Why is it cheaper to pay taxes in the United States?

In this post we make a comparison between some taxes levied in the United States compared to Latin America. Where is it better to pay taxes and why?

‍Taxes are a kind of tribute that states have to face the social provisions and public services that the population requires, that is, to reinvest in infrastructure, government plans, technological innovation, support for small and medium enterprises, health and other items that keep societies in a balance that seeks comfort and community stability.

That contribution of societies to administrations is almost as old as humanity itself. In Egypt, for example, one way of paying taxes was through physical labor, and a good example of this is the pyramid of Giza -also known as the pyramid of King Keops- built in 2500 B.C., a construction that lasted 20 years, in which approximately 100,000 people participated, carrying materials from Ethiopia.

Likewise, in pre-Columbian Mexico, in the Aztec community, for example, it was customary to pay tribute to rubber balls, eagles, snakes and yearly young men, whose hearts were torn out as part of their religious ceremonies; likewise, they paid tribute to a raft planted with flowers and fruits, a heron and a duck lying on its eggs, so that when they received them they would be biting the eggshell.

Over the years, and with the evolution of societies, this millenary practice has become a landscape. It is impossible to think of today's societies without some kind of taxation, among other reasons because they are an engine that keeps societies on their feet. 

We will make a comparison between tax collection in Latin America and the U.S.A. Where is it more economical to pay taxes?

According to ECLAC's Fiscal Panorama of Latin America and the Caribbean, in 2020, Latin America was the developing region most affected by the pandemic; its effects deepened the region's structural development gaps in terms of inequality, limited fiscal space, low productivity, informality and fragmentation of social protection and health systems. 

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To cope with the social and economic effects of the pandemic, the countries of the region adopted expansionary fiscal policies, that is, fiscal efforts announced in 2020 that represented 4.6 % of GDP, says the entity, on average. These efforts were aimed at strengthening public health systems, supporting families and protecting the productive structure.

This had repercussions on the economies of the entire region. According to ECLAC, Latin America and the Caribbean is one of the most indebted regions in the world, that is, according to this study, it will be necessary to strengthen the fiscal capacity of the States through a progressive tax policy, which not only increases tax collection, but also has a positive impact on improving income distribution. ‍

According to a joint study by CIAT, ECLAC, IDB and OECD, Tax Statistics in Latin America and the Caribbean 2022, in 2020 the average tax collection in Latin America as a proportion of GDP in the region was 21.9%.

Let's look at the fiscal panorama of the region: according to the study, the highest average tax collection percentages were recorded in Cuba (37.5 % as a proportion of GDP), Barbados (35.2 %) and Brazil (31.6 %). The lowest ranked were Guatemala (12.4%), Dominican Republic (12.6%) and Paraguay (13.4%).

In the United States, income tax, known as Income Tax, depending on the business model, varies in percentage in some cases: for C-Corps it is 21% on the value of the company's net income in its last fiscal year; S-Corps range from 10% to 37% and LLCs vary different percentages ranging from 10% to 37%.

Let's analyze the value of the sales tax. In some countries known as the Value Added Tax (VAT), the General Sales Tax (IGV) -or Sales Tax in the USA- in some Latin American countries versus U.S. states.

In general, opening a business in the United States represents a great opportunity, not only because of the facilities and programs offered by the American giant, but also because of the low taxation costs. We wrote a blog (Myths and truths: everything you should know about taxation in the United States) where we explain what the costs of taxation in the USA.