A new Tax Foundation analysis of workers' tax burdens in the 34 countries of the Organization for Economic Co-operation and Development shows that 31.3 percent of the average American worker's wages go to federal taxes - $16,658 on average in 2013, with $8,196 of that going toward individual income taxes and $8,462 in payroll taxes from both employers and employees.
This puts the United States below the OECD average of 36 percent. But it remains troubling that despite economies of scale, technological efficiency, and the fact that America's corner of the world is relatively safe from major military invasions, the U.S. government lays an effective tax rate on labor about 50 percent higher than Israel's and South Korea's, and 100 percent higher than New Zealand's. Despite its high rates, Washington still compiles enormous annual deficits.
Nearly everyone, including almost all libertarians, accepts that some taxation is necessary and that government has legitimate duties to fulfill, such as national defense, police and fire services, and a safety-net to prevent needless suffering among the indigent. But for their money, Americans are currently getting a federal government that tries to do far too much, exercising life-or-death powers over entire areas of the economy, including health care, agriculture, retirement security and energy, while neglecting core functions like infrastructure and veterans' care and benefits. This brand of big government comes with a big price tag - it places a heavy drag on the economy, wasting economic capital that could be better allocated by the free market.
Nobody would ever expect Congress or the federal bureaucracy to develop the next smartphone or popular app, to choose which sports leagues should be established or which obscure organic fruit should be shipped to grocers in large numbers as the next big food craze. That's because politicians lack the ability to direct society's efforts and continuous comprehensive knowledge of the aggregate choices of consumers and producers who earnestly pursue their own self-interest.
One can only imagine how much more prosperous and dynamic the U.S. economy would be if, say, only a quarter of workers' money were being sucked in by government instead of one-third. Even worse, as the ongoing IRS scandal demonstrates, over-taxation is more than just an expensive drag on economic growth. It can also become an opportunity for political oppression.
It's bad enough that ordinary citizens seeking to pool their money for a cause must endure a tedious bureaucratic government application process for nonprofit status, lest their money be taxed twice. It's much worse that these groups, their donors, and possibly a sitting U.S. senator have recently been singled out by malicious IRS bureaucrats for rough treatment due to their political views. The IRS has also been used as a bureaucratic tool to harass government whistleblowers.
The Tax Foundation report is a reminder that although things could be worse -- think France or Belgium -- American government costs too much and U.S. workers deserve a simpler, fairer and more just tax structure than they have now. Let the reforms begin now.