September 30, 2023

Study Finds Tax Burden Rising on Workers

PARIS — The tax burden on Western workers’ earnings climbed in 2010 for the first time in years, a trend that could put at risk long-term prospects for employment and economic growth, an international organization said Wednesday.

A report from the Organization for Economic Cooperation and Development, “Taxing Wages,” showed that the “tax wedge” — the average tax and social security burden on incomes — rose last year in 22 of the organization’s 34 member states. It was the first time that the overall burden had risen since the O.E.C.D. started collating such data a decade ago.

“There’s clearly now a trend for this figure to rise, reflecting the recent pressure for countries to consolidate their budgets,” said Jeffrey Owens, director of O.E.C.D.’s tax division.

He added that the combination of higher income taxes in some countries, including Ireland and Spain, along with steady or rising social charges for companies and employees and higher inflation across the O.E.C.D., means that real disposable incomes are also being squeezed for the first time in more than a decade.

The Netherlands, Spain and Iceland were among the countries experiencing significant increases in the tax wedge due to increases in social security charges, taxes or both. The burden also climbed in the United States, Britain and France. Denmark, Greece, Germany and Hungary were among countries showing declines.

Like most other international organizations, the O.E.C.D. has stressed the need for Western governments to reduce budget gaps in the wake of the financial crisis. But the O.E.C.D. also regularly warns that high taxes on labor and incomes can reduce work force participation and raise unemployment, especially for low-income workers.

“Balancing the budgets will invariably involve some form of tax increases,” Mr. Owens said. “The question is how to do this while minimizing the danger to longer-term growth.”

To bring budgets into balance and restore growth, the O.E.C.D. calls on governments to shift the fiscal mix away from direct taxes and toward indirect levies — for example, by raising value-added and property taxes and reducing tax loopholes, rather than increasing income tax and social security charges.

Yet while the burden on labor appears to be mounting, surveys suggest that companies are not being charged more directly. According to a KPMG study released late last year, average corporate tax rates in the O.E.C.D. were steady in 2010 at 25.94 percent from a year earlier, but down from 28.31 percent in 2005.

Governments are reluctant to raise corporate tax rates, fearing that companies will choose to invest elsewhere or shed jobs.

Businesses, of course, often do not always pay the official tax rate — they may be given any number of deferrals, write-offs or deductions. At the moment, for example, many banks are paying low effective rates because they are deducting from their taxable income losses they incurred during the financial crisis.

The latest O.E.C.D. data show that corporate tax rates as a percent of total tax receipts fell to 10.1 percent in 2008, from 10.8 percent in 2007 and 10.2 percent in 2005.

The KPMG same survey also found that indirect taxes were rising, both globally and among Western industrialized countries. In the O.E.C.D. area, average indirect tax rates increased to 18.28 percent in 2010 from 17.70 percent a year earlier and 17.83 percent in 2005.

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