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Taxing Wages applications: Which tax policy questions can be addressed? Bert Brys OECD OECD Centre for Tax Policy and Administration 1
Taxing Wages applications:
Which tax policy questions can be addressed?
Bert Brys
OECDOECDCentre for Tax Policy and Administration
1
DECOMPOSITION OF THE TAX WEDGE,
INTERNATIONAL COMPARISON,
STATUTORY TAX WEDGE PROGRESSIVITY
2
Tax wedge components single taxpayer at 100% f th AW 0 hild (2007)100% of the AW, 0 children (2007)
Personal income tax Employee SSC Employer SSC
50
60
OECD average tax wedge single taxpayer at 100% of the AW (0 children) in 2007
30
40
10
20
0
10
BEL
HUN
GER
FRA
AUT
ITA SWE
NLD FIN
CZE
POL
TUR
GRC
DNK
SPA
SVK
LUX
NOR
PRT
UK
CAN US
SWI
JPN ICL
AUS
IRL
NZL
KOR
MEX
3
H G F A S N P T G D S N C S A K M
Average personal income tax i it ((T167 T67)/T167)*100progressivity ((T167-T67)/T167)*100
140 2000 2007
100
120
Statutory personal income tax progressivity: OECD average in 2000 and 2007
60
80
100
40
60
0
20
US
UT EL AN ZE NK IN RA ER RC UN CL RL TA PN OR
UX EX LD ZL OR OL RT VK PA WE
WI
UR
UK US
4
AU AU B C A C D N F F R GE GR HUI I I T JP KO LU M NL N NO PO PR SV S SW SW TU U U
Average tax wedge progressivity ((TW167 TW67)/TW167)*100((TW167-TW67)/TW167)*100
70
2000 2007
50
60Statutory tax wedge progressivity: OECD average in 2000 and 2007
30
40
10
20
20
‐10
0
AUS
AUT
BEL
CAN
CZE
DNK
FIN
FRA
GER
GRC
HUN ICL
IRL
ITA
JPN
KOR
LUX
MEX
NLD NZL
NOR
POL
PRT
SVK
SPA
SWE
SWI
TUR
UK US
5
‐20
MAKE WORK PAY POLICIES /
IN-WORK TAX CREDITS
6
BELGIUM: single, 0 children, 2005Average income tax + employee SSC – cash transfers
90,000 60%
70,000
80,000
,
r ye
ar
50%
40,000
50,000
60,000
curr
ency
per
30%
40%
20,000
30,000
Nat
iona
l c
10%
20%
0
10,000
30 40 50 60 70 80 90 100
110
120
130
140
150
160
170
180
190
200
210
220
% of AW
0%
7
% of AW
BELGIUM: single, 0 children, 2005ar 80%
90%
renc
y pe
r ye
a
50%
60%
70%
80%
ET
R
Nat
iona
l cur
r
20%
30%
40%
50%
ME
30 40 50 60 70 80 90 100
110
120
130
140
150
160
170
180
190
200
210
220
N
0%
10%
0%
% of AW
METR (right) Marginal Wedge (right) AETR Average Tax Wedge
8
HOW GENEROUS IS A COUNTRY’S BENEFIT SYSTEM?
9
Ireland, single taxpayer 0 children 2007, g p y50%50%
30%
40%
30%
40%
10%
20%
10%
20%
0%
10%
0%
10%
50 60 70 80 90 00 10 20 30 40 50 60 70 80 90 00 10 20 30 40 505 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
employer SSC as % of total labour costs employee SSC as % of total labour costs
average local income tax as % of total labour costs average central income tax as % of total labour costs
family benefits as % of total labour costs average tax wedge (sum of the components)
10
net personal average tax rate as % of gross wage earnings
Ireland, single parent 2 children 2007Ireland, single parent 2 children 2007
40%40%
0%
20%
0%
20%
-20%
0%
-20%
0%
50 60 70 80 90 100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
-60%
-40%
-60%
-40%
-80%-80%
average central income tax as % of total labour costs average local income tax as % of total labour costsemployee SSC as % of total labour costs employer SSC as % of total labour costsfamily benefits as % of total labour costs average tax wedge (sum of the components)
11
a y be e ts as % o tota abou costs a e age ta edge (su o t e co po e ts)net personal average tax rate as % of gross wage earnings
WHAT IS THE IMPACT OF REDUCING THE AVAILABLE CHILD BENEFITS
WITH INCOME?
