Feb 27

The following guest article is from the folk at CreditcardCompare.com.au.

Every taxpayer, at some time or other, tends to feel that taxes are too high and long to live somewhere with lower taxes. For residents of five countries, in particular, that feeling is justified. To understand this, it’s helpful to look at the five countries where residents pay the most tax, and why taxes are so high in these countries.

These Countries are Extremely Expensive Places in Terms of Tax

Denmark (48.2%)

Denmark collects 48.2% of GDP in tax revenues, making it the most expensive country for taxpayers. The primary reason for this high percentage of taxes in Denmark is the country’s extremely large public sector. Denmark employs more public sector employees than almost any other country, at 30% of the country’s full-time workers. By comparison, the public sector in the U.S. makes up only 8% of full-time workers. The larger the public sector, the higher the tax revenues required to support it.

Sweden (46.2%)

Sweden follows closely on Denmark, with tax revenues at 46.2% of GDP. Sweden’s commitment to social services explain the high tax rate. All Swedes are guaranteed a fully paid education from age six, and a basic pension guaranteed to all citizens in their upper years. Heavily subsidized healthcare adds to the tax burden, but increases the social services available to Swedish citizens. On the other hand, Sweden has an elegantly simple tax collection system. In many cases, filing an annual return requires only a text message to the Swedish Tax Agency.

Italy (43.5%)

Italy falls third in the five highest taxing countries, at 43.5% of GDP collected as tax revenues. Like Sweden, Italy provides numerous social services to citizens. Pension payments alone cost the government 14% of GDP. Unfortunately for Italians, tax rates are probably about to go up as the government struggles to climb out from under staggering debt and balance Italy’s budget.

Belgium (43.2%)

Belgium practically ties Italy, with tax revenues reaching 43.2% of GDP. Belgium spends a great deal of money on health care for citizens. The Belgian constitution guarantees all Belgians’ right to health and the government pays for most of citizens’ healthcare. Belgians pay only a small fee for their healthcare. Belgian tax revenues also must cover infrastructure expenses and subsidies to various industries.

Finland (43.1%)

Falling fifth in the lineup is Finland, with tax revenues at 43.1% of GDP. Finland’s healthcare and social security systems are very good, and require a high tax rate to cover the government’s costs. The education system in Finland, which is also quite expensive, is considered the best in Europe.

Notice the Trend?

These countries are all European, with three of them being Scandinavian countries. Four of them are northern European countries, with Italy (currently struggling with its own sovereign debt problem) being the sole representative of the southern European nations.

Analyzing these five countries’ tax rates and the reasons for those high rates of taxation, one thing becomes clear. The five countries that tax their citizens most highly also return much of that revenue to their citizens in the form of social services. It’s worth noting that two of these countries feature in the list of ten best places in the world to live for maternity leave with Sweden and Denmark paying up to 80% and 100% of salary respectively according to “10 Best & Worst Countries In The World For Paid Maternity Leave.”

Caveats

There are some caveats to the observation that the taxation pays for human services.

Denmark actually employees 30% of the workers in the country, providing not only services but an income to those public sector workers. It could be argued that this large public sector workforce is motivated by the same spirit and ideals as the social services in the other four countries.

Italy provides generous social services to employees, like Sweden, Belgium and Finland. However, a portion of Italy’s tax revenues also go toward reducing the country’s considerable debt and balancing the budget.

Belgium does devote some tax revenues to infrastructure and industry subsidies, which contribute to higher taxes. The guarantee of a right to health, however, means that Belgium spends a considerable amount of its tax revenues on social services.

It is interesting to note that the countries with the highest tax rates seem to devote much of that tax revenue to providing services for citizens. This conclusion may be unexpected by some individuals who expect higher taxes to result in more government waste or spending on such sectors as military.

