24/05/2022 – Effective tax rates on labor rebounded in 2021 as the global economy recovered and many countries began to remove or reduce measures implemented in response to the pandemic of COVID-19, according to a new report from the OECD.
The report Taxes on wages 2022 shows that rising household incomes in 2021, together with the revocation of many pandemic-related fiscal and social policies, have led to an increase in effective taxes on wages across the OECD. This marks a turnaround from 2020, where the pandemic had led to a significant drop in the labor tax wedge – defined as the sum of labor taxes paid by employees and employers, less family benefits, expressed as a percentage. the cost of labor for the employer.
The report indicates an increase in the tax wedge in a majority of OECD countries in 2021, as many countries have removed or reduced measures introduced to support households during the pandemic. Despite these increases, the average tax wedge for the OECD area as a whole decreased slightly due to relatively large declines in the tax wedge observed in fewer countries where new COVID-19 related support measures were introduced in 2021 .
In most countries, increases in the tax wedge in 2021 more than offset the sharp declines recorded in 2020 for a number of household types, and saw the tax wedge rebound to higher levels than in 2019 before the pandemic. For a couple with two children with a single salary equal to 100% of the average salary, and for single parents receiving 67% of the average salary and having two children, the tax wedge was higher in 2021 than in 2019 in 21 country.
The average tax wedge of a single-earner couple earning 100% of the average wage and having two children fell by 1.2 percentage points over the period 2019-21, while that of the single parent with two children earning 67% of the wage average decreased by 1 percentage point. Both of these declines were larger than that of the single worker without children, for whom the tax wedge fell by 0.3 percentage point to 34.6%.
Between 2020 and 2021, the tax wedge for the single worker increased in 24 of the 38 OECD countries, decreased in 12 countries, and remained the same in two countries. Increases exceeded one percentage point in Israel, the United States and Finland, while decreases exceeded one percentage point in Australia, Latvia, Greece and the Czech Republic. In almost all countries where the tax wedge has increased for this type of household, the increase is due to the increase in personal income tax. This development is explained by the interaction between higher average wages and the progressivity of income tax systems.
Between 2020 and 2021, the tax wedge of single-earner households with two children increased in 27 countries, decreased in 10 countries and remained unchanged in one country. The increase exceeded one percentage point in 10 countries, with the largest increases seen in Lithuania, Austria and Canada. Declines of more than one percentage point were seen in five countries, with the largest drop in Chile (by 25.5 percentage points) due to Emergency Family Income, a temporary support measure under of COVID-19.
The gap between the average OECD tax wedge for the single worker and the single earner couple with children widened by 0.36 percentage point between 2020 and 2021 to reach 10.2 percentage points.
The report Taxes on wages 2022 provides unique cross-country comparative data on income tax paid by employees, cash benefits received by working families and associated social security contributions as well as social charges paid by employees and employers across the country. across the OECD, which are key factors when individuals consider their employment options and companies make hiring decisions.
The report illustrates how these taxes are calculated and examines their impact on household incomes. It compares, across countries, labor costs and the overall tax and benefit situation for eight different household types, by income level and household composition (single persons , single parents, households with one or two incomes, with or without children).
The 2022 edition includes a special chapter on how labor taxation has responded to economic shocks related to the COVID-19 pandemic. It pays particular attention to the causes of changes in key indicators, including trends in average wages and changes to tax and benefit systems in response to the pandemic in 2020 and 2021. These include changes personal income tax, social security contributions, social charges and cash benefits paid to workers.
Further information and country notes are available at: https://oe.cd/taxing-wages-en.
Media inquiries should be directed to David Bradbury, Head of the OECD Tax Policy and Statistics Division (+33 1 45 24 15 97), or Lawrence Speer (+33 1 45 24 79 70) at the OECD Media Office (+33 1 45 24 97 00).
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Working with more than 100 countries, the OECD is an international policy forum dedicated to promoting policies that safeguard individual freedoms and improve the economic and social well-being of people around the world.
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