While income taxes seem to get the lion’s share of attention in the U.S., they make up only about half the government’s revenue — taxes on payroll, paid by both workers and employers, make up most of the remainder. In many ways, these taxes are more consequential, as they place a burden on all formal workers, and are used to fund things like social security and Medicare.
Hence why the OECD, a club of 34 mostly developed countries, published a report that compares the tax burden on wages in each of the world’s wealthiest nations, and how this has changed since the “Great Recession”. In particularly, the study analyzed the “tax wedge” — personal income taxes, plus payroll taxes and social security taxes, minus any cash benefits. It then calculated the average tax wedge for various types of households, giving us the following results.
The country with the highest average tax burden is Belgium, at 55.6 percent of income, while the country with the lowest was Chile, at just 7.0 percent — though neither saw any change between 2007 and 2014, when the most recent data.
In terms of the biggest shifts, Hungary saw its tax wedge drop by 5.5 points, while Ireland’s grew by a considerable 6.0 points.
As the OECD points out, in some respects, a rising tax wedge might be indicative of progress: countries with rising wages will consequently experience rising tax burdens, all things remaining equal, as more workers enter higher income-tax brackets.
In many cases, however, particularly in regard to hard-hit countries like Greece, Portugal, and Spain, the higher tax burden may reflect desperate attempts for cash-strapped governments to get more revenue, as high unemployment and a decline in economic activity leaves them few other sources.
Source: Business Insider