ABSTRACT
Payroll taxes have always been a much more important source of revenue in European countries than in the United States, because European social security and related programmes—which are financed mainly through payroll taxes—are more elaborate than the US system, and therefore require more revenue. In practically every country, allowances and tax credits for investment have been greatly liberalised in the interest of promoting private investment, but they have not been financed by raising income tax rates. This practice has reduced the revenue productivity of the corporation income tax almost everywhere. Politicians find it useful to support progression in principle, but then turn to regressive sources when new revenue needs arise. The payroll tax was originally used in Europe as the basic method of financing old-age benefits on the principle that the workers were buying their own annuities.