For those who might have originally been glad to not live in one of the five countries with the highest taxes, the benefits of citizenship in these countries may now be clearer.

written by Joe \\ tags: , ,

Sep 28

A few weeks back I was invited to join a number of bloggers who would be writing for a new web site Currency, by American Express.

I was very happy to be part of such a group as I was familiar with many of the others who would be writing. I have to say, I have a soft spot in my heart for AMEX. While I was still in school, my godfather trusted me with a Gold American Express Card which I was welcome to use as needed and I could pay him when the bill came in. This was my first experience with credit and at the time, the AMEX card did not have credit you could carry month to month. The bill was due within a few weeks of receipt. Period.

I’ve always felt that credit is a tool which can be used wisely or foolishly. In and of itself, it neither good or bad. Whenever I run into the “credit cards are evil” type, I remind them that I get rewards at no expense to me, whether it be the miles on my Citibank AMEX card (getting American Airline miles) or the American Express Open card that gives my 5% at office supply stores and 3% on gas purchases. My first post at Currency is Understanding Marginal Tax Cuts. Take a look and let my friends at American Express know what you think.

FTC disclaimer – I am paid for blog posts I author for the currency site. This post was not compensated.

Joe

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Sep 21

One financial term often used, but not always understood, is ‘Marginal Tax Rate’ or Marginal Rate for short. It’s used so often that financial writers take its meaning for granted. Today, in a guest post at Bible Money Matters, I offer What Is A Marginal Tax Rate, And How Can You Use It To Save? Please visit and let me know what you think, I’ll stop by as well to answer any questions that you may have.

If you are a reader from Canada, why not visit my fellow Money Maven Tom Drake’s site Canadian Finance Blog and read Marginal Tax Rates Explained.

Happy Monday,
Joe

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Dec 29

A few thoughts as the year comes to a close:
Fairmark has updated to reflect the 2009 rates, and it’s worth a look. Quite a few updates to note, personal exemption and standard deduction have both gone up, as expected, creating an $18,700 “zero bracket” amount. If you retire today with no other taxable income this represents a 4% withdrawal rate from a sum of $467,500 saved pretax. I’ve written a bit about the pre tax vs post tax investment discussion and this adds to that.

Next, each tax bracket has shifted, so inflation won’t add to your tax burden. See the charts.

Last item I’d point out – 401(k) limits have gone up, $16,500 for under 50 yrs old, and $22,000 for those 50 and older in 2009. IRA limits have not changed, $5,000 and $6,000 respectively.

One more post, and we say goodbye to 2009.
Joe

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Sep 05

Back in July, I wrote a post “Loving That Roth” where I discussed why the Roth account was a great deal for a select portion of savers. I went on to discuss how few people could save their way into a higher tax bracket and that the use of a Roth 401(k) should be considered very carefully as it would ignore the lower rate most of us will retire into. A fellow blogger posting under the moniker jIM_Ohio shares my view, offering his own brief post last month, “The 15% tax retirement account“. As I look at Jim’s post, I realize its brevity is its strength. I tend to offer much data to support my views and often that obfuscates the issue at hand. To the other extreme, I offer the article, “Thinking About a Roth 401k Think Again” from the Journal of Financial Planning.

The JFP article closes with “Those properties [of Roth compared to traditional 401(k)] indicate that for most moderately affluent wage earners, today’s marginal tax rates and the associated government subsidy for retirement contributions are likely to markedly exceed effective tax rates tomorrow, when that subsidy must be cashed out.”

Anyone interested in the Roth vs Traditional 401(k) or IRA discussion should read the article from JFP, and decide how to approach their own situation. As I’ve stated prior, their are few absolutes in financial matters. When I shared my thoughts in one forum and suggested that Roth was appropriate for maybe 5% of people currently working, I was told that the particular forum only contained a selection of high income people who saved above average, that most of that group would benefit from Roth. It reminded me of surveys that showed that 10% of people believed they were in the top 1% of earners. And all of their children were above average.

Joe

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