“Compared to 1990, OECD countries* have on average become more reliant on social insurance taxes (an increase of 1.9 percentage points) and less reliant on individual income taxes (a decrease of 6.3 percentage points). These policy changes matter. Social insurance taxes generally have broader bases and lower rates while taxes on personal income often have higher rates and can be more distortive to worker decisions.

The United States is the only country in the OECD with no value-added tax (VAT). Instead, most U.S. state governments and many local governments apply a retail sales tax on the final sale of products and excise taxes on the production of goods such as cigarettes and alcohol. The lack of a VAT makes the U.S. a bit of an outlier as it raises just 15.7 percent of total government revenue from consumption taxes while the OECD average is nearly twice that amount at 31.6 percent.”

— Tax Foundation, “Sources of Government Revenue in the OECD, 2024 Update” by Cecilia Perez Weigel, and Daniel Bunn.  March 18, 2024..

Check it out:

Broad-based taxes, such as Social Security, Medicare, and sales taxes, offer a relatively stable source of tax revenue. Individual taxes are less stable, because taxpayers - especially rich taxpayers - change their economic behavior to lower their reported income and hence tax load. Scaled up, these efforts to avoid taxes can depress economic output and growth, eroding the tax base further.

Unfortunately, many proposed fixes to the US national debt problem focus on raising income and capital gains taxes on the very affluent and rich. Politically and emotionally satisfying, perhaps, but the revenue proceeds are bound to disappoint. Besides the distortive and unpredictable effects of such taxes, there simply are not enough high-income taxpayers to fill tax coffers to the required level. To make a real dent in the national debt , the US government would have to increase broad-based taxes and maybe even introduce a value-added-tax.**

Of course, tax reform is only part of the solution. We’d also have to cut spending and make sure the economy keeps growing.

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* The OECD is the Organisation for Economic Cooperation and Development, a group of developed countries that share policy information.

** European taxes tend to be much higher overall than US taxes, but that’s mostly a function of their high broad-based social insurance and consumption taxes, per this table: