Ref. :  000041187
Date :  2017-05-12
Language :  English
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Taxing wages around the world

Author :  How Much


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The OECD – in full, the Organisation for Economic Co-operation and Development – is an association of 35 high-income countries committed to democracy and market economy. Since 2000, it has published annual reports on taxes paid for wages in all of its member states. The latest such report, published this May, looks back on the state of wage taxation in 2016.

Your net personal average tax rate is composed of two main categories: personal income taxes and social security contributions. Added up, they constitute the difference between your gross earnings and your income after taxes. All figures cited here relate to taxes levied on a single individual without children at the income level of the average worker, and are expressed in U.S. dollars with equal purchasing power.

When assessed this way, the figures allow you to make cross-country comparisons of the tax burden on wage earners. If you're an employee, you can check how the bite the taxman takes out of your paycheck compared to other countries. For employers, it's a useful yardstick to compare the cost of labor across the developed world.

In 2016, the average personal tax rate across all OECD countries was 25.5% - but those rates varied greatly among the member states. To some workers, paying a quarter of your gross income in taxes may seem like burdensome imposition; others would have signed up immediately for such a light-touch tax collection.

At 40.7%, Belgium has the highest personal tax rate of any OECD country. That is almost seven times as much as the lowest rate, 7%, in Chile. The U.S. is almost perfectly in the middle between both, with 26%. All of the top ten tax wages at more than 30%. The bottom ten tax wages at 22% or less; Chile is the only single-digit country.

The size of the countries on this map relates to their personal tax rate. That is why the U.S. is slightly bigger than Canada (23.1%).

Top 10 OECD Countries by Highest Personal Tax Rate

1. Belgium - 40.7%
2. Germany - 39.7%
3. Denmark - 36.2%
4. Hungary - 33.5%
5. Slovenia - 33.4%
6. Austria - 31.9%
7. Italy - 31.1%
8. Luxembourg - 31%
9. Finland - 30.8%
10. Netherlands - 30.4%

Top 10 OECD Countries by Lowest Personal Tax Rate


1. Chile - 7%
2. Mexico - 10.8%
3. South Korea - 14.1%
4. Switzerland - 16.9%
5. Israel - 17.8%
6. New Zealand - 17.9%
7. Estonia - 18.3%
8. Ireland - 19.2%
9. Spain - 21.4%
26. Japan - 22.2%

Of the two main personal tax components, income tax is more significant in most countries. Denmark has the highest income tax in the world, and Scandinavia is generally well represented in the Top 10. Chileans lead the opposite list, with the lowest possible tax rate – an enviable zero percent. A surprisingly varied bunch of countries have income tax rates below 10%, including Japan, Mexico, and Israel.

Top 10 OECD Countries by Highest Income Tax Rate

1. Denmark - 36.2%
2. Iceland - 28.9%
3. Belgium - 26.8%
4. Australia - 24.3%
5. Finland - 22%
6. Italy - 21.6%
7. Norway - 19.7%
8. Germany - 19%
9. Latvia - 18.6%
10. United States - 18.3%

Top 10 OECD Countries by Lowest Income Tax Tate


1. Chile - 0%
2. South Korea - 5.7%
3. Poland - 7.2%
4. Japan - 7.8%
5. Mexico - 9.5%
6. Greece - 9.6%
7. Slovakia - 9.8%
8. Israel - 9.9%
9. Switzerland - 10.7%
10. Slovenia - 11.3%

Employee social security contributions often are highest in countries where the personal tax rate is relatively low, suggesting that both components act as communicating variables. Slovenia, for example, has one of the lowest income tax rates, but the highest employee social security contribution rate – resulting in a personal tax rate of 33.4%, which puts it in fifth place overall.

Inversely, Denmark and a few other countries with high personal income tax rates have a zero percent social security contribution rate. Rather than being non-existent, social security in these countries is funded from personal tax contributions.

