Monday, June 13, 2011

How high are Europe’s taxes?

Taxes      52.

That number symbolizes the burden that Dutch taxpayers bear: it’s the marginal tax rate for annual income above 50,000 euros.  It’s Exhibit A for my American friends concerned about the Dead Hand of Government and Creeping Socialism.

For them, bigger government == less freedom.  Or, as Reagan / Bush economic advisor Bruce Bartlett puts it, “the bigger government is as a share of G.D.P., the less freedom there is for the people (if government consumes, say, 40 percent of G.D.P., then people are only 60 percent free).”  He notes that US taxpayers contribute only 26% of GDP to taxes, while the Dutch give up 39%.

However, he posted an interesting counter-analysis in his NY Times blog Economix last week, asking What benefits do Europeans get for their higher taxes?  Two big answers were direct subsidies for early child care (parental leave, wellness, and family allowances) and health insurance.  In fact, once the cost of health care as a percentage of GDP is added in, the resulting figures are much closer:

health care

He’s a conservative, remember, yet he concludes

Middle-class Europeans get cash benefits from government that offset much of the tax burden in a way that the United States offers only for the poor. There may be reasons why it is better not to subsidize every family with children and not provide government health insurance for every citizen. But the idea that Europeans are enslaved by high taxes, as most American conservatives believe, is just nonsense.

I’ve got to applaud his intellectual honesty: if only the tea party folks could see as clearly.

Further, I have the 30% rule working for me in the Netherlands, where the first third of my income is free from all taxation.  I am taxed 25% on business profits (vs 35% in the US) and get VAT refunds as a small business.  In the end, I think I pay about 38% on my personal income in the Netherlands, less than I would in the US (and that is before I add in deductions in the US for Medicare and Social Security, which I don’t pay here).

The acid test is whether I owe a differential after taxes are computed against the same income in both the Netherlands and the US.  By the end of summer, I’ll know which way it flows: if I owe anything in the US, it’s because taxes are higher there.


IHateHerring said...

I'm planning on moving over to the netherlands this fall and I couldn't agree more with this post. From the Dutch people I have talked to, taxation really isn't that far off from what it is in the US, and the benefits are much greater. Dutch taxes on capital gains are also set at a much lower rate than the US ones.

Dave Hampton said...

The "30% Rule" makes a big difference if you can get it. I've taken some US income in through the Dutch corporation because the corpoate (25%) and personal (38%) taxes are more favorable here (at the moment...).