TAXES BAD-- Well, Hang On A Sec; Let's Figure This Out

This one's always bugged me a bit, and it's high time to put this to bed once and for all. If you've spent long enough in Internet political flamewars, inevitably you will eventually get into a row about taxes. Invariably, it will be driven by someone seeking lower taxes, for a variety of reasons personal and societal.

For a long time, they didn't have any real competition. After all, who wants to pay more taxes? In recent years, though, there has been an increase, however small, in people defending higher taxes, on the basis that without a certain amount of taxes, a country can't properly function. Invariably, this side will bring up Somalia as the low-taxes proxy and somewhere in Scandinavia, most likely Sweden, as the high-taxes proxy. And obviously you'd rather be living in Sweden than Somalia, right?

It's just that teeny, tiny sample size, though. And that's what's been bugging me. Without any further information, for all one knows Somalia and Sweden are strawmen.

So while I personally fall on the pro-taxes side of things- make of that what you will- it'd be nice to get some confirmation, disconfirmation, or even inconclusiveness.

So here's what we'll do. We'll tease out the sample size more. We'll take a larger set of global high and low tax rates; we'll use a top 20 on each side. That should be plenty enough. We will then compare the countries shown on a standard-of-living comparison, averaging the scores to provide a mean standard-of-living rating for the high-tax group and for the low-tax group.

Then, it's a simple matter of seeing who did better. Sound good? Good.

The first thing we must do, of course, is identify a pair of suitable data sets to use; we need something that compares a wide variety of countries based on the same set of data.

For tax rate, we will use the Heritage Foundation's 2010 Index of Economic Freedom, showing, among other things, tax revenue as a percentage of GDP. (They also have government spending as a percentage of GDP, but we'll shelve that for perhaps another day.) Somalia was not examined in this dataset, which is a mixed blessing. On one hand, it's bad, as we can't truly get the Somalia/Sweden faceoff this premise demands. On the other hand, even if Somalia assessed taxes, how would they expect to collect?

The Heritage Foundation would not, by the way, be my first choice of source, but the less-taxes crowd is more likely to be Republican and Libertarian, and they would be more willing to use the Heritage Foundation straightaway. So as far as representing a viewpoint, it's not as bad an option as you might think. (Besides, they have the widest variety of countries by several orders of magnitude; everyone else I saw only compared developed nations.)

For standard-of-living, we will use the United Nations 2009 Human Development Index (which was produced with 2007 numbers). They weren't able to get Somalia either, by the way.

We will set the rule that in order to be placed on the high-tax or low-tax list, you must first qualify by being listed on the 2009 Human Development Index list. That's because it would screw things up to try and figure out how or if to score a 'n/a' or if to use data from previous years or anything of the sort. I'll just disqualify the country. This is less about who specifically is on each list and more about how the ones that are on each list compare to each other.

Got all that? Great. Time to select our groups. With the disqualified countries noted, and there were two of them:

LOW-TAX GROUP
DISQUALIFIED: Iraq- "negligible", surely under that of the UAE but really it's academic
1. United Arab Emirates- tax revenue as a percentage of GDP is 1.0%
2. Equatorial Guinea- 1.7%
3. Qatar- 2.6%
4. Bahrain- 2.7%
5. Libya- 2.9%
6. Myanmar- 3.0%
7. Kuwait- 3.1%
8. Oman- 3.3%
9. Chad- 4.2%
10. Afghanistan- 5.2%
11. Congo-Brazzaville- 5.4%
12. Nigeria- 5.6%
13. Saudi Arabia- 5.6%
14. Iran- 6.1%
15. Angola- 6.2%
16. Haiti- 6.9%
17. Sudan- 7.0%
18. Central African Republic- 7.3%
19. Yemen- 7.3%
20. Algeria- 7.9%

HIGH-TAX GROUP
1. United Kingdom- 37.9%
2. Netherlands- 38.0%
3. Slovenia- 38.4%
4. Bosnia/Herzegovina- 38.5%
5. Hungary- 39.9%
6. Germany- 40.8%
7. Swaziland- 41.2%
8. Iceland- 41.4%
9. Cyprus- 41.6%
10. Austria- 41.9%
11. Finland- 43.1%
12. Italy- 43.3%
13. Norway- 43.4%
14. Cuba- 44.8%
15. France- 45.0%
16. Belgium- 46.1%
17. Sweden- 48.9%
18. Denmark- 49.5%
19. Lesotho- 54.3%
DISQUALIFIED- Kiribati- 69.7%
20. Timor-Leste- 133.9% (Because you are assuredly wondering where THAT number came from, the Heritage Foundation shows it "reflecting large tax revenues from petroleum projects in the Timor Sea.")

So we've got our field and we've got our teams. Now we carry that to the 2009 Human Development Index, and look at the scores our 40 countries got, along with their rankings (out of 182).

LOW-TAX GROUP
1. United Arab Emirates- HDI score is .903 (ranked 35th)
2. Equatorial Guinea- .719 (118th)
3. Qatar- .910 (33rd)
4. Bahrain- .895 (39th)
5. Libya- .847 (55th)
6. Myanmar- .586 (138th)
7. Kuwait- .916 (31st)
8. Oman- .846 (56th)
9. Chad- .392 (175th)
10. Afghanistan- .352 (181st)
11. Congo-Brazzaville- .601 (136th)
12. Nigeria- .511 (158th)
13. Saudi Arabia- .843 (59th)
14. Iran- .782 (88th)
15. Angola- .564 (143rd)
16. Haiti- .532 (149th)
17. Sudan- .531 (150th)
18. Central African Republic- .369 (179th)
19. Yemen- .575 (140th)
20. Algeria- .754 (104th)

HIGH-TAX GROUP
1. United Kingdom- .947 (21st)
2. Netherlands- .964 (6th)
3. Slovenia- .929 (29th)
4. Bosnia/Herzegovina- .812 (76th)
5. Hungary- .879 (43rd)
6. Germany- .947 (22nd)
7. Swaziland- .572 (142nd)
8. Iceland- .969 (3rd)
9. Cyprus- .914 (32nd)
10. Austria- .955 (14th)
11. Finland- .959 (12th)
12. Italy- .951 (18th)
13. Norway- .971 (1st)
14. Cuba- .863 (51st)
15. France- .961 (8th)
16. Belgium- .953 (17th)
17. Sweden- .963 (7th)
18. Denmark- .955 (16th)
19. Lesotho- .514 (156th)
20. Timor-Leste- .489 (162nd)

And now for the average scores.

The low-tax group, with an average of 4.75% tax revenue as a percentage of GDP, has a mean HDI score of .6714 (if placed in the HDI, they would collectively be somewhere between South Africa and Morocco), and a mean ranking of 108.35.

The high-tax group, with an average of 51.08% tax revenue as a percentage of GDP (albeit skewed high a bit by Timor-Leste), has a mean HDI score of .87335 (which if placed in the HDI table would get them between Chile and Croatia), and a mean ranking of 41.8.

The numbers pretty much speak for themselves, decisively in favor of the high-tax group.