When It Comes to Taxes, Other Countries Have It Worse

SAN FRANCISCO – Taxpayers still smarting from their recent tax bill might be reluctant to believe this, but the U.S. is nowhere near the top of the list when it comes to income-tax rates, according to a new report comparing tax rates in 30 countries.

In Belgium, a single worker with an average wage paid about 42% of it to the tax man in 2005, with about 28% going to income tax and 14% to the country's Social Security system, according to a report by the Organization for Economic Cooperation and Development.

In Germany, too, workers are hit with a 42% combined income- and Social Security-tax hit, while in Denmark, an average worker pays 41%.

These figures are based on tax rates for a single individual with no children, and don't count what the employer pays to Social Security on the worker's behalf.

The OECD collects data on the economies of 30 member countries, the majority of which are in Western Europe but also include the U.S., Japan, Mexico and Australia, among others.

Meanwhile, in the U.S., a worker earning an average wage owes about 24% to income tax and Social Security combined.

The U.S. places 19th among the 30 countries when looking at income taxes and employees' Social Security tax, and Mexico is No. 30 on the list: A worker earning average pay in Mexico owes about 8% in income tax and Social Security taxes combined.

Of course, countries levy other taxes, in addition to income- and Social Security-taxes, notes Christopher Heady, head of OECD's tax policy and statistics division, in Paris.

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Residents in many countries see sales taxes take a big bite out of their pocketbook. "Countries differ in how much they decide to collect in taxes on people's income and how much tax they collect on when goods are bought," Heady said.

For instance, "Mexico collects a very small amount of tax in comparison to the [other OECD countries], and even on the tax it collects, it collects most of it on the sale of goods, so it doesn't collect very much on labor," he said.

Meanwhile, Belgium levies a particularly high tax on labor income, though it doesn't collect as much in sales taxes as some other countries, such as Sweden, Finland or Denmark, he said.

'Total tax' picture looks different

When the OECD looked at total taxes levied -- including income tax, sales tax, taxes on businesses, and other taxes -- Sweden moved to the top of the list, with tax revenues at about 50% of gross domestic product, followed by Denmark at 48% and Belgium at about 46%, based on 2004 data.

That includes "all sorts of taxes, including on business, on house sales, at all levels of government -- municipality state and federal," Heady said.

At the bottom of the list: Mexico, at 19%; Japan and Korea, both at 25%; and the U.S. at 25.5%.

"The U.S. is a comparatively low-tax country. I'm sure the people filing tax returns recently wouldn't agree with that, but that's particularly because the U.S. collects a lot of its revenue from income tax and you don't have a value-added tax," Heady said.

"In European countries, we have value-added taxes which are broad-based sales taxes, which collect a lot of revenue," he said.

For instance, even though U.S. municipalities routinely tack on additional sales taxes to the 5% to 7% rates charged in many states, those add-ons still don't bring sales-tax rates here up to the level seen in other countries, Heady said.

"In Denmark, it's 25% and it applies to everything [including] hair-dressing and other services, not just the goods you buy in the shop," he said.

High tax bill, strong safety net

The taxpayers in high-tax countries do reap benefits, Heady noted.

"Most of those higher-tax countries have universal health-care systems. That means you don't have to pay for your own health care or pay for insurance to cover your health care," he said.

Also, these countries "usually have more generous state-provided retirement pensions than the U.S., so that people don't usually feel the need to buy a private pension. Usually, also, there's better provision of preschool education, and universities are cheaper. There are all sorts of public services that are provided at lower cost," he said.

On the other hand, in lower-tax countries, "the advantage is that you have more choice over how you spend your money, because you get more of it, rather than the state," he said.

"The disadvantage is that if you are unfortunate in the U.S., if you have serious medical conditions or you're out of work, then you're probably less well off than if you would be in a European country with more generous health care and unemployment benefits."

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