Taxation/Addendum

The development of modern tax systems

Modern tax systems had their origins in the 18th century in the United States and in Britain, and have since evolved piecemeal until they have become so complex that they are fully understood only by highly-trained specialists. Tax revenues in the developed countries now amount, typically, to 30 to 40 per cent of GDP, compared with 10 to 15 per cent at the beginning of the 20th century. The following paragraphs indicate some of the variations that have typically been adopted.

Components of taxation

Personal income tax

Personal income tax accounts for about 25 per cent of the average tax receipts of the OECD countries. Taxable income is defined in a variety of ways, with many different allowances, exemptions and deductions. Tax rates are generally progressive, usually starting after a tax-free range for the lowest incomes, and followed by a sequence of higher rates as successive "thresholds" are exceeded, to reach maximum (and marginal) rates that are mostly between 40 per cent and 60 per cent . Income from investments and income from employment are sometimes treated differently and there is sometimes special treatment for the elderly.

Corporate income tax

Corporate income tax accounts for about 11 per cent of the average tax receipts of the OECD countries and tax rates are mainly between 15 per cent and 35 percent . As for personal taxation, many different ways of defining taxable income have been adopted, often with allowances for depreciation or research and development and with "tax breaks" for selected commercial activities.

Social security contributions

Social security contributions account for about 24 per cent of the average tax receipts of the OECD countries

Taxes on consumption

Taxes on consumption account for about 25 per cent of the average tax receipts of the OECD countries