How Other Democracies Tax Better Than We Do
Why broad bases and low rates work—and why we ignore them
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One of the persistent weaknesses of American policymaking is our deeply ingrained belief that our system is so exceptional that lessons from other advanced democracies are either irrelevant or suspect. We cling to this outlook despite mounting evidence to the contrary. We do it in foreign policy and economic security, in social insurance and environmental sustainability—and we do it, perhaps most consequentially, with taxation.
Broad-based, low-rate taxation—often abbreviated as BBLR—is a good example of an idea that is internationally orthodox yet largely unfamiliar to most Americans. As T. R. Reid explains in his excellent and accessible book on comparative tax policy, A Fine Mess, this is not a radical innovation. It is the quiet consensus view of most advanced economies—and of the institutions that study and support them.
At its core, BBLR rests on a simple premise: tax the broadest possible base of economic activity at relatively low rates, with minimal or no exemptions, deductions, credits, or carve-outs. Instead of using tax expenditures—which, as we discussed last week, now overwhelm our fiscal system—as a mechanism to reward powerful companies and their wealthy owners, BBLR systems aim for neutrality, raising revenue efficiently while distorting economic decision-making as little as possible. Importantly, this approach applies equally well to income and payroll taxes, as well as to consumption and corporate taxes.
The International Consensus We Keep Ignoring
If one spends even a small amount of time studying comparative tax policy—a step few contemporary American politicians seem inclined to take—you quickly encounter a striking convergence of views among major international institutions. The Organisation for Economic Co-operation and Development, the International Monetary Fund, and the World Bank all maintain extensive datasets on national tax systems, and all consistently advocate some version of the same underlying design philosophy. Across countries and over time, they find that:
Broad tax bases reduce avoidance, by limiting opportunities for gaming the system.
Lower statutory rates reduce economic distortions, allowing individuals and firms to make decisions based more on productivity than tax treatment.
Simpler systems improve compliance and legitimacy, strengthening both revenue collection and public trust.
As the OECD puts it, every deduction or exemption carved into the tax code reduces revenue, forcing higher tax rates elsewhere to make up the difference. Those higher rates then create new inefficiencies, add complexity, and make the system less fair. The more holes you punch in the tax base, the higher rates must rise—and the stronger the incentive becomes to look for ways around the system.
This is why BBLR systems tend to be self-reinforcing. When most income—from wages and salaries, from business profits, from dividends and capital gains, and from rents or royalties—is taxed at modest rates, there is far less incentive to hire teams of lawyers and accountants to reclassify, shelter, or hide it. Neutrality breeds compliance. Compliance sustains revenue. Revenue sustains the nation.
A Tax System That Fails the Many
One of the tragedies of our ongoing tax debate is that conservatives have successfully persuaded many working-class Americans to defend a tax system riddled with exemptions that overwhelmingly favor the wealthy—and to demand that it be made even less fair. In practice, as discussed last week, our narrow-base tax system disproportionately benefits those with the resources to exploit its complexity. Mortgage interest deductions, preferential treatment of capital income, bespoke industry credits, and targeted write-offs deliver far greater benefits to high-income households than to everyone else.
BBLR flips this logic. By treating income as income, it reduces the ability of the wealthy to opt out of the system altogether. Rates may remain progressive—even at lower levels—but they would be applied to a much broader slice of economic reality. The result would be not only fairer in distributional terms, but also far more legitimate in the eyes of the public.
This matters in a populist moment like ours. Large majorities of Americans believe that income and wealth inequalities have grown too large and that the system is tilted toward those at the top—but they are far less certain about how to fix it. A tax approach that is broad, transparent, and difficult to evade speaks directly to that grievance. It doesn’t punish achievement—but it does insist that those who prosper contribute to the society that made their success possible.
New Zealand and the Case for Learning From Others
If there is a gold-standard example of BBLR in practice, it is New Zealand.
In 1986, New Zealand undertook a comprehensive tax reform. It moved away from a system of high marginal rates and extensive tax expenditures toward one with low rates, very broad bases, and minimal preferences. Most deductions, credits, and carve-outs were eliminated. Complexity collapsed.
Crucially, New Zealand did nearly everything at once, preventing special interests from unraveling the reform before it took hold. Despite having income tax rates roughly half those of the United States, New Zealand raises more revenue relative to the size of its economy. And its long-term trajectory since the mid-1980s has been one of higher living standards, stronger institutions, and greater economic resilience.
America Did This Once—and Then it Unraveled
What is striking is that the United States adopted a broadly similar approach for income taxes, but not for payroll taxes, at exactly the same moment. The Tax Reform Act of 1986—championed by Senator Bill Bradley, the deep thinker, and White House Chief of Staff Donald Regan, the political operator—dramatically broadened the tax base while slashing marginal rates. The top individual rate fell from roughly 50 percent to 28 percent. Taxes were not cut indiscriminately; more income was simply made taxable.
For a brief moment, the United States aligned itself with what was becoming international best practice.
But the bargain did not hold. Elites, backed by expensive lobbyists, quickly went to work. The carve-outs returned—first as a trickle, and eventually as a flood. In a system where the wealthy largely fund electoral campaigns, the old political incentives reasserted themselves. Each new exemption narrowed the base. Each narrowing of the base required higher rates. Complexity returned. Compliance eroded. Unlike New Zealand, we failed to defend the reform—and the system collapsed as a result.
Pragmatism, Growth, and Government Capacity
When approaches like BBLR are discussed at all, they are often framed as ivory-tower fantasies. In reality, they are about the capacity of government to solve society’s real problems.
Countries that can raise revenue efficiently and predictably are better positioned to invest in infrastructure, education, health care, climate resilience, and national security. They can pursue ambitious policies without relying on unsustainable borrowing or constantly worrying about populist backlash. They can respond to crises. They can plan for the future. They can, at a fundamental level, make their nations stronger.
Over the coming year, Thor’s Forge will explore a wide range of policy ideas that enjoy broad public support but have largely gone unimplemented in our dysfunctional political system. None of them, however, will be feasible without reliable public revenue. This is why BBLR matters. It is not an end—it is an enabler.
The Case Against Exceptionalism
Just as with our constitutional structure and so much else, American exceptionalism in tax policy has become a liability. We can—and must—learn from the rest of the world.
Broad-based, low-rate taxation is not a silver bullet. But it is one of the most reliable tools advanced democracies have developed to balance fairness, growth, and legitimacy. We have tried it before. Others have done it better. There is no shame in adapting and adopting what works.
In fact, at this moment in our history, doing so is a national imperative.
COMING NEXT WEEK: We will explore how the BBLR philosophy applies to consumption taxes—most importantly, the cash machines known as value-added taxes.