The United States requires a "fundamental rethink" of its tax system, and many industrialised countries will have to raise taxes above pre-crisis levels to reduce their deficits, the OECD said on Wednesday. Jeffrey Owens, director of the Organisation of Economic Co-operation and Development's tax policy centre, said many of its 34 member states would seek to increase tax revenues as debt levels in many countries approached 100 percent of GDP.
"These are figures that we have not seen in peace time," Owens told a news conference. "Any package to solve the current deficit situation in most countries will require an increase in taxation, and in many it will require tax increases that go beyond the level prior to the crisis," he said.
President Barack Obama's decision this month to roll over Bush-era income tax breaks for millions of Americans was a "political compromise" which should have a stimulative effect on the economy, Owens added. But with the third-lowest overall tax level in the OECD, behind only Mexico and Chile, Owens said the United States needed radical change in order to reduce its deficit.
The US deficit stood at 8.9 percent of GDP in the last fiscal year. The federal debt is headed towards nearly $14 trillion. A panel appointed by Obama to study deficit reduction called for a broad overhaul of the US tax code to lower rates while eliminating tax breaks for favoured groups.
Owens said the OECD recommended moves to cut tax rates and broaden the tax base and in particular was urging its members to move away from taxes on income and profits, which could result in economic distortions, towards taxes on consumption and environmental levies.
Stephen Matthews, the OECD's chief tax economist, noted the crisis had resulted in an unprecedented fall in the tax burden in OECD countries last year of around 1 percentage point of GDP, returning the tax to GDP ratio to levels last seen in the early 1990s.
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