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OECD Adds Its Voice to US Debate on Taxes

WASHINGTON - The Organization for Economic Cooperation and Development is weighing in on the U.S. political debate over whether the wealthy should be taxed at an even higher rate than they are now. In its latest report on the U.S. economy, the organization, which represents 34 of the world's biggest economies, says the U.S. recovery is gaining traction but that the country faces steep challenges due to rising income inequality between rich and poor.

Economically, the United States remains one of the strongest countries in the world, but there are signs its competitive edge is slipping. Despite a reputation as a global leader in technology and innovation, OECD Deputy Secretary-General Richard Boucher says the U.S. is falling behind in education.

"The United States is one of three countries out of the 34 (in the OECD) that we've studied that spends less on education of disadvantaged students than we do on other students. Usually it's the other way around," Boucher said.

It's a situation the OECD says has led to rising income disparity -- with those in the highest income brackets receiving a better education and, therefore, greater opportunities to succeed.
Another contributing factor is what the OECD calls "tax code distortions".

"There are elements of the tax code that are favoring the kind of income that the richest people make. We come at it somewhat from the inequality point of view but also from the fact that we think the government tax system ought to be a lot more neutral," Boucher said.

Perhaps unwittingly, the OECD appears to have inserted itself in the middle of a hot political exemplified by billionaire Warren Buffet, who once remarked that he paid a smaller percentage in taxes than his secretary.

"I think that people at the high end, people like myself, should be paying a lot more in taxes," Buffet said.

Earned income in the U.S. is taxed at a higher rate than investment income. That disparity is at the heart of President Barack Obama's proposal to impose higher taxes on Americans earning more than $250,000 a year.

Republicans call that a tax grab -- akin to declaring war on the country's job creators, says rising conservative star Paul Ryan.

"Class warfare will simply divide the country more. It will attack job creators and it doesn't grow the economy," Ryan said.

President Obama disagrees. "If asking a millionaire to pay the same tax rate as a plumber makes me a class warrior, a warrior for the working class, I will accept that. I will wear that as a badge of honor," Obama said.

The issue could further divide the country in an election year.

Republican presidential candidate Mitt Romney, who co-founded a private equity firm, admits he paid less than 14 percent on his investment income in 2010. Compare that to some wage earners who paid 35 percent. Romney proposes bigger cuts in government spending and lower taxes for all. It's a position that runs counter to the approach favored by President Obama: fewer cuts to social programs, and more infrastructure spending - paid for in part, by higher taxes on the rich.