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Government Revenues in U.S. Are Low by International Standards

November 2, 2011 at 4:02 PM
BY
Kathy Ruffing

I have already noted that government spending in the United States (as a percent of gross domestic product, or GDP) is below average for a developed country, using data from the Organisation for Economic Co-operation and Development (OECD).  Those data also show that government revenues in the United States are low by international standards.

That’s not just because of the economic downturn.  The United States is consistently one of the lowest-taxed countries in the OECD.

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Here’s what you need to know about the OECD figures:

  • They reflect collections by all levels of government.  In the United States, that means federal, state, and local.  (State and local government receipts — not counting federal grants for things like Medicaid and highways — are about a third of the total.)

  • The OECD uses the United Nations’ System of National Accounts (SNA), which measures the government sector differently than we do in our national statistics.  Most importantly, the SNAs count the charges that users pay for many public services, like state-university tuition and public-hospital fees, as government receipts.  As we explained before, such adjustments push up the SNAs’ measure of both spending and receipts by roughly 4 percent of GDP compared with the more familiar measure tallied by the Bureau of Economic Analysis (BEA) in the U.S. National Income and Product Accounts (see figure).

  • Whether using the BEA or OECD measures, government receipts dipped as a percent of GDP during the economic downturn.  That’s not surprising.  When people and businesses have less income due to a weak economy, they owe less in taxes.  Also, several of the temporary measures that President Obama and Congress adopted to spur recovery have reduced revenues, including tax credits and a payroll-tax holiday.  Revenues have since inched up from their recession low.


By the OECD’s broad measure, government revenues in the United States are about 5 to 6 percent of GDP below the OECD average, and about 13 percent below the average level among countries that have adopted the euro.  This country’s relatively low revenue levels are one reason — among several outlined here — why revenue increases need to be part of a balanced deficit-reduction package.

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