Taxes, everything is relative

The OECD released today its latest study on wage income taxation across its member countries. This allows to put some perspective on the level of taxes. For example, those complaining that taxes are too high in the US, are they right?

As for other studies, the OECD operates by building a particular type of household (say, single, male, average income), and then asks member countries to report what this household would pay in taxes as well social security taxes (including the share paid by employers). While the report focuses on changes of tax rates over the last years (no surprise, taxes went down for high incomes in the US, but not for the others).

The analysis of average rates reserves some surprises. For example, tax rates in Canada are only 1.3 %points higher than the US for a single worker and 1.8%points for a single earning couple with two children. This includes social security contributions. This adds up to a 55.5% average tax rate for the average single worker in Belgium, or a negative -1.1% for a married single earner with two children in Ireland. The disparity is immense.

One disadvantage of this data is that it does not give a complete picture, as it focuses on particular scenarios. One way to look at a more complete picture is with the work of Mendoza, Razin and Tesar (update on Mendoza's home page). It shows for example effective labor income tax rates that are much higher in Canada than in the US. They use national accounts and government income statistics, thus bypassing the distribution of taxes that the OECD may be able to look at. However, they have a better picture of overall taxes.