Alright, if I haven't lost you yet because of the title of this month's Featured Indicator, then stay with me, I'm going somewhere with this...
It’s presidential election season and even if you desperately try to limit your media consumption to avoid the coverage of this year's highly contentious political season, you've probably heard the candidates or pundits talking about taxes - raising taxes, slashing taxes, overhauling the tax code, disbanding the IRS. With all this talk about taxes I did a little digging into different measures and sources of taxes and came across some interesting data compiled by the Tax Foundation.
The Tax Foundation is an independent tax policy research organization that covers everything from breaking down political candidates' tax plans and their effects on the economy, to state-by-state figures on the tax climate, collections per capita and other useful comparison statistics. The data that caught my attention was the latest breakdown on sources of government revenue in OECD countries.1
Being that the goal of the OECD is to fight poverty and support successful economic development policies in member nations, the organization’s data collection on economic indicators is robust. I’ve also covered internet access in OECD countries in another Featured Indicator here. The OECD data sets are vital for understanding how existing policies shape communities and help to guide how to best move towards a better economic future.
This particular indicator breaks down government revenue across different countries and the sources range from property tax, individual income taxes, taxes on corporations, social insurance taxes (like taxes taken out of wages for our Social Security program) or consumption taxes - those taxes on goods and services.
Analysis of tax revenue collected by OECD countries found that nearly 40% of the revenue collected by the United States is derived from individual income taxes. Shown on the graph below, this is the third highest individual income tax collection, only after Denmark and Australia. This is a striking figure considering the difference in what citizens can expect in return from publicly funded social programs (think healthcare, paid maternity leave) offered by Denmark and Australia compared to the United States.
On average, OECD countries as a whole collected the greatest amount of tax revenue from consumption taxes (tax on goods and services - sales tax/value added tax, alcohol, gasoline, tourism), totaling just under a third of all revenue, followed by social insurance taxes (26.1%) and individual taxes (24.8%), corporate taxes (8.5%), property taxes (5.6%) and other taxes (2.4%). The chart below shows how the United States stands out from the average, mainly in terms of a significantly higher reliance on individual and property taxes, and a lower collection of consumption taxes. The economic implications of the U.S. taxation model could be debated (and surely will be) by economists, but one thing is clear, individuals play a crucial role in generating revenue for the nation.
While this data is a high-level overview of tax policies in OECD countries, it demonstrates the U.S. reliance on individuals and families to drive the economy and fund the services that people use every day. This fiscal situation has led Camoin and other economic developers to think about the ramifications these policies have on communities and their ability to enact policies and projects that can contribute to quality of life and job creation. However, even mentioning the prospect of raising taxes to pay for a project could send a politician packing in the next election. Therefore, envisioning innovative projects in the realm of community development also requires presenting unique financing options for implementation. At Camoin, we are always looking into creative financing methods to make community development projects a reality.
The Urban Land Institute recently released a report that brings attention to some unique financing options especially targeted towards smaller communities, which Camoin often finds itself working in (looking at you, Lyons Falls, pop. 612). The report drives home the point that all too often smaller communities do not afford themselves enough credit for the assets they do possess, instead focusing on what they don't have. While the financial resources at the disposal of a smaller community cannot rival those of an urban center, assets in the form of talent, locational advantages, resources, or private sector relationships could be the catalyst to an opportunity in any community.
A former client of Camoin, Allentown, Pennsylvania, is highlighted in the report for overcoming major hurdles in the downtown core through strong private leadership and a focus on competitive advantages of the Lehigh Valley.
A brief overview of the financing mechanisms highlighted in the report include:
- Incentives for businesses to rent space in a "Neighborhood Improvement Zone" - bringing tenants and residents back to the downtown core,
- Transit-oriented planning grants,
- New Market Tax Credits,
- Historic tax credits,
- Public-private partnerships with various ownership and funding set ups, and
- Tax Increment Financing - something that Camoiners have been perfecting since 2009! (see more on TIF in the Navigator library here)
Since federal and state tax codes are unlikely to see major changes any time soon, getting past the challenges and looking towards the opportunities will help small communities realize their economic development potential.
 The Organization For Economic Cooperation and Development, or OECD, was originally established among 18 European countries in the years post-World War II to help manage economic recovery and distribution of the Marshall Plan. From there, the organization expanded and today stands at 35 countries spanning North America, Europe, Asia. It should be noted that some of the world’s most populous countries, like India and Brazil, are not among OECD member nations, however the organization notes that they “work closely” with these countries.