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Q: Tax Rates - USA vs. Europe ( Answered 5 out of 5 stars,   3 Comments )
Question  
Subject: Tax Rates - USA vs. Europe
Category: Miscellaneous
Asked by: patrice29-ga
List Price: $10.00
Posted: 18 Apr 2004 08:16 PDT
Expires: 18 May 2004 08:16 PDT
Question ID: 332116
Curious about Tax rates in Europe. I've been told they're much higher
than in the USA. Specifically I'm interested in tax rates in Great
Britan, Denmark, Germany and France.

Please compare for an income level, equivalent to 50,000 in the USA,
which could possibly be considered median for the educated workforce.
Please don't give me an explanation of how 'median' differs from
average or mean.

I'm not looking for exact figures so much as fairly accurate figures.
Perhaps even educated guesses.

Lets say this is a person who does not own a home and itemize taxes,
but uses the standard decuction.

This is how tax on $50,000 would come down living in Connecticut:
Fed Tax: 15% (filing as head of household)
State Tax: 6%
Social Security: 7.5%
Medicare: 1.75%
Total: 30%

Clarification of Question by patrice29-ga on 18 Apr 2004 10:11 PDT
I should have mentioned that (in nearly every state) there is also a
sales tax, usually about 7%.

Of course you don't spend all of your yearly income in a manner that
recieves this tax, but it's still a significant addition to taxes. Of
course there is also property tax in the states, but for the purpose
of trying to keep some simplicity, this might be ignored.

Again, this may be too complex a subject for actually running numbers,
and should lean towards the general trend, general conscensus, or ball
park type analysis.

Patrice

Request for Question Clarification by pafalafa-ga on 18 Apr 2004 18:11 PDT
Thanks for an interesting question.

The Organisation for Economic Cooperation and Development (OECD) in
Paris collects this type of comparative income tax data, and has a
long-standing methodology for comparing very different sorts of
systems.

An extensive spreadsheet table comparing income tax "wedges" (as they
are called by the OECD) from member countries for 2001, can be found
here:

http://www.oecd.org/LongAbstract/0,2546,en_2649_201185_1942475_1_1_1_1,00.html

in a title repeated no less than three times on the same page:

"Average personal income tax and social security contribution rates on
gross labour income".

The detailed breakdowns (federal tax, local taxes, social security)
can be seen in the table itself.  The "bottom line" figures for the
countries you are interested in are:



UK

The total tax wedge is 29.7% for the average wage earner 

("average" wage is found in the 100% column -- tax wedges for lower
and higher wage earners are found in the adjacent columns)


Denmark

The total tax wedge is 44.2% for the average wage earner

(*ouch* -- but they do have GREAT social benefits in Denmark).


Germany

The total tax wedge is 50.7% for the average wage earner

(double *ouch*)


France

The total tax wedge is 48.3% for the average wage earner


US

The total tax wedge is 30.0% for the average wage earner


(Exactly where you said it should be -- so what are we always
complaining about...?)


I'm used to reading off tables like these, but if you need any
additional help in accessing it, using it, or understanding it, just
let me know prior to rating this answer.  Just post a Request for
Clarification, and I'll be happy to assist you further.

Cheers,

pafalafa-ga


search strategy:  I was familiar with the OECD work, and searched their site for it.
Answer  
Subject: Re: Tax Rates - USA vs. Europe
Answered By: pafalafa-ga on 18 Apr 2004 18:16 PDT
Rated:5 out of 5 stars
 
Thanks for an interesting question.

The Organisation for Economic Cooperation and Development (OECD) in
Paris collects this type of comparative income tax data, and has a
long-standing methodology for comparing very different sorts of
systems.

An extensive spreadsheet table comparing income tax "wedges" (as they
are called by the OECD) from member countries for 2001, can be found
here:

http://www.oecd.org/LongAbstract/0,2546,en_2649_201185_1942475_1_1_1_1,00.html

in a title repeated no less than three times on the same page:

"Average personal income tax and social security contribution rates on
gross labour income".

The detailed breakdowns (federal tax, local taxes, social security)
can be seen in the table itself.  The "bottom line" figures for the
countries you are interested in are:



UK

The total tax wedge is 29.7% for the average wage earner 

("average" wage is found in the 100% column -- tax wedges for lower
and higher wage earners are found in the adjacent columns)


Denmark

The total tax wedge is 44.2% for the average wage earner

(*ouch* -- but they do have GREAT social benefits in Denmark).


Germany

The total tax wedge is 50.7% for the average wage earner

(double *ouch*)


France

The total tax wedge is 48.3% for the average wage earner


US

The total tax wedge is 30.0% for the average wage earner


(Exactly where you said it should be -- so what are we always
complaining about...?)


I'm used to reading off tables like these, but if you need any
additional help in accessing it, using it, or understanding it, just
let me know prior to rating this answer.  Just post a Request for
Clarification, and I'll be happy to assist you further.

