The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.
The graphs in this section show the tax burden on labour income in 2017 for gross wage earnings between 50% and 250% of the average wage (AW). For each OECD member country, there are separate graphs for four family types: single taxpayers without children, single parents with two children, one-earner married couples without children and one-earner married couples with two children. The net personal average and marginal tax rates ([the change in] personal income taxes and employee social security contributions net of cash benefits as a percentage of [the change in] gross wage earnings) are included in the graphs that show respectively the average and the marginal tax wedge.1
The graphs illustrate the relative importance of the different components of the tax wedges: central government income taxes, local government income taxes, employee social security contributions, employer social security contributions (including payroll taxes where applicable) and cash benefits as a percentage of total labour costs. It should be noted that a decreasing share in total labour costs implies that the values of tax payments less benefits are not increasing as rapidly as the corresponding total labour costs. It does not necessarily imply that the values of payments less benefits are decreasing in cash terms.
Low-income households are treated favourably by the tax-benefit system in many OECD countries. Negative central government income taxes are observed in Belgium because of the non-wastable tax credits for low income workers and for dependent children; in Canada because of the non-wastable working income tax benefit; in the Czech Republic, Germany, the Slovak Republic and the United Kingdom because of non-wastable child tax credits; in Israel because of the non-wastable earned income tax credit (EITC) for families with children (since 2016, single parents have been eligible for the EITC for a wider income range); in Italy because of the Fiscal Bonus targeting low income workers; in Latvia because of a non-wastable tax credit calculated on the over-paid tax of the previous year, which was introduced in 2016; in Luxembourg and Spain because of non-wastable tax credits for single parents; in Mexico because of the non-wastable employment subsidy credit; in Poland because of a conditional refundable child tax credit since 2015 and in the United States because of the non-wastable EITC and the child tax credit. Concerning Sweden, the charts show negative central government income taxes due to an EITC. However, the tax credit is wastable in the sense that it cannot reduce the total individual’s tax payments to less than zero. As a matter of fact, the EITC is also deducted from the local government income tax.
When cash benefits are also taken into account, single parents and/or one-earner married couples with two children do not pay income taxes and employee social security contributions at income levels between 50% and 101% of the AW in twenty OECD member countries. For example, the net personal average tax rate for single parents with two children becomes positive at 83% of the AW in Poland, 88% of the AW in New Zealand, 96% of the AW in Ireland and 98% of the AW in Canada. The corresponding measure for one-earner married couples with two children becomes positive at 88% of the AW in New Zealand, 99% of the AW in Canada, at 98% of the AW level in Ireland and at 105% of the AW in Poland.
There are large variations in cash benefit levels across OECD countries. They represent about a quarter or more of total labour costs for low-income single parents and/or one-earner married couples with two children in Australia, Canada, Denmark, Estonia, France, Ireland, Luxembourg, New Zealand, Poland and Slovenia.
The marginal tax wedge is relatively flat across the earnings distribution in some countries because of the flat social security contribution and personal income tax rates. Single taxpayers without children face a flat marginal tax wedge all over the 50% to 250% of AW income range in the Czech Republic (48.6%), Estonia (41.2%) and Hungary (46.2%). The marginal tax wedge is also relatively constant in Chile, Iceland, Latvia, Poland and the United Kingdom. In Chile, it is 7.0% on earnings up to 100% of the AW, it rises to 10.3% from 101% of the AW to 222% of the AW and then to 13.5% on higher earnings up to 250% of the AW. In Iceland, the marginal tax wedge is 39.6% on earnings below 117% of the AW and then 48.0% on earnings from 118% of the AW to 250% of the AW. In Latvia, it is 44.9% on earnings below 118% of the AW and 44.2% from 119% of the AW to 250% of the AW. In Poland, the marginal tax wedge is 37.0% between 50% and 202% of the AW, and then 48.4% up to 250% of the AW. In the United Kingdom, it is 40.2% on earnings below 117% of the AW and then 49.0% on earnings between 118% and 250% of the AW.
Social security contributions are levied at flat rates in many OECD countries. Some countries have an earnings ceiling above which no additional social security contributions have to be paid. The variations in the marginal social security contributions are in general the same for the four family types, since the contribution rates or income ceilings do not vary depending on the marital status or the number of dependent children. Nevertheless, in Hungary the marginal employee social security contributions are higher for the families with children, at low income levels, due to the impact of the withdrawal of the child tax allowance with increasing earnings. Families whose combined personal income tax base is not sufficient to claim the maximum amount of the family tax allowance can deduct the remaining sum from the health insurance and pension contributions.
Within the income range of 50% to 250% of the AW, the marginal employer social security rates fall to zero as a result of income ceilings in Germany (at 155% of the AW), Luxembourg (at 205% of the AW), the Netherlands (at 111% of the AW) and Spain (170% of the AW). The marginal employee social security rates fall to zero in Austria (at 152% of the AW), Canada (at 108% of the AW), Germany (at 155% of the AW), Spain (at 170% of the AW) and Sweden (at 114% of the AW).
In addition, taxpayers experience declining marginal employee and/or employer social security contribution rates as percentage of total labour costs over some parts of the earnings range as income increases. This can be observed in Austria, Belgium, Canada, France, Germany, Japan, Korea, Luxembourg, the Netherlands, the Slovak Republic, Switzerland, the United Kingdom and the United States. Large decreases in the marginal rates as percentage of total labour costs were observed in Luxembourg where the marginal employee social security contribution rate drops from 11.10% to 1.40% on earnings above 204% of the AW, in the United Kingdom where the marginal employee social security contribution rate drops from 10.54% to 1.76% of earnings above 117% of the AW and in the United States where the marginal employer and employee social security contribution rates drop from 7.11% to 1.43% on earnings above 240% of the AW.
Taxpayers face marginal tax rates and wedges of about 80% or more in several of OECD countries at particular earnings levels. This is the case for low-income taxpayers without children in Australia, Austria, Belgium, France, Ireland, Italy, Mexico, Portugal, Slovenia, Turkey and the United Kingdom. They also apply to families with children in Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Estonia, Finland, France, Greece, Ireland, Italy, Japan, Luxembourg, Mexico, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Turkey and the United Kingdom. In many countries, these high marginal tax rates are partly the result, as income rises, in reductions in benefits, allowances or tax credits that are targeted at low-income taxpayers.
The zigzag movement in the marginal tax burdens observed in some of the graphs arises when the changes in taxes, social security contributions, and/or cash benefits for small rises in income vary over the income range in a non-continuous way. This is the case because of rounding rules in Germany, Luxembourg, Sweden and Switzerland; the discrete characteristics of the PAYE (Pay As You Earn) tax credit, the spouse tax credit and the child transfers in Italy; and in the United States because of the truncation of gross earnings in the calculation of the child tax credit.
