11/04/2019 - Income tax and social security contributions declined slightly for the average worker across the OECD in 2018, driven by major reforms in a handful of countries, according to a new OECD report.
Taxing Wages 2019 shows that the “tax wedge” – total taxes on labour costs paid by employees and employers, minus family benefits, as a percentage of the labour cost to the employer – was 36.1% in 2018. This represents a fall of 0.16 percentage points from 2017, and is the fourth consecutive annual decrease in the tax wedge on the average OECD worker.
The decline between 2017 and 2018 was caused by large decreases in four countries: Estonia (2.54 percentage points), the United States (2.19 percentage points), Hungary (1.11 percentage points) and Belgium (1.09 percentage points). Even though the tax wedge on the average worker across the OECD declined between 2017 and 2018, small increases in the tax wedge were actually observed in 22 countries, or nearly two-thirds of the OECD. At the same time, small decreases in the tax wedge were observed in the remaining 10 OECD countries.
In the four countries where the largest decreases in the average tax wedge were observed, these reductions resulted from major reforms. In Estonia and the United States, the decreases were due to income tax reforms, whereas in Hungary and Belgium they resulted from reductions in employer social security contributions.
Taxing Wages 2019 also considers the net personal average tax rate, which measures the income tax and social security contributions paid by employees, minus any family benefits received, as a share of gross wages. In 2018, the OECD average rate was 25.5%. This OECD-wide average rate, calculated for a single person with no children earning the average wage, has remained stable in recent years, even though this rate varies considerably among countries: ranging from below 15% in Chile, Korea and Mexico to over 35% in Belgium, Denmark and Germany.
The 2019 edition of Taxing Wages also includes a Special Feature that looks at the taxation of the median worker in OECD countries, comparing this to the taxation of the average worker. In all OECD countries, the median worker has a lower wage than the average worker, due to higher differentials at the upper end of the income distribution. On average, the median worker earns 80.8% of the average wage and consequently faces a lower average tax wedge, at 34.3% compared to 36.1% for the average worker. This difference is primarily due to lower income taxes. However, the report shows that while providing a more comparable point in the wage distribution across countries, the median wage is difficult to calculate due to data availability, and the differences are not significant for most countries.
Further information and individual country notes: www.oecd.org/tax/taxing-wages-20725124.htm
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