Cheers,

pafalafa-ga


search strategy:  I was familiar with the OECD work, and searched
their site for it.


P.S.  I posted this first as a Request for Clarification, above, quite
by accident.  So I've re-posted here as the answer.

Request for Answer Clarification by patrice29-ga on 19 Apr 2004 19:18 PDT
I assume these countries also have a sales tax. Again in the US it's
about 7%. Is this true in Europe, and how much. Ball Park figures are
all I'm hoping to learn.

Patrice

Clarification of Answer by pafalafa-ga on 19 Apr 2004 20:22 PDT
Here ya' go.

The OECD has yet another report entitled "Consumption Tax Trends" that
has the information you're after, though it's a bit difficult to slog
through it all.

The report itself is at:

http://www1.oecd.org/publications/e-book/2301111e.pdf

and the relevant information you want is in Chapter 3.  

Specifically, on page 13 you'll find Table 3.2, "Taxes on General
Consumption" which lists tax rates for all OECD countries.

WARNING! WARNING!  The numbers in the table are not the usual tax
rates you're used to (e.g. 7% sales tax).  Instead, they show the
amount of revenue collected through consumption taxes (what we call
sales taxes) as a percentage of total tax revenue.

The relevant figures for the countries of interest to you are:

US............7.6%

UK...........18.1

Denmark......19.6

Germany......17.9

France.......17.5

That is, the US gets a relatively small chunk (7.6%) of overall tax
revenue from sales tax, while countries in Europe rely on it much more
heavily for their tax income.

How does this translate into actual sales/consumption tax rates?

Table 3.5 (page 16)compares VAT (value added tax) rates for the
countries that have them.  The table doesn't include the US, but you
already are familiar with general sales tax rates in America.  For
other countries, the nominal VAT tax rate is:

UK...................17.5%

Denmark..............25.0

Germany..............16.0

France...............20.6

You asked for "ball park" figures, and you should treat these numbers
as nothing more than that.  These are the standard VAT rates, but as
the report makes clear, each country has a complex scheme of
exceptions and exemptions that act to minimize the impacts of the VAT
on at least some of the purchases made by consumers.

Hope that does the trick, but as always...if you need additional
information, just ask.

pafalafa-ga

Clarification of Answer by pafalafa-ga on 20 Apr 2004 04:46 PDT
P.S.  A colleague alerted me to this summary of tax rates around the world:

http://www.powershot.com/powershot2/customer/pdf/S500_S410_CUG_E.pdf

It should be of interest to you, and provides a quick and easy overview.

(thanks pg!)

pafalafa-ga
patrice29-ga rated this answer:5 out of 5 stars
Very good and thorough answer. Much Thanks!

Comments  
Subject: Re: Tax Rates - USA vs. Europe
From: answerfinder-ga on 18 Apr 2004 09:07 PDT
 
It is very difficult to compare, as no tax system is the same as
another, and as far as the UK is concerned -nothing is simple! In the
UK, we have direct and indirect taxation. Direct taxation by the
Government on your earnings, this is known as Income Tax, and indirect
taxation by the Government by way of Value Added Tax on goods you
purchase.

You may be entitled to Income Tax Allowances depending on your status
i.e. married, age or blind. There are three bands of Income Tax on
earnings 10% (0 - 1960), 22% (1961 ? 30500) and 40% (Over 30500).
There is also a tax on your savings, depending on the starting rate
limit.

So, lets say during the last tax year my income is 38000.
I receive a personal allowance of 4615. That means the amount be taxed is 33385.

Tax
1920 at the 10% rate           pay 192
29580 at the 22% rate          pay 4967.60
2885 at the 40% rate           pay 1154

                              Total  6313

I?ve ignored tax on savings.
http://www.inlandrevenue.gov.uk/rates/it.htm

Value Added Tax 
The standard is 17.5%. Some items carry a smaller rate of 5%, some are nil tax.
http://www.rate.co.uk/tax/vat.html

If you are employed, you also have to pay a National Insurance
contribution which goes towards your State Pension. Again, nothing is
straight forward. It all depends on your earnings and status. See the
attached document.
http://www.rate.co.uk/tax/nationalins.html

Finally, there are local taxes on your property where you live, but
this is for local services and is not based on your income.

I have trouble with the UK tax, let alone another country?s. Another
researcher is welcome to use this comment as part of their answer.

answerfinder-ga
Google Answers Researcher
Subject: Re: Tax Rates - USA vs. Europe
From: dj_virto-ga on 20 Apr 2004 21:28 PDT
 
The fact that we must have health insurance for equivalent health care
in the US changes things a bit.  It costs $3000- $10,000 per year for
basic medical insurance in the US unless your employer pays this for
you. That's something like 10-20$ of a middle class income here.

Add that in and the differences are not so great..
Subject: Re: Tax Rates - USA vs. Europe
From: pafalafa-ga on 22 Apr 2004 19:12 PDT
 
patrice,

Thanks for the kind comments (and the stars!)  Much appreciated.

pafalfa-ga

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