OECD-wide government tax revenues stall

The share of international tax revenues as a percentage of the economy stayed flat last year, breaking a trend of annually rising tax proceeds since 2009, following the financial crisis, new data from the Organisation for Economic Cooperation and Development shows.

The average tax-to-GDP ratio in OECD countries was 34.26% in 2018, virtually unchanged from the 34.24% in 2017.

The main reason for the stalling tax revenues was a 2.5 percentage point decline in the tax-to-GDP ratio of the US, as a result of the reforms introduced by the Tax Cuts and Jobs Act. The share of tax revenue of the annual economic production in the US is now 24.3%.

In comparison, the estimated equivalent government operating revenue as a share of GDP in Cayman was 19.5% in 2018, up from 18.1% in 2017.

US tax reform lowered the corporate tax rate from 38.9% in 2017 to 25.8% in 2018. It also reduced income tax rates and increased standard deductions and child tax credit.

This led to a 0.5 percentage point decrease in personal income tax revenues and a 0.7 percentage point decline on the corporate side. Property tax revenues fell by 1.3 percentage points, due to the one-off deemed repatriation tax on foreign earnings under the Tax Cuts and Jobs Act, which had increased property tax revenues in 2017, the OECD’s annual Revenue Statistics 2019 report said.

An analysis of Fortune 500 companies by the Institute on Taxation and Economic Policy shows that the effective tax rate for 379 profitable companies in the index last year was just 11.3%. In addition, 91 profitable companies paid no tax at all, mainly due to a whole host of tax breaks as well as reduced headline tax rates.

Taxes collected from businesses in the US dropped by 22% to $262.7 billion in fiscal year 2018, following $338.5 billion in 2017 and $345.6 billion in 2016. France had the highest tax-to-GDP ratio of 46.1% in 2018. Denmark, which had the highest tax-to-GDP ratio of OECD countries from 2002 to 2016, had the second-highest ratio in 2018 (44.9%). Meanwhile Mexico had the lowest ratio of 16.1%.

 

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