Thursday, February 22, 2007

The Myth of High Taxes

Living in the USA, we hear frequently about is the exorbitant taxes that European countries levy on their residents to pay for their high spending on social services and socialized medicine. Perhaps it is still a leftover of the reason why we started our own country in separating from England in the 1770s. I can't claim to be an expert on all European countries or even the Finnish system as I've not even been here four months. But, from what I've seen, I think Americans are not being told the truth.

If you google "high european taxes myth", you will get a variety of different opinions about the topic. It's not the purpose of this post to go into a detailed analysis of these arguments pro and con.

At the beginning of the year, I filled out a form to the government of my expected yearly income. Shortly in the mail, I was returned a statement saying what my tax rate would be. The higher your salary, the greater the rate. I pay 38%, which is deducted from my monthly pay. Supposedly, there are no accountants or 1040 forms to fill out. At the end of the year, the government bills me or refunds me the difference between the estimated tax and the actual tax they should have collected.

Compare to the USA, where I pay 28%, I think, in federal taxes. State taxes to Oklahoma are about 6%, for a total of 34%, or not substantially different than in Finland.

What do you get for that extra 4%? One thing you can collect if you are a parent is paternity/maternity leave pay. One of my PhD students, Erik, is home with his son for two months now. Apparently, you are entitled to paternity/maternity leave for a period of time, and can collect a substantial fraction of your salary while on paternity/maternity leave from the government. Another thing is the health care system you've heard about. I haven't needed it, so I don't know how good it is.

You rarely see homeless people. The social support system tends not to allow it to happen, from what I am told. (I did have a man ask for me for money in Finnish while I waited for the train one morning. When I told him I spoke English, he said, "Can you give me 50 cents to buy a wine bottle, I mean food." Oops, sorry buddy. Better practice your translation for the summer travel season!)

One big difference is the sales tax or VAT, 22% in Finland, compared to sales tax in most states which is 5-8%. In Finland, the VAT is included in the price of things, so you don't even notice that it's there. So, prices are a bit higher, but the standard of living is higher in general for most people and the difference between the rich and poor seems to be less.

So, if you hear about high taxes in Europe compared to the US, there is another side to the story.


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