{"id":8535,"date":"2022-12-17T15:02:05","date_gmt":"2022-12-17T15:02:05","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=8535"},"modified":"2022-12-17T16:31:44","modified_gmt":"2022-12-17T16:31:44","slug":"wages_2023","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2022\/12\/17\/wages_2023\/","title":{"rendered":"Updated: do Brits pay more or less tax on our wages than people in other countries?"},"content":{"rendered":"\n<p><strong><em>How do UK\/Scottish taxes on wages compare with other countries&#8217;? It&#8217;s a simple question &#8211; but not straightforward to answer.<\/em><\/strong><\/p>\n\n\n\n<p>Looking just at rates is misleading. This chart<sup class=\"modern-footnotes-footnote \" data-mfn=\"1\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8535\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8535-1\">1<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8535-1\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"1\">This combines income tax and employee national insurance\/social security, and for countries (like the US) where there are state taxes as well as national taxes, it adds in the average state tax.<\/span>, for example, suggests that the top rate of UK tax is comparable with the US. That&#8217;s not really right. In the US, the top rate of Federal income tax (and, often, state income tax) kicks in at $523,600. The top UK rate &#8211; now 45% &#8211; applies from \u00a3125,140. So for most reasonably high-earning people, tax rates in the US are significantly less.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-style-default\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"437\" src=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/12\/image-6-1024x437.png\" alt=\"\" class=\"wp-image-8538\" srcset=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/12\/image-6-1024x437.png 1024w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/12\/image-6-768x328.png 768w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/12\/image-6.png 1786w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>A better question is, what&#8217;s the effective tax rate &#8211; the &#8220;tax wedge&#8221; on any given amount of income?<\/p>\n\n\n\n<p>My answer is this chart &#8211; and you can click on it for an interactive version that lets you add\/remove countries:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-style-default\"><a href=\"https:\/\/heacham.neidles.com\/wages_chart\/\"><img decoding=\"async\" width=\"1024\" height=\"651\" src=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/12\/Screenshot-2022-12-17-at-15.40.28-1024x651.png\" alt=\"\" class=\"wp-image-8547\" srcset=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/12\/Screenshot-2022-12-17-at-15.40.28-1024x651.png 1024w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/12\/Screenshot-2022-12-17-at-15.40.28-768x488.png 768w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/a><\/figure>\n\n\n\n<p>Some immediate conclusions:<\/p>\n\n\n\n<ul>\n<li>The UK\/Scotland has a much <strong>lower <\/strong>effective tax rate on average wages, and lower than average wages, than almost every other developed country.<\/li>\n\n\n\n<li>This then starts catching up quite quickly once we approach twice the average wage. And once we&#8217;re on high incomes, UK effective rates look a bit more average. Less than the expansive Continental welfare states. More than smaller countries, the US, and other countries with much less generous welfare states.  <\/li>\n\n\n\n<li>So a good case can be made that the UK is undertaxed by international standards. That&#8217;s not something many people in the UK believe, but it doesn&#8217;t stop it being true&#8230;<\/li>\n<\/ul>\n\n\n\n<p>  Quick notes on where the data in the chart comes from:<\/p>\n\n\n\n<ul>\n<li>The chart is generated by some <a rel=\"noreferrer noopener\" href=\"https:\/\/github.com\/DanNeidle\/2023_wages\" target=\"_blank\">simple code<\/a>, that takes worldwide data for tax rates and threshold (from the wonderful OECD <a rel=\"noreferrer noopener\" href=\"https:\/\/www.oecd.org\/ctp\/tax-policy\/tax-database\/\" target=\"_blank\">tax database<\/a>), applies it to different income levels.<\/li>\n\n\n\n<li>The effective tax rates include employer national insurance\/social security.<sup class=\"modern-footnotes-footnote \" data-mfn=\"2\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8535\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8535-2\">2<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8535-2\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"2\">But not the apprenticeship levy because it&#8217;s kinda sorta hypothecated&#8230; you could definitely make a case it should be included<\/span> We don&#8217;t see employer wage taxes in our wage slips, but <a rel=\"noreferrer noopener\" href=\"https:\/\/voxeu.org\/article\/who-really-pays-social-security-contributions-and-labour-taxes\" target=\"_blank\">evidence<\/a> <a rel=\"noreferrer noopener\" href=\"https:\/\/ifs.org.uk\/media\/443\/download\" target=\"_blank\">suggests<\/a> it is mostly borne by workers.<sup class=\"modern-footnotes-footnote \" data-mfn=\"3\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8535\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8535-3\">3<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8535-3\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"3\">i.e. because the employer has an amount they&#8217;re willing\/able to pay as wages, and employer NICs come out of that).