Paul L. Caron

Thursday, October 31, 2019

Taxing High Incomes: A Comparison Of 41 Countries

Tax Foundation, Taxing High Incomes: A Comparison of 41 Countries:

  • This report compares top effective marginal tax rates on labour income in 41 OECD and EU countries.
  • The top effective marginal tax rate is the total tax paid on the last dollar earned by a high-earning worker, taking social security contributions and consumption taxes into account in addition to income taxes. It is a measure of the degree of progressivity and redistribution in the tax system. As such, it is of great policy interest.
  • The highest marginal tax rate is found in Sweden, 76 percent, and the lowest in Bulgaria, 29 percent.
  • In general, the Nordic and the Western European countries have the highest effective tax rates.

Top Effective Marginal Tax Rates in 2019 and Their Composition
Tax Foundation

Despite their policy importance, data on effective marginal tax rates is not readily available, since they are complicated to research and compute. To our knowledge, this is the only recent comprehensive compilation of top effective marginal tax rates in advanced economies.[1] Combining data mainly from international accounting firms, the OECD, and the European Commission, we are able to calculate marginal tax rates in the 41 members of the OECD and/or EU. The methodology is described below.

Scholarship, Tax, Tax Scholarship, Think Tank Reports | Permalink


I’m not sure what this chart is supposed to show. Here are the things it does seem to not show:
1. It does not tell you which tax scheme is more progressive. A tax scheme where the top 1% pay 90% marginal rate and everyone else pays 85% isn’t progressive at all.
2. It does not tell you how much the top 1% in income actually pay. In order to know that you’d have to know about enforcement and compliance. My anecdotal “expertise” from talking to Italians, Spaniards and Greeks is that people with high incomes do not end up paying anything like the legally prescribed amounts. Unless compliance and enforcement are identical across all these counties (a doubtful assumption) the chart means little.
3. It does not tell you how much the top 1% in income actually keep. In order to know that you’d need to know what counts as “income.” Are state and local taxes taken into account? This is unclear to me from the article. Does money earned abroad count? What about capital gains? What about retained earnings? Are all sources of income treated alike or are some sources of income that are significant for the wealthy treated differently than the income of ordinary wage earners? How can the authors derive any conclusions without know the answer to these questions?
Making recommendations on tax policy based on this sort of partial information, it seems to me leads to confusion and muddled thinking. A better approach might be to look at what businesses and rich people actually do when confronted by tax increases or the rare decrease. My (admittedly limited) understanding of this is that we have quite a bit of data on the results of such increases and a little on decreases.

Posted by: McAllen3 | Nov 1, 2019 1:12:12 PM

Canada is incorrect. Excise taxes and sales taxes are extremely high (especially in Nova Scotia) ... Income tax at the top bracket is 54% ... HST at 15% ... plus excise taxes. So at a minimum you have 54% income tax, and 15% of some sort of consumable % of the remaining 46%. Since there is so many hidden excise taxes, anything below 60% in total would be likely incorrect.

Posted by: Cory G Litzenberger | Nov 1, 2019 9:40:16 AM

But you get more in Sweden, too

Posted by: Mike Livingston | Nov 1, 2019 3:52:34 AM

And another thing: Germany. No "payroll" taxes? No employee "social contributions"? Seriously? The burden and economic impact of these in Germany is huge yet, according to the chart, apparently invisible to these "researchers".

Posted by: John | Nov 1, 2019 1:40:55 AM