Brochure: Taxing Wages 2019

Taxing Wages

2024

Tax and Gender through the Lens of the Second Earner

2 . OECD ? TAXING WAGES 2024

Taxing Wages 2024

The OECD's Taxing Wages 2024 report provides unique information for each of the 38 OECD countries on the income taxes paid by workers, their social security contributions (SSCs), the transfers they receive in the form of cash benefits, as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for one- and two-earner households, and the implied total labour costs for employers. This brochure summarises the main results of this edition by:

l Presenting analysis of the average tax wedge in OECD countries in 2023, the changes from the previous year and the trends between 2000 and 2023 for a selection of household types that are covered in Taxing Wages 2024.

l Presenting a brief analysis of the net personal average tax rate for a single worker earning the average wage across OECD countries in 2023.

Box 1: The tax wedge

Taxing Wages 2024 presents several measures of taxation on labour. Most emphasis is given to the tax wedge ? a measure of the difference between labour costs to the employer and the corresponding net take-home pay of the employee ? which is calculated by expressing the sum of personal income tax, employee and employer social security contributions plus any payroll taxes, minus any benefits received by the employee, as a percentage of labour costs. Employer social security contributions and (in some countries) payroll taxes are added to gross wage

earnings of employees in order to determine a measure of total labour costs. However, it should be recognised that this measure may be less than the true labour costs faced by employers because, for example, employers may also have to make non-tax compulsory payments (NTCPs)1. The average tax wedge measures that part of labour costs which is taken in tax and social security contributions net of cash benefits. In contrast, the marginal tax wedge measures that part of an increase in total labour costs that is paid in taxes and social security contributions less cash benefits.

1. Non-tax compulsory payments are requited and unrequited compulsory payments to privately-managed funds, welfare agencies or social insurance schemes outside general governments and to public enterprises ( ).

OECD ? TAXING WAGES 2024 . 3

TRENDS IN LABOUR TAXES ACROSS OECD COUNTRIES

Labour taxes vary greatly across OECD countries, with the tax wedge for the average single worker

ranging from 0% in Colombia to 52.7% in Belgium

Tax wedge (income tax plus employee and employer social security contributions, minus cash bene ts) for the average single worker in OECD countries, as % of labour costs (2023) % 60

50

40

34.8

30

20

10

0

BEL DEU AUT FRA ITA FIN SVN PRT SWE SVK LUX HUN LVA ESP CZE EST LTU GRC TUR DNK NOR NLD IRL OECD POL JPN CAN

ISL GBR USA AUS CRI KOR CHE ISR NZL MEX CHL COL

The tax wedge for the single worker earning the average wage has increased since 2021

Tax wedge for the single worker earning the average wage in OECD countries, as % of labour costs, 2000-2023

36.5 36.2

36.0

OECD - Average

35.5

35.0

34.5

34.8

34.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

One-earner married couples with two children face a

25.7%

lower tax wedge than the single worker earning the

34.8%

average wage in the OECD

Tax wedge for one-earner married couples with 2 children vs single worker, as % of labour costs (2023)

The tax wedge is higher for the second earner than for the single worker in most OECD countries

Tax wedge of the second earner and a single earner at the same earnings level, 2023

% 60

Second earner 67% of the AW Single 67% of the AW 50

40 34

30

31

20

10

0

BEL DEU FRA LUX SVK CZE SVN PRT AUT HUN ITA SWE ESP DNK POL LVA FIN

ISL GRC IRL EST CAN LTU OECD TUR JPN NOR USA CRI CHE GBR NLD AUS KOR MEX NZL ISR CHL COL

Note: The principal earner of the two-earners married couple is assumed to be working at the average wage. Source: Data from Taxing Wages 2024 (OECD), .

4 . OECD ? TAXING WAGES 2024

TABLE 1. COMPARISON OF TOTAL TAX WEDGE FOR THE AVERAGE WORKER IN OECD COUNTRIES IN 2023 As % of labour costs

Annual change, 2023/22 (in percentage points)2

Country1

Belgium Germany Austria France Italy Finland Slovenia Portugal Sweden Slovak Republic Luxembourg Hungary Latvia Spain Czechia Estonia Lithuania Greece T?rkiye Denmark Norway Netherlands Ireland Poland Japan Canada Iceland United Kingdom United States Australia Costa Rica Korea Switzerland Israel New Zealand Mexico Chile Colombia OECD Average

Total tax wedge 2023 (1) 52.7 47.9 47.2 46.8 45.1 43.5 43.3 42.3 42.1 41.6 41.3 41.2 41.1 40.2 40.2 39.4 38.9 38.5 38.4 36.4 36.4 35.1 35.1 34.3 33.0 31.9 31.7 31.3 29.9 29.2 28.6 24.6 23.5 23.2 21.1 20.0 7.1 0.0 34.8

