Norway: Higher Tax Rates Leading to Higher Tax Revenues
Hat tip to Brad DeLong for this:
Personally I see no need to omit Norway. I do see a need to plot the Norway point on the graph correctly. The revenues plotted on the vertical scale include oil excise taxes levied on corporations. The tax rates plotted on the horizontal scale do not–hence the Norway “tax rate” of 28% rather than the correct 52%.
Really? Yes – really:
Corporate income taxes are levied at a flat rate of 28% (a combination of 21.25% national tax, and 6.75% municipal tax). Also, employers contribute up to 16.7% of paid wages to the Social Security Scheme. Companies involved in oil or gas pay a special oil tax of 50% in addition to the standard 28%. All income from capital is taxable at 28%, except dividends, which are taxed at 11%.
This is a specific example of my general point:
The other thing is the comparison of C corporate profit taxes to GDP when corporate profits are not the only form of capital income. In 2006, US C corporate profits represented only 12.2% of US GDP but the share of capital income to GDP was much higher as there are several forms of capital income. And yes, interest income and S corporate profits are taxed – just differently. Our post had considered two aspects of the right-hand side variables: (1) are we measuring tax rates appropriately; and (2) are they other factors driving capital income and taxes from such income (such as oil revenues)? But the real issue is whether we should put any stock in looking at a subset of capital income when making cross-national comparisons?
Since Donald Luskin and the WSJ oped crew tried to make a case for the Laffer curve that depended critically on the Norway data point – one would think they would have gotten this key data point correct.
Update: This source compares total taxes as a share of GDP across the OECD nations and this U.S. comes out at the lower end. OK, Korea and Mexico have lower tax burdens but these two nations aren’t exactly beating us in per capita GDP. Table B shows taxes on income and corporate profits and the source provides some interesting details including this one on Ireland:
Table A shows that in 2005, Irish taxation as a percentage of GDP was 30.5% compared with 32.5% in 1995. However, because GDP includes the output of the multinational sector, which is very significant in Ireland (almost 90% of Irish exports are made by foreign-owned firms), it is more useful to use Gross National Product – the total value of final goods and services produced in a country plus income from Irish capital held abroad set-off against transfers of net earnings of multinationals – in effect net income outflows from Ireland. In Other OECD countries, there is only a marginal difference between GDP and GNP. We can see from Table C that the Irish tax burden has changed little since 1995. While personal taxes have fallen, indirect or stealth taxes have risen.
I offer this as AB reader Sammy has been spewing some Celtic Tiger mythology here with checking out what we wrote way back when. I have to admit I found this when Googling to see how Brad came up with the suggestion that the effective corporate tax rate in Norway was 52%. If the tax rate on oil profits was 78% and the tax rate on other profits was 28%, the weighted average would be 52% only if oil profits were 48% of the total. But it seems oil does represent 25% of GDP so this assumption about oil profits as a share of total profits being 48% is plausible. After all, the share of value-added accruing to profits for the oil sector are likely quite high relative to the shares in the other sectors of Norway’s economy.