American Earners Taxed @ 31% : Income & Payroll Taxes

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Average U.S. Workers Pay 30 Percent of Earnings in Taxes
Source: Kyle Pomerleau, "A Comparison of the Tax Burden on Labor in the OECD," Tax Foundation, June 19, 2014

June 27, 2014

Kyle Pomerleau of the Tax Foundation has compiled a report detailing the differences in tax burdens on labor among OECD countries. Indeed, much of a country's tax revenue stems from taxation on wage income, through individual income taxes and payroll taxes.

In the United States, the federal income tax imposes marginal rates ranging from 10 percent to 39.6 percent of income. Payroll taxes, on the other hand, are technically levied on both the employer and the employee, to fund programs such as Medicare, Social Security and Unemployment Insurance. In practice, however, it is the employee that pays the full cost of the tax, as employers simply dock employee pay to cover the cost of the tax.

While most countries, including the United States, tax higher income earners more than lower income earners, the average earner still experiences a substantial tax burden. According to Pomerleau:

• The average American earner faces an individual income tax and a payroll tax equal to 31.3 percent of his pre-tax income, or $16,658 in 2013.
• The total tax burden faced by the average U.S. worker ranks twenty-fifth among OECD countries. The OECD average tax rate is 35.8 percent, as many countries have higher payroll taxes than the United States.
• Even though the employer pays part of the payroll tax burden, the worker ultimately pays this through lower take-home pay: facing higher labor costs because of payroll taxes, employers can either reduce wages or employment, and they tend to choose the former.

Without the income or payroll tax, the average worker would have taken home $53,223 in 2013, almost $5,000 in additional income.