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9 67th National Conference and Annual Dinner 1 (2004)

handle is hein.taxfoundation/taxfaabb0009 and id is 1 raw text is: BACKGROUND PAPER Fundamental Tax Reform: The Experience of OECD Countries By Jeffrey Owens, Director The Centre for Tax Policy and Administration, OECD Paris Trends in OECD Tax Systems 1 Introduction Since the mid-1980s all OECD countries have engaged in fundamental reforms of their tax systems. These reforms have been driven by the need to provide a more competitive fiscal environment: one which encourages investment, risk-taking and entrepreneurship, and which provides increased work incentives. At the same time, governments are aware of the need to maintain taxpayers' faith in the integrity of their tax systems. Fairness and simplicity have become the bywords of reformers. Fairness requires that taxpayers in similar circumstances pay similar amounts of tax. Simplicity requires that paying your taxes becomes as painless as possible (not some- thing easily achieved in modern societies) and that the administrative and compliance costs of collecting taxes are kept at a minimum. Almost all the tax reforms of the last two decades can be characterized as rate reducing and base broadening reforms, following the lead given by the United Kingdom in 1984 and the United States in 1986. In the mid- 1980s, most OECD countries had top marginal income tax rates in excess of 65 per cent. Today it is rare to find top rates above 50 per cent and most OECD countries find themselves around or below 40 per cent. Similarly, top statutory corporate income tax rates were rarely less than 45 per cent, while today most are below 35 per cent and an increasing number fall below 25 per cent. These reforms, however, did not, until recently, lead to a fall in the overall tax burden (measured by the tax-to-GDP ratio). From 1975 to 2000, most OECD countries experienced an increase in this ratio. Some, like Finland and France, saw the tax burden increase by almost a third. A small number of countries - notably the United Kingdom and the United States - experienced a stable tax burden. It does appear, however, that this long-term upward trend peaked in 2000 and the latest figures available to the OECD suggest that most countries are now below the peak 2000 level. This paper provides a brief summary of major tax reforms, both in policy and admin- istration, in OECD countries, with particular emphasis on changes since the year 2000. Section 2 documents the general trend of reductions in both tax revenues and rates. Section 3 examines the diversity in tax policies across OECD countries, reflecting the diversity in both economic circumstances and policy objectives. Section 4 deals with developments in tax administration. Finally, section 5 looks at some of the challenges for DRAFT: November 2004, Number 47 The views expressed in this paper do not necessarily reflect the views of the OECD Member countries, although the reports upon which the paper is based have been approved by all 30 OECD countries. This paper has been prepared in collaboration with the Staff of the CTPA and has benefited from comments by colleagues in other parts of the OECD.

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