The OECD defines tax as a compulsory unrequited payment to the government. A taxable base is the base amount on which the tax rate is applied—such as corporate income, personal income, or property.
There are many ways to compare the tax burden that different countries place on their citizens—for example, the lowest income tax rate in a country, the highest income tax rate, corporate tax rates, marginal tax rate thresholds, the highest or lowest tax wedge, and so on. However, comparing tax rates can be difficult, given complex tax laws and the varying perception of what constitutes a high tax burden by different groups within an economy.
One commonly-used tool of comparison is the marginal tax rate, which is simply the tax rate on the highest income tax bracket. The OECD defines it as the tax rate applicable to the top slice or bracket of a taxpayer's income or other taxable income, where the relevant tax on such items is levied at progressive rates.
The tax wedge is the tax paid as a percentage of overall labor costs. It is defined as the sum of personal income tax and employee plus employer social security contributions together with any payroll tax less cash transfers, expressed as a percentage of labor costs.
Tax regimes may be progressive—where tax rates increase as the taxable base increases—regressive—where the tax rate decreases as the taxable base increases—or proportional (also called a flat tax rate)—where the tax rate stays the same regardless of the size of taxable base. A tax system may use different taxation methods for different types of income—for example, a progressive tax for income tax and a flat tax for sales tax.
Many countries now use aspects of progressive tax—in particular as a taxation method for individual income tax. The US, for example, uses a progressive tax regime for taxing individual wage income.
According to World Bank data, Denmark currently has the highest top marginal tax bracket worldwide, with a tax rate of up to 62.3%. Sweden has the second-highest marginal tax rate—at 56.7%—and The Netherlands comes in third, at 52%. Austria, Belgium, The Congo and Japan follow closely at 50%.
At the other end of the spectrum, of those countries listed in the World Bank research, those with the lowest top marginal tax rate are Paraguay, Bulgaria, the Cote D’Ivoire, and Kazakhstan—which all have a maximum individual tax rate of 10%. They are followed by the Russian Federation at a 13% top marginal tax rate.
For the 17 years from 1965-1981, the top individual marginal tax rate for American taxpayers was 70%—double the 35% top rate for 2010 (Source: Internal Revenue Service, BTN Research). The US now has the highest top marginal tax rate of its partners in NAFTA, as Canada and Mexico have a top marginal tax rate of 29% and 28%, respectively.
According to the OECD Taxing Wages Report 2008-2009, the average tax wedge, the income tax burden and the net tax burden in OECD countries (personal income tax plus social security contributions less cash benefits) have declined on average when comparing levels in 2009 with those in 2000 for all family types.
World Bank Highest Marginal Tax Rate
Indicator: Highest marginal tax rate, individual rate (%)
Description: Highest marginal tax rate (individual rate) is the highest rate shown on the schedule of tax rates applied to the taxable income of individuals.
Source: PricewaterhouseCoopers, Individual Taxes: Worldwide Summaries, by permission of John Wiley and Sons, Inc.
Data is from the World Bank’s Highest Marginal Tax Rate, Individual Rate (%), 2003-2009. The highest marginal tax rate (individual rate) is the highest rate shown on the schedule of tax rates applied to the taxable income of individuals.
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