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US taxes compare favorably

By Kay Bell ·
Thursday, May 12, 2011
Posted: 1 pm ET

Most American taxpayers believe they are overtaxed. Guess what? We're actually in better shape than taxpayers worldwide.

The Organization for Economic Cooperation and Development, or OECD, reports that the overall tax burden on Western workers' earnings climbed in 2010 for the first time since the OECD started analyzing such data a decade ago.

The OECD's most recent annual Taxing Wages study found increases in 22 of the organization's 34 member nations. But the one bit of good news is that the increases generally were small.

The global study each year examines income taxes paid by workers, plus Social Security contributions by workers and employers, minus cash transfers as a percentage of total labor costs. The OECD refers to this final amount as a country's "tax wedge."

The group's calculations also include family benefits, as well as incorporate data for different income levels and household types. The results show the average and marginal effective tax burden on employees and the total labor costs of employers.

Taxwise, the Netherlands, Spain and Iceland were among the countries experiencing significant increases in the OECD study. Denmark, Greece, Germany and Hungary were among those showing the biggest drops.

Breaking it down further, the study found that France, Belgium and Italy were the highest-tax countries for one-earner married couples who have two children and earn the average wage. The "tax wedges" are 42.1 percent in France, 39.6 percent in Belgium and 37.2 percent in Italy.

Meanwhile, back on this side of the pond, the report's computations show that the United States is one of the countries that levies a relatively low tax burden on worker income.

The U.S. tax wedge of 16.3 percent ranks the nation 26th of the 34 countries on the OECD list. The tax wedge decreased for all family types over the past 11 years, dropping the most for low-income single parents with two children and for one-earner married couples with average income and two children. Taxes for those U.S. taxpayers are more than 8 percentage points below the OECD average.

Be sure to thank your members of Congress for all those nice family-friendly tax breaks that keep the U.S. below other nations globally. But also remember, those are the same things that are complicating the current budget and deficit reduction debates on Capitol Hill.

You also might want to share this OECD suggestion with your lawmakers: In order to restore public finances and put national economies on higher growth paths, governments should consider, among other things, broadening the personal income tax base by eliminating tax expenditures -- those tax breaks I just mentioned -- rather than increasing tax rates and Social Security charges.

Yep, it sure sounds like the international economic group agrees with many of the proposals to revamp the U.S. tax code.

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