Top 10 OECD Countries by Highest Employee Social Security Contributions

1. Slovenia - 22.1%
2. Germany - 20.7%
3. Hungary - 18.5%
4. Austria - 18%
5. Poland - 17.8%
6. Greece - 15.8%
7. Turkey - 15%
8. Japan - 14.4%
9. France - 14.3%
10. Belgium - 14%

Top 10 OECD Countries by Lowest Employee Social Security Contributions

1. Denmark - 0%
2. Australia - 0%
3. New Zealand - 0%
4. Iceland - 0.3%
5. Mexico - 1.4%
6. Estonia - 1.6%
7. Ireland - 4%
8. Switzerland - 6.2%
9. Spain - 6.4%
10. Sweden - 7%

High taxes are somewhat easier to bear if the taxable amount is higher; and the OECD figures do point to gross wage earnings being highest in high-taxed countries. However, there is a discrepancy. Belgium, the country with the highest overall personal tax rate, only has the seventh-highest gross income. Switzerland, which is not even in the Top 10 for highest overall personal tax rates, is number one for gross income. This explains why high-earning tax exiles move from Belgium to Switzerland, and not the other way around.

Chile has the second-lowest gross income in the OECD club; from that perspective, that zero-percent personal tax rate seems a lot less appealing. Still, Mexicans earn even less, and pay almost 10% of that amount in income tax.

Top 10 OECD Countries by Highest Gross Income


1. Switzerland - $70,077
2. Luxembourg - $65,522
3. Netherlands - $63,549
4. Germany - $61,750
5. Norway - $60,020
6. Iceland - $59,044
7. Belgium - $58,214
8. Denmark - $57,310
9. Australia - $56,727
10. Austria - $55,680

Top 10 OECD Countries by Lowest Gross Income


1. Mexico - $13,112
2. Chile - $20,517
3. Latvia - $20,537
4. Slovakia - $22,852
5. Estonia - $25,540
6. Hungary - $25,627
7. Czech Republic - $25,893
8. Poland - $27,343
9. Turkey - $28,099
10. Portugal - $29,946

So where does an average earner take home the biggest net paycheck? Not in low-income, low-tax countries like Chile or Mexico. In general, the higher taxes you pay are an indication of the higher net income you take home.

Still, high-tax countries like Denmark or Belgium are not the ultimate winners. Switzerland comes out on top, because it combines the highest gross income of the OECD club with a spot in the Top 10 for lowest personal tax rate. Belgium and Denmark don't even make the Top 10 – and the U.S. barely does. The average American worker takes home almost $20,000 less than his Swiss counterpart.

Mexicans – earning less than Chileans but taxed higher – predictably are the worst off when it comes to income after taxes. Chileans out-earn Hungarians, Slovakians and Latvians. Slovenians, at the bottom of the lowest-income-after-taxes Top 10, earn almost double what Mexicans do, and just over half of Americans.

Top 10 OECD Countries by Highest Income After Taxes


1. Switzerland - 58,234
2. Luxembourg - $45,210
3. Netherlands - $44,230
4. Norway - $43,274
5. Australia - $42,942
6. South Korea - $42,073
7. Iceland - $41,803
8. United Kingdom - $40,666
9. Japan - $39,116
10. United States - $38,882

Top 10 OECD Countries by Lowest Income After Taxes


1. Mexico - $11,696
2. Latvia - $14,561
3. Hungary - $17,042
4. Slovakia - $17,550
5. Chile - $19,081
6. Czech Republic - $19,782
7. Turkey - $20,428
8. Poland - $20,507
9. Estonia - $20,866
10. Slovenia - $20,937

While Chile’s zero-percent income tax rate may seem appealing, the OECD stats serve as a reminder that workers are generally better off in countries with higher taxes; higher tax rates indicate higher levels of gross income. However, the relationship between tax and net income is not one-on-one. Some countries with high gross incomes tax their workers out of the net-income Top 10. The trick is to combine high gross incomes with relatively low taxes, like Switzerland. The worst option, from a paycheck point of view, is low gross income combined with relatively high taxes, like Mexico.


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