![]() The effective marginal tax rate answers the question, “If a worker gets a raise such that the total cost to the employer increases by one dollar, how much of that is appropriated by the government in the form of income tax, social security contributions, and consumption taxes?” In principle, it does not matter how the tax burden is distributed among the various taxes-all taxes that affect the return to work should be taken into account.ĭespite their policy importance, data on effective marginal tax rates is not readily available, since they are complicated to research and compute. The political discussion around taxing high-earners usually revolves around the income tax, but in order to get a complete picture of the tax burden high-income earners face, it is important to consider effective marginal tax rates. Top marginal tax rates are therefore the subject of much academic interest (e.g., Saez, 2001). As such, it is perhaps the prime example of the conflict-central in public economics-between efficiency and equity in tax systems. The taxation of high-income earners is indicative of the overall level of redistribution in the tax system and of the magnitude of distortions the system causes. American Congresswoman Alexandria Ocasio-Cortez has suggested a 70 percent top marginal tax rate (Kapur, 2019). ![]() For example, left-of-centre economists Emmanuel Saez and Thomas Piketty have proposed raising taxes on high earners to 80 percent (Saez & Piketty, 2013). High marginal tax rates on personal income have received renewed interest in recent years. In general, the Nordic and the Western European countries have the highest effective tax rates. The highest marginal tax rate is found in Sweden, 76 percent, and the lowest in Bulgaria, 29 percent. It is a measure of the degree of progressivity and redistribution in the tax system. The top effective marginal tax rate is the total tax paid on the last dollar earned by a high-earning worker, taking social security contributions and consumption taxes into account in addition to income taxes. ![]() ![]() This report compares top effective marginal tax rates on labour income in 41 OECD and EU countries. This was published in coordination with Timbro and Epicenter. ![]()
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