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US Has Relatively Favorable Income Tax Policies

by Mike Godfrey, Tax-News.com, Washington

25 June 2014


In a comparison of labor tax burdens in Organization for Economic Co-operation and Development countries, the Tax Foundation found that, while workers in the United States ended up paying, on average, 31.3 percent of their income in taxes in 2013, this was only the 26th highest among members, and below the 34-country average of 35.8 percent.

The OECD found that the average worker in the US in 2013 paid an effective individual income tax rate (federal, state and local) of 15.4 percent, and paid an additional 15.9 percent payroll tax rate (7 percent from the employee and 8.9 percent from the employer). The average individual income tax bill was USD8,196 and the average payroll tax bill was USD8,462, amounting to a total average tax bill of USD16,658. Without these taxes, US workers would, on average, have an average take home salary of USD53,223.

The TF noted that the highest total tax burden on wage income was in Belgium in 2013 at 55.8 percent, followed by Germany (49.4 percent) and Austria (49.0 percent). The country with the lowest total tax rate on labor was Chile at only 7 percent. New Zealand had the second lowest effective rate at 16.9, followed by Mexico at 19.2 percent.

The TF pointed out that payroll tax burdens tend to be high in the OECD to fund social insurance programs, and therefore make up a significant portion of an employee's tax bill. "It is true that governments in the OECD, especially European countries, provide more government programs," it added. "However, their workers end up paying a much higher price for them."

It was found that the average combined (employee and employer) payroll tax rate in the OECD was 22.6 percent in 2013, which was 6.7 percent higher than the US's combined rate of 15.9 percent. In 29 of 34 OECD countries, payroll taxes made up half or more of an average single worker's total tax burden during the year.

France had the highest combined payroll tax burden of 38.5 percent; followed by Austria and Hungary, both with effective payroll tax rates of 36.6 percent. The countries with the lowest combined payroll tax burden were Australia (5.6 percent) and Denmark (2.7 percent), while New Zealand was the only country in 2013 that did not impose a payroll tax.

The TF noted that the tax burden on workers in the OECD in 2013 varied based on family composition, as most countries provided some tax relief for families with children.

Comparing single, childless workers and single-earner families with two children earning the same pre-tax income showed that, on average, the tax burden for families (an average of 26.4 percent in 2013) in the OECD was 27.2 percent lower than the tax burden on single, childless workers (an average of 35.8 percent).

The US, with the child tax credit and the personal exemption, reduced the tax burden of families with two children (a rate of 20.3 percent) by 35.1 percent, compared to the tax burden on a single, childless worker (a rate of 31.3 percent) in 2013. Lower-income workers with children also benefited more from the earned income tax credit than lower-income workers without children.

TAGS: individuals | tax | business | Belgium | Chile | Denmark | Hungary | Organisation for Economic Co-operation and Development (OECD) | Australia | Mexico | payroll | tax rates | Austria | France | Germany | New Zealand | United States | individual income tax | Tax

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