<\/span><\/li>\n\n\n\n<li>The x axis isn&#8217;t an absolute dollar amount, as realistically we can&#8217;t compare taxes on \u00a3100k in the UK with \u00a3100k in Costa Rica. Instead, the x axis is a multiple of average wages &#8211; so we are comparing tax on (e.g.) the UK average wage with tax on the Costa Rican\/French\/etc average wage.<sup class=\"modern-footnotes-footnote \" data-mfn=\"4\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8535\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8535-4\">4<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8535-4\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"4\">But the UK and Scottish figures just use the UK average wage, because my feeling is that this is the comparison people are interested in<\/span><\/li>\n\n\n\n<li>The chart doesn&#8217;t take account of tax reliefs\/deductions &#8211; these are generally quite limited in Europe, but very generous in the US&#8230; so again the chart overstates the actual tax Americans pay.<\/li>\n\n\n\n<li>The data is now updated for the 2023\/24 UK and Scottish rates, but other countries are not updated (I have no good source for the data). Given the wider economic circumstances, it&#8217;s plausible that taxes will be going up worldwide, and so this chart may make the UK\/Scotland rates look relatively higher than they actually are.<\/li>\n\n\n\n<li>See my <a rel=\"noreferrer noopener\" href=\"https:\/\/heacham.neidles.com\/tax-wedge\" target=\"_blank\">previous post<\/a> for more detail on the methodology and a complete list of caveats and limitations.<\/li>\n<\/ul>\n\n\n\n<p>And if you don&#8217;t want to believe my chart, here&#8217;s the OECD&#8217;s own chart showing the effective rate of tax on average incomes:<sup class=\"modern-footnotes-footnote \" data-mfn=\"5\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_8535\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_8535-5\">5<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_8535-5\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"5\">original version <a rel=\"noreferrer noopener\" href=\"https:\/\/www.oecd-ilibrary.org\/sites\/bdfe626d-en\/index.html?itemId=\/content\/component\/bdfe626d-en\" target=\"_blank\">here<\/a><\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-style-default\"><img decoding=\"async\" width=\"684\" height=\"1024\" src=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/09\/Screenshot-2022-09-24-at-11.44.24-684x1024.png\" alt=\"\" class=\"wp-image-7709\" srcset=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/09\/Screenshot-2022-09-24-at-11.44.24-684x1024.png 684w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/09\/Screenshot-2022-09-24-at-11.44.24-768x1151.png 768w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/09\/Screenshot-2022-09-24-at-11.44.24.png 1048w\" sizes=\"(max-width: 684px) 100vw, 684px\" \/><\/figure>\n\n\n\n<p>I continue to think that, if we want a Scandinavian level of public services, then most people have to pay similar levels of tax to most people in Scandinavia. Sorry about that.<\/p>\n\n\n\n<div style=\"height:100px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<p>Photo by <a href=\"https:\/\/unsplash.com\/@nuvaproductions?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText\">Javier Miranda<\/a> on <a href=\"https:\/\/unsplash.com\/s\/photos\/earth?utm_source=unsplash&amp;utm_medium=referral&amp;utm_content=creditCopyText\">Unsplash<\/a><\/p>\n\n\n\n<ul class=\"modern-footnotes-list \"><li><span>1<\/span><div>This combines income tax and employee national insurance\/social security, and for countries (like the US) where there are state taxes as well as national taxes, it adds in the average state tax.<\/div><\/li><li><span>2<\/span><div>But not the apprenticeship levy because it&#8217;s kinda sorta hypothecated&#8230; you could definitely make a case it should be included<\/div><\/li><li><span>3<\/span><div>i.e. because the employer has an amount they&#8217;re willing\/able to pay as wages, and employer NICs come out of that).<\/div><\/li><li><span>4<\/span><div>But the UK and Scottish figures just use the UK average wage, because my feeling is that this is the comparison people are interested in<\/div><\/li><li><span>5<\/span><div>original version <a rel=\"noreferrer noopener\" href=\"https:\/\/www.oecd-ilibrary.org\/sites\/bdfe626d-en\/index.html?itemId=\/content\/component\/bdfe626d-en\" target=\"_blank\">here<\/a><\/div><\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>How do UK\/Scottish taxes on wages compare with other countries&#8217;? It&#8217;s a simple question &#8211; but not straightforward to answer. Looking just at rates is misleading. This chart, for example, suggests that the top rate of UK tax is comparable with the US. That&#8217;s not really right. In the US, the top rate of Federal [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":8542,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[88],"tags":[91,103],"jetpack_featured_media_url":"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2022\/12\/javier-miranda-Jn2EaLLYZfY-unsplash-scaled.jpg","_links":{"self":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/8535"}],"collection":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/comments?post=8535"}],"version-history":[{"count":8,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/8535\/revisions"}],"predecessor-version":[{"id":8553,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/8535\/revisions\/8553"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media\/8542"}],"wp:attachment":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media?parent=8535"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/categories?post=8535"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/tags?post=8535"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}