Wednesday, March 31, 2010

Is Harvard still a elite school?

Well, if Professor Greg Mankiw is representative of the lot, then Harvard is losing its lustre.

He wants to examine whether Americans are undertaxed compared to other developed economies.

He has taxes as a fraction of GDP.
France 0.461
Italy 0.426
Germany 0.406
UK 0.390
Spain 0.373
Canada 0.334
US 0.282
Japan 0.274

The meaningful figure is the taxes paid as a percentage of income, and no matter how many Americans there are or what their incomes are, the average tax burden is 28.2% of their income.  But since this does not suit Professor Mankiw's politics (i.e., he believes Americans are more than adequately taxed), he multiplies by the per capita income to get the actual $$ paid in taxes, and instead of being second from the bottom, the US moves to the middle of the pack - because US incomes are higher.

As Prof. Brad DeLong points out, using Mankiw's criteria, North Korea is a low-tax haven (even if they tax 100% of income), because even at a tax rate of 100%  they would pay only $1700 (PPP) per year while Americans pay $13,097 at at tax rate of 28.2%.