12
Ireland, single parent 2 children 2007, g p
90%
100%
90%
100%
60%
70%
80%
60%
70%
80%
30%
40%
50%
30%
40%
50%
0%
10%
20%
0%
10%
20%
50 60 70 80 90 100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
marginal family benefits marginal central income taxmarginal local income tax marginal employee SSC
i l l SSC i l t d ( f th t )
13
marginal employer SSC marginal tax wedge (sum of the components)net personal marginal tax rate
DO SECONDARY EARNERS FACE A TAX-INDUCED INCENTIVE
TO ENTER THE LABOUR MARKET?
14
Marginal tax wedge one-earner married couple 2 children 2006couple, 2 children, 2006
married couple, 100%-0% AW, 2 children, PRINCIPAL EARNERmarried couple, 100%-0% AW, 2 children, SECOND EARNER
70
80
90
50
60
70
20
30
40
0
10
20
R K A A L L S E A N N D R S N L WI N K
15
GER
DN
K
FRA
ITA
BEL
POL
US
SWE
SPA
HU
N
CAN NLD
NO
R
AUS
FIN
IRL
SW JPN UK
BENEFITS AND WAGES:
About benefits, poverty lines, net replacement rates and unemployment trap
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Benefits and Wages publication: i l di dditi l b fit i thincluding additional benefits in the
Taxing Wages framework
Unemployment insuranceUnemployment assistanceUnemployment assistanceSocial assistanceBenefits available to the young unemployedBenefits available to the young unemployedHousing benefitsFamily benefitsLone-parent benefitsEmployment-conditional benefits
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Net replacement ratesNet replacement rates
Net replacement rates (NRR) measure to whichNet replacement rates (NRR) measure to which extent tax-benefit regulations assure income adequacy in case of loss of employment.
NRR = net income while out of work / net income while in work
NRRs compare total family income between two different work situations of one particular household member. They capture the degree of income protection provided by both the tax-benefit system (and any incomes of other household members)
18
( y )
Net replacement rates IIp
single at 100% AW without children
i d l t 100% f AW ith 2 hild
80 090.0100.0
one‐earner married couple at 100% of AW with 2 children
50.060.070.080.0
10 020.030.040.0
0.010.0
LUX
PRT
SWI
FRA
NLD
NOR
SVK
CAN
DNK
ITA
SPA
SWE
US
GER BEL
AUT
FIN
JPN ICL
POL
CZE
KOR
UK
HUN
NZL
TUR
GRC AUS
IRL
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N C D S A H G A
Net replacement rates over a five-year i d 2005 ( t i l di SA)period, 2005 (not including SA)
AUS AUT BEL CAN CZE DNK FIN
80
90
50
60
70
30
40
50
10
20
30
200
0 5 10 15 20 25 30 35 40 45 50 55 60
Net replacement rates over a five-year period, 2005 (including SA)
AUS AUT BEL CAN CZE DNK FIN
80
90
AUS AUT BEL CAN CZE DNK FIN
60
70
30
40
50
10
20
30
210
0 5 10 15 20 25 30 35 40 45 50 55 60
Unemployment / inactivity trapsUnemployment / inactivity traps
AETRS measures by how much benefits decrease and taxes increase when entering employment
Does it pay to enter the labour market?
change in net incomeAETR = 1 –AETR = 1 –
change in gross income
22
AETRs for short-term unemployed persons re-entering employment, 2005
single, 0 children: from 0% to 100% of AWone‐earner married couple, 2 children: from 0% to 100% of AW
708090100
40506070
0102030
23
0
LUX
PRT
DNK
SWI
FRA
GER BEL
NLD
NOR
SWE
CAN
ITA US
AUT
SPA
FIN
POL
ICL
CZE
HUN
TUR
UK
JPN
GRC NZL
AUS
SVK
IRL
KOR
WHAT IS THE EFFECT OF BRACKET CREEP?
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Bracket creep in Luxembourg: single taxpayer (2000-2006)
3%
0%
1%
2%
-2%
-1%
0%
%
-4%
-3%
% f AW
-6%
-5%
30 40 50 60 70 80 90 100
110
120
130
140
150
160
170
180
190
200
210
220
% of AW
actual change in the average tax wedge (2000 - 2006) tax burden effect of legislative tax policy
Tax Burden Effect of Real Earnings Growth Tax Burden Effect of Bracket Creep
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Tax Burden Effect of Real Earnings Growth Tax Burden Effect of Bracket Creep
Bracket creep in Iceland: single parent (2000-2006)
25%
10%
15%
20%
-5%
0%
5%
20%
-15%
-10%
% of AW
-25%
-20%
30 40 50 60 70 80 90 100
110
120
130
140
150
160
170
180
190
200
210
220
% of AW
actual change in the average tax wedge (2000 - 2006) tax burden effect of legislative tax policy
Tax Burden Effect of Real Earnings Growth Tax Burden Effect of Bracket Creep
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Tax Burden Effect of Real Earnings Growth Tax Burden Effect of Bracket Creep
