U.S. Tax Cuts — A Global Perspective

What could other countries do with a tax cut of $1.6 billion?

February 27, 2001

What could other countries do with a tax cut of $1.6 billion?

No doubt $1.6 trillion is a lot of money, but it can be hard to put such a large number into context. For example, what could $1.6 trillion buy you in today’s oil markets? How does it relate to the economies of other industrialized countries? How many people could live on that amount? Or, to put it in perhaps more popular terms, how many burgers and extra-large fries would $1.6 trillion buy you?

Let’s start with perhaps the most perplexing comparison. Some six billion people live outside U.S. borders — give or take a few hundred million. Of that number, 1.3 billion people — or about 20% of the world’s population — subsist on less than a dollar a day. At a dollar a day, their income comes to $365 a year. That means that the annual income of those 1.3 billion people combined is about $475 billion.

How does that number compare to the proposed tax cut? Just imagine, the world’s poorest 1.3 billion people — those who subsist on a dollar a day or less — could survive on the U.S. tax cut for over three years and four months at their current subsistence levels.

Meanwhile, half of the world’s population, or three billion people, lives on less than $2 per day, or about $730 per year (365 days). That includes the 1.3 billion people who live on less than one dollar a day — leaving 1.7 billion people who live on up to two dollars a day.

On average then, a typical person among the poorest 50% of the world population lives on less than $1.57 per day, or $573.05 per year.

And how much is $573 times three billion? About $1.7 trillion. In other words, half of the world’s population lives on $1.7 trillion per year — approximately the cumulative size of the Bush tax cut.

Even from the point of view of the other members of the G-8, the U.S. tax cut represents an enormous sum. For starters, the 10-year proposed cut is larger than the GDP of any member of the G7 except Japan’s.

And Russia’s nominal GDP — calculated on a straightforward basis, without adjusting for price differentials or an undervalued ruble — is around $200 billion per year.

Some analysts, including former U.S. Secretary of Treasury Robert Rubin, calculate that the U.S. tax cut package, even in its current form, could end up costing around $2 trillion when you factor in the extra interest payments resulting from the national debt being paid off more slowly. Thus, the Bush tax cut could end up being more or less equal to Russia’s total output for the next decade.

True, Russia is a poor country. If it weren’t for its nuclear missiles, it would never have been allowed into the exclusive club of the world’s leading industrial democracies.

But what about Canada, the U.S. neighbor to the north? With its GDP of $700 billion, the country’s population would have to labor two years and two months before it produced $1.6 trillion worth of goods and services. The other NAFTA partner of the United States, Mexico, would need nearly three years to produce that much.

But Americans live large, and what might seem like a lot of money to its neighbors, the world’s poor, or just about any country in the world is perhaps small change for this nation. Just consider that Americans spend $110 billion on junk food in a single year alone. Plus, they buy around $35 billion worth of lottery tickets. That adds up to $145 billion per year.

At this rate, the Bush tax cut would support the country’s cheeseburgers-fries-and-Coke addiction, pay for all the country’s lotto fever for a full decade and still have some change left.

And how does the proposed tax cut relate to another hot topic these days, oil? The United States uses a staggering 15 million barrel of oil per day. At the current price of $30 per barrel, the U.S. economy consumes $450 million worth of crude daily, which translates into $164 billion per year. In short, the Bush tax cut could pay America’s oil bill for the next 10 years.

By now, the $1.6 trillion is perhaps starting to sound like a lot of money. To get an impression of how large a stack of bills this sum would be, consider that the U.S. Treasury prints approximately $135 billion of paper currency per year, both to supply the economy with new currency — and to replace old worn-out bills. To cover the amount of money envisaged in the Bush tax cut, the government would need to run printing presses for nearly 12 years.

If you’re starting to doubt the need for a tax cut of this magnitude, consider the tax burden in the United States compared to other industrialized countries, say the G7.

Among those, the United States pays the lowest share of its GDP in taxes, at just over 30%. This compares with more than 45% for France and Germany.

Even after the recent tax cuts in those countries, the income tax rate the average American faces remains much lower than in those two countries. So one might wonder, does the United States really need another tax cut?

But to understand what’s at stake, it is important to know that, to Americans, taxes are indeed an emotional issue. The actual figures are irrelevant. I recently talked to a middle-aged woman who has worked all her life as an editor in the U.S. financial services industry. Although quite well versed in economics, she didn’t want to hear any economic pros or cons of the Bush tax cut.

“I don’t care what it does to the U.S. economy,” she shrieked with a fanatical gleam in her eye, “I don’t care if the rich get the most of it. I don’t even care if it’s just ten bucks a week. I JUST WANT MY TAX CUT.”