TAXES IN THE USA VS. TAXES IN FRANCE: WHAT ARE THE DIFFERENCES?

 TAXES IN THE USA VS. TAXES IN FRANCE: WHAT ARE THE DIFFERENCES?

Surprisingly, and contrary to popular belief, taxes in the US are at the bottom of the scale compared to many other developed countries. The Tax Foundation , an independent organization, conducted a comparative analysis of US taxes based on income in October 2019. The United States ranked 32nd out of a list of 41 countries.

Given that taxes account for nearly a quarter of US GDP, the tax authorities have been looking into the issue, as the average for other OECD member countries is around 34%. In France, as in Denmark, Belgium, and Sweden, taxes climb to 40%. In Europe, only Ireland has a tax rate similar to the United States.

Income tax in the United States

Considering taxes in the US as a percentage of US GDP is one way to look at things. However, the question changes if we limit ourselves to income tax.

In 2019, income tax constituted a significant portion of U.S. federal revenue (nearly half). Corporate taxes, on the other hand, represented only 7% of revenue. Analyzing the trend, we observe that income tax in the United States is on the decline. Indeed, nearly 7 out of 10 households paid less tax in 2019 than in 2018 or 2017. The reason for this is largely attributable to the Tax Cuts and Jobs Act (TCJA). This law, in fact, allowed many Americans to benefit from tax cuts. As a result, the average American household was able to increase its income by approximately $1,300 after the law took effect.

For the period 2018-2025, the U.S. income tax rate fell to 37% under the TCJA. Only individuals with incomes in the highest bracket pay this rate.

Additionally, the law doubled standard deductions while increasing the value of some tax credits, while imposing stricter limits on some deductions. Overall, however, the 2018 tax reform benefited many Americans.

Social programs

Comparing taxes in the United States with those in another country like France presents some challenges. Indeed, in many countries, the tax burden is high, and a large portion of the revenue is returned to the public in the form of services, the amount of which is equal to or marginally higher than that paid in the United States.

According to the Tax Policy Center, the US imposes fewer taxes on so-called "social" programs than the OECD average, at 25% (compared to an OECD average of 26%). These taxes include retirement and disability benefits, Social Security, and unemployment benefits.

Indirect taxes

Products and services that are subject to indirect taxes in the U.S., such as gasoline, tobacco, and alcohol, are generally taxed at the state level in the United States. At the local level, they are an integral part of the purchase price paid by consumers.

VAT, on the other hand, is imposed on all OECD member countries except the United States. The issue is currently the subject of debate.

Generally speaking, taxes on goods and services in the United States are lower than in other OECD countries. These taxes account for 18% of revenue, compared to 32% in other OECD countries.

France, the leading country in the world with the highest taxes as a percentage of GDP, introduced VAT in the 1950s. This is not the case for other countries, such as China, which announced in early 2018 that its VAT rate would be reduced to 1%.

Taxes in the USA: a complex system

While taxes in the US are considered low, they are nonetheless truly complex. Among developed countries, the United States has one of the most complex tax systems. According to TR Reid, an American author who has studied the issue, Americans currently spend more than 6 billion hours preparing and filing their taxes each year. By comparison, a Japanese person spends only 15 minutes on their annual tax return. In the US, professionals are paid $10 billion each year to free themselves from this tedious and time-consuming task. This figure does not take into account the approximately $2 billion spent each year on tax preparation software.

To decipher the tax system in the USA and better understand it, contact a French-speaking professional who will be able to advise you.