Tax wedge (2)

-0.24 -0.49 0.29 -0.17 0.05 0.42 0.43 0.14 -0.26 0.10 1.39 0.00 0.61 0.62 0.33 0.23 0.54 0.44 0.22 0.06 0.18 -0.68 -0.52 0.50 0.36 -0.01 -0.39 -0.33 -0.52 2.14 -0.62 0.11 0.03 -0.27 0.92 -0.98 0.15 0.00 0.13

Income tax (3)

-0.24 -1.05 -0.27 0.02 2.36 0.17 0.43 0.14 -0.26 0.10 1.39 0.00 0.62 0.27 0.33 0.23 0.54 0.58 0.22 0.03 0.27 -0.15 -0.52 0.50 0.03 -0.23 -0.38 0.39 -0.51 1.53 0.00 -0.06 0.03 0.05 0.92 -1.16 0.15 0.00 0.17

Employee SSC (4) 0.00 0.11 0.03

-0.08 -2.32 0.19 0.00 0.00 -0.01 0.00 0.00 0.00 0.00 0.06 0.00 0.00 0.00 -0.08 0.00 0.00 -0.09 -0.55 0.00 0.00 0.15 0.11 0.00 -0.41 0.00 0.00 0.22 0.11 0.00 -0.22 0.00 -0.02 0.00 0.00 -0.07

Employer SSC3 (5) 0.00 0.01

-0.18 -0.11 0.00 0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.30 0.00 0.00 0.00 -0.07 0.00 -0.02 0.00 0.02 0.00 -0.01 0.19 0.12 0.00 -0.32 -0.02 0.62 -0.84 0.06 0.00 -0.10 0.00 0.20 0.00 0.00 0.00

Notes: Results are for a single worker without children earning the average wage. 1. Countries ranked by decreasing total tax wedge. 2. Due to rounding, the changes in tax wedge in column (2) may differ by one-hundredth of

a percentage point from the sum of columns (3)-(5). Although not included in columns (3)-(5), cash benefits contribute to the difference in Austria, Denmark and Germany. Lower cash benefits as a share of labour costs contributed to an increase of 0.72 p.p. in Austria's tax wedge in 2023, to an increase of 0.06 p.p. in Denmark's and to an increase of 0.43 p.p. in Germany's. 3. Includes payroll taxes where applicable.

The highest tax wedge is observed in Belgium (52.7%) and the lowest in Colombia (0.0%). The OECD average tax wedge was 34.8% of labour costs in 2023.

Source: Data from Taxing Wages 2024 (OECD), .

OECD ? TAXING WAGES 2024 . 5

The tax wedge

Tax wedge for the average worker in OECD countries Table 1 shows that the tax wedge between the labour costs to the employer and the corresponding net take-home pay for single workers without children, at average earnings levels, varied widely across OECD countries in 2023 (see column 1). While the tax wedge exceeded 45% of labour costs in Austria, Belgium, France, Germany and Italy, it was lower than 20% in Chile and Colombia. The largest

tax wedge was observed in Belgium (52.7%) and the lowest in Colombia (0.0%). In Colombia, a single worker earning the average wage did not pay personal income taxes in 2023, while their contributions to pension, health and employment risk insurance are considered to be non-tax compulsory payments and therefore not counted as taxes in Taxing Wages. The average tax wedge as a percentage of labour costs in OECD countries was 34.8% in 2023.

Box 2: Tax and Gender through the Lens of the Second Earner

The Report contains a Special Feature on the tax wedge on second earners, more than 75% of whom are women in most OECD countries. This chapter sheds light on how tax policy may affect the incentives facing married women in a context of persistent gender-related inequalities in labour outcomes, particularly as concerns labour force participation. The chapter uses the Taxing Wages models to calculate the effective tax rates on a second earner who takes up employment or increases the amount they work, showing how these compare with the tax wedge of a single worker and how they have evolved over time.

The results show that the average tax wedge for second earners is higher than for single workers across a majority of OECD countries and on average across the OECD. They also show that the average tax wedge is higher for a second earner who starts work at 100% of the average wage than at 67%, which reflects the progressivity

of labour taxation in OECD countries. The average tax wedge is also higher for second earners with children than for those without children. In general, countries with a joint approach to taxation or where tax reliefs are determined at the household level display larger fiscal disincentives for second earners.

On average across the OECD, employer social security contributions and income taxes are the largest components of the tax wedge on second earners; the loss of child benefits contributes to the tax wedge for second earners with children who take up employment. For around two-thirds of OECD countries, the average tax wedge on second workers decreased between 2014 and 2023, in most cases due to lower income taxes. The difference between the average tax wedge of the childless second earner and that of an equivalent single earner also narrowed slightly over this period.

The loss of child benefits contributes to the tax wedge for second earners with children who take up employment.

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