government spending is dominated by attempts to give the poorest people a decent life. Then the poorer countries will spend more, because they have more people who need government assistance to keep out of severe poverty; they will also have less growth (by our assumptions); so we'll see a correlation like the one in the graph, even though there is (by assumption) no causal relationship between government spending and GDP growth. Of course these are both likely to be much simpler than the truth. But then, so is the model you're implicitly relying on if you point to the graph and say "see, government spending inhibits growth" without further analysis. (That model would be something like: GDP growth is purely a function of government spending over the previous decade, and nothing else.)

ytilibitapmoc 17y ago

I thought the comment at http://www.bigstartups.com/wac6/blog/1273/Will-the-Last-Startup-Leaving-Dodds-America http://www.bigstartups.com/wac6/blog/1273/Will-the-Last-Star... by "heretic" was someone merely trolling the comments. However using the equation and data sets from this blog post (http://gregmankiw.blogspot.com/2010/03/taxes-per-person.html http://gregmankiw.blogspot.com/2010/03/taxes-per-person.html) results in: * Ireland: 34.0% × 39,441 = 13,409.9 * New Zealand: 36.5% × 26,625 = 9,718.1 Add to the above data that both countries score better than the United States in the Economist Intelligence Unit's "Democracy Index" (http://en.wikipedia.org/wiki/Democracy_Index http://en.wikipedia.org/wiki/Democracy_Index), the Reporters Without Borders "Press Freedom Index" (http://en.wikipedia.org/wiki/Worldwide_Press_Freedom_Index http://en.wikipedia.org/wiki/Worldwide_Press_Freedom_Index), and the Transparency International "Corruption Perceptions Index" (http://en.wikipedia.org/wiki/Corruption_Perceptions_Index http://en.wikipedia.org/wiki/Corruption_Perceptions_Index). The only bright spot for the United States are the two indices of economic freedom: the Heritage Foundation's "Index of Economic Freedom" (http://en.wikipedia.org/wiki/Index_of_Economic_Freedom http://en.wikipedia.org/wiki/Index_of_Economic_Freedom) and the Fraser Institute's "Economic Freedom of the World" (http://en.wikipedia.org/wiki/Economic_Freedom_of_the_World http://en.wikipedia.org/wiki/Economic_Freedom_of_the_World); wherein Ireland and New Zealand alternate in bracketing the United States. I'm beginning to think "heretic" wasn't trolling the comments.

DougWebb 17y ago

A professor of economics ought to know that if your equation is x/y * y/z, then it doesn't matter at all what Y is. He could use anything he wants for GDP and it won't make a difference in the result. A more interesting point, which I think he was trying to get at, is the idea that US citizens pay around the same taxes per person as other countries, but we produce a much higher GDP per person. We're more productive. Is that good or bad? Is it cause or effect? Discuss.

mseebach 17y ago
I think the point is that x/y and y/z is the readily available input data.

fakelvis 17y ago

I wanted to see the results of this calculation for more countries. Using the data available on the Wikipedia entries Mankiw used I have created a Google spreadsheet: https://spreadsheets.google.com/ccc?key=0ApvbK1Yd5hPzdFhSZVZQdUpsSmZfLUl6Z2lOWS1ZblE&hl=en_GB https://spreadsheets.google.com/ccc?key=0ApvbK1Yd5hPzdFhSZVZ... It has the information for all the countries listed. OECD average for tax revenue as a percentage of GDP is 36.0 -- I have not calculated the OECD average for GDP per capita.

TorKlingberg 17y ago

I think his idea is to measure how much tax income the government has per person, which basically means how much money it can spend on services per person. The problem is that goverment costs for the same services differ. I imagine a doctor in the U.S. cost more than a doctor in Italy, so 12,478 in Italy can pay for more doctor time than 13,097 in the U.S. His tax level measure is also very sensitive to currency valuations. If the U.S. dollar goes up, then the tax level relative to other countries will appear to go up, even though the economy has not actually changed.

adnam 17y ago
What's incredible is that Americans pay all these taxes, but get few of the benefits. The average UK citizen pays $617 more tax, but gets healthcare, and decent public infrastructure (see ASCE's infrastructurereportcard.org). Also, US healthcare eats up 16% of GDP, compared to ~10% in the UK and ~12% in France (source: Economist).
- anamax 17y ago
  > Also, US healthcare eats up 16% of GDP, compared to ~10% in the UK and ~12% in France (source: Economist). Would you rather live in a country with $1M/person GDP that spends 50% on healthcare or one with $1K/person GDP that spends 5% on healthcare? Feel free to assume equal lifespans. I ask because that difference in healthcare spending is dwarfed by the difference in after-tax income. Also, the US spends a lot of money on things that those other countries don't, specifically obesity and "right before death" spending. The former can't be reduced with healthcare spending and the latter is a choice, albeit one that doesn't significantly affect lifespan. However, changing it is "treating grandma as shovel-ready".

pw0ncakes 17y ago

Why does anyone think comparing tax rates across countries makes any kind of point? The methods of taxation, and the benefits provided, are different across countries. Europeans pay higher taxes. They also get a lot more in terms of government services. I'd gladly pay 7-10% more in taxes for cheap transporation, free healthcare, and free higher education in this country. Few Europeans, except for rich right-wing assholes, seriously complain that they pay too much in taxes (aside from the nonspecific gripe that everyone has against taxes). If anything, we pay too much in taxes in the US when you consider how little we get and how much is squandered (e.g. the Iraq war).

jkmcf 17y ago

The problem with taxes per person is it doesn't take into account how a country spends its money. If, as a percentage, we spent as little on the military as those other countries our taxes per person would drop significantly.

SnoopDougieDoug 17y ago

If what matters is the money you take home at the end of the day, the USA is still vastly superior to any other countries in his list. If you look at the % of USA GPD/Person and compare that against the % of USA take-home/person, only Japan has an increase (from 70.7% to 71.4%). What does this mean? That it's pretty d@mned good to live in high-income/low taxes USA. I'm going to take a look at the rest of the G8 countries.