Income Taxes Rise Worldwide in 2013

April 17, 2014

Governments in developed economies raised income taxes for the third straight year in 2013 in a drive to cut their budget deficits, while real incomes declined in a number of rich countries, the Organization for Economic Cooperation and Development (OECD) reported recently, says the Wall Street Journal.

Releasing its annual Taxing Wages report, the OECD said the tax wedge rose in 21 of its 34 members during 2013, fell in 12 and was unchanged in one. The tax wedge is the difference between what businesses pay to employ a worker, and what that worker receives after income taxes and social security contributions from both employers and workers.

  • On average, the tax wedge rose to 35.9 percent of the cost of employing a worker, from 35.7 percent in 2012.
  • In the decade to 2010, the tax wedge fell steadily, but that trend reversed as governments sought to shore up revenues to contain their debts that surged in the years following the financial crisis.
  • In 2013, that increase in the tax wedge was almost entirely due to higher income taxes, although that was accomplished by a reduction in tax-free allowances and credits, rather than by hikes in tax rates.
  • On average, social security contributions by employers fell slightly, as governments tried to encourage business to hire.

And while workers were paying more tax in some large economies, including the United States, the United Kingdom, Italy and Spain, their incomes adjusted for inflation were falling. In Japan, real incomes were flat, while in Germany, where unemployment fell earlier than elsewhere, real wages rose by just 0.3 percent.

That combination of higher taxes and lower wages suggests that around the developed world, consumer spending is unlikely to pick up rapidly, which will slow the global economic recovery. Less consumer spending is also partly responsible for low levels of inflation, and in some European countries, declines in prices.

The OECD said that over the period since 2000, incomes tax systems in developed countries have become slightly more progressive, meaning that workers earning less than 50 percent of the average income have seen their tax payments fall. However, that doesn't necessarily mean that tax systems have made the overall distribution of income less unequal.

Source: Paul Hannon, "OECD: Income Taxes Rise in 2013," Wall Street Journal, April 11, 2014.

 

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