Donald Trump’s cuts push US tax burden to low level

Donald Trump’s 2017 tax cuts have reduced the US tax burden to one of the lowest levels among major world economies.

US President Donald Trump Picture: AFP

Donald Trump’s 2017 tax cuts reduced the US tax burden to one of the lowest among major world economies, according to a report on Thursday by an intergovernmental organisation.

US tax burdens dropped by the largest amount among those countries last year, and the US now has lower taxes than all but three countries in the Organisation for Economic Co-operation and Development, the report said.

Driven by the federal tax cut that congress and Mr Trump enacted at the end of 2017, US taxes at all levels of government fell to 24.3 per cent of gross domestic product in 2018, down from 26.8 per cent a year earlier and 25.9 per cent in 2016.

That 2.5 percentage-point drop was only the fourth time since 1995 that any country’s tax burden has declined by at least that much in one year excluding the global financial crisis, according to OECD, an intergovernmental economic organisation with 36 member countries including the US.

The steepness of the decline stemmed partly from an increase in 2017, when a one-time tax from the 2017 law was counted as revenue that year.

Measured as a share of the US economy, taxes are now 10 percentage points below the 2018 OECD average of 34.3 per cent. Among 34 countries with preliminary 2018 data, the US tax burden is lower than everywhere except Chile, Ireland and Mexico. The tax cut drove US taxes below Turkey’s, and taxes in France and Denmark are now nearly twice what they are in the US. The 2018 data mark the culmination of nearly two decades of tax-cutting in the US, starting with president George W. Bush’s tax cuts in 2001 and 2003. Congress let some of those tax cuts expire at the end of 2012, during Barack Obama’s administration, and raised some taxes on high-income households.

The net effect of fiscal policy this century has been lower taxes and bigger budget deficits.

In 2000, just before the Bush tax cuts and a recession, US governments collected 28.3 per cent of GDP in taxes, 5.5 percentage points below the OECD average. Then, the US was closer to the middle of the pack, with higher taxes than Switzerland, South Korea and Japan.

The US fiscal system operates differently from those in much of the rest of the world. Other nations rely on value-added taxes to finance universal social benefits, including healthcare and parental leave. The US also relies more on state and local tax collections than many other countries do.

Treasury Secretary Steven Mnuchin, who was testifying on Thursday before the House ­Financial Services Committee, separately said he was working with the IRS to release data showing the percentage of households by income group that were under audit.

Asked about a sharp drop in audits of the highest-income households last year, Mr Mnuchin said the data only showed how many audits were closed. A more useful metric was what percentage of households were under audit, he argued, and that would show an increase in audits of high-income households.