On 11 April 2019 the OECD released Taxing Wages 2019 analysing developments relating to taxation and social security contributions for workers across the OECD countries in 2018. The general conclusion of the report is that there was a slight decrease in the tax and social security contributions for the average worker in these countries; but the decrease was mainly due to reforms in just a few of the countries such as Estonia and the US.
The report looks at the tax wedge, meaning the total taxes paid by employees and employers on labour costs less family benefits, expressed as a percentage of the labour cost to the employer. This tax wedge was 36.1% in 2018, showing a slight decline of 0.16 percentage points compared to the previous year. This does however form part of a longer trend of a decline in the tax wedge for the average worker in OECD countries which has decreased in each of the last four years.
There were relatively large decreases in the tax wedge in Estonia, the US, Hungary and Belgium and smaller decreases in 10 other OECD countries; but these decreases were offset by small increases in the tax wedge in 22 other OECD countries. In the case of Estonia and the US the decreases were part of wider income tax reforms, but in Hungary and Belgium the decrease in the tax wedge was due to reductions in employer social security contributions.
The net average personal tax rate in the OECD countries in 2018 was 25.5%, measured as income tax and social security contributions paid, less family benefits received, compared to gross wages. This average rate has been stable over time although there are large differences in rates between individual countries.
In a special feature the 2019 edition of Taxing Wages examines the taxation of the median worker and compares this to the taxation of the average worker. The conclusion is that in all the OECD countries the median worker is on a lower than average wage owing to the high wage differentials that result in the average wage being raised by the high levels of wages at the upper end of the distribution. The median worker therefore has a wage that is only 80.8% of the average wage. This however results in a lower average tax wedge, mainly owing to lower income taxes.
The report notes however that although the use of the median wage provides more useful comparability across countries it is also more difficult to calculate owing to more difficult access to the relevant data. The report concludes that the differences in the tax wedge resulting from use of the median wage instead of average wage are not significant in the case of most of the OECD countries.