Special feature : the tax treatment of minimum wages.

471 Pages·2006·2.635 MB·English

by  OECD

STATISTICS STATISTICS
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Taxing Wages
Taxing Wages provides unique information on income tax paid by workers and social security contributions levied
on employees and their employers in OECD countries. In addition, this annual publication specifies family benefits
paid as cash transfers. Amounts of taxes and benefits are detailed program by program, for eight household types
which differ by income level and household composition. Results reported include the marginal and effective tax
burden for one- and two-earner families, and total labour costs of employers.
These data on tax burdens and cash benefits are widely used in academic research and the preparation and
Taxing Wages
evaluation of social and economic policy-making. This year’s issue includes a Special feature entitled “The tax
treatment of minimum wages”.
ALSO AVAILABLE ON CD-ROM AND ON LINE
An extended version of the database is available on CD-ROM OECD Tax Statistics and on line at www.SourceOECD.org. SPECIAL FEATURE:
For further information on this title, please consult: www.oecd.org/ctp/taxingwages.
THE TAX TREATMENT
OF MINIMUM WAGES
2005-2006
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ISBN 978-92-64-03192-0
2006 23 2007 03 1 P -:HSTCQE=UXV^WU: 2006
Taxing Wages
SPECIAL FEATURE:
THE TAX TREATMENT OF MINIMUM WAGES
2005/2006
2006 Edition
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
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the forefront of efforts to understand and to help governments respond to new developments and
concerns, such as corporate governance, the information economy and the challenges of an
ageing population. The Organisation provides a setting where governments can compare policy
experiences, seek answers to common problems, identify good practice and work to co-ordinate
domestic and international policies.
The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea,
Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic,
Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of
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opinions expressed and arguments employed herein do not necessarily reflect the official
views of the Organisation or of the governments of its member countries.
Also available in French under the title:
Les impôts sur les salaires : 2005/2006
© OECD 2007
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FOREWORD
Foreword
T
his annual publication provides details of taxes paid on wages in all thirty member countries of
the OECD.1 The information contained in the Report covers the personal income tax and social
security contributions paid by employees and their employers, and cash benefits received by families.
The objective of the Report is to illustrate how personal income taxes and social security
contributions are calculated and to examine how these levies and cash family benefits impact on net
household incomes. The results also allow quantitative cross-country comparisons of labour cost
levels and of the overall tax and benefit position of single persons and families.
The Report shows the amounts of taxes, social security contributions and cash benefits for eight
family-types, which differ by income level and household composition. It also presents the resulting
average and marginal tax rates. Average tax rates show that part of gross wage earnings or total
labour costs which is taken in tax (before and after cash benefits) and social security contributions.
Marginal tax rates show the part of an increase of gross earnings or total labour costs that is paid in
these levies.
The focus of the Report is the presentation of accurate estimates of the tax/benefit position of
employees in the edition year (2006). In addition, the Report shows definitive data on the tax/benefit
position of employees for the year2005. It is important to notethat, starting from last year’s Report,
the definition of average worker has been broadened from average manual production worker (ISIC
Sector D) to average worker (ISIC Sectors C to K) including both manual and non-manual workers.2
The Report is structured as follows. The Overview at the beginning of the Report reviews the
main results for2006. The Special Feature compares minimum-wage levels across OECD countries
and discusses the tax treatment of minimum-wage workers. It also calculates minimum labour costs
and shows how these have changed in recent years. Part I of the Report (International comparisons)
reviews the main results for2006and2005. Part I.1reviews the main results for2006, which are
summarised in comparative tables and charts. Part I.2reviews the main results for2005. These
results are summarized in the comparative tables at the end of that section. Part II of the Report
focuses on the historical trends in the tax burden for the period2000-2006. Country tables specifying
the wage levels considered and the associated tax burdens for eight separate family types are found
in Part III, together with descriptions of the tax/benefit system of each country. The methodology
used –and its limitations– are set out in Part IV.
The Report has been prepared under the auspices of the Working Party on Tax Policy Analysis
and Tax Statistics of the Committee on Fiscal Affairs and has benefited from financial support
provided by the Commission of the European Communities.
1. Previous editions were published under the title The Tax/Benefit Position of Employees
(1996-1998editions) and The Tax/Benefit Position of Production Workers (editions published
before1996).
2. Annex D presents historical series using the old definition of the average production worker
(1979-2004).
TAXING WAGES: 2005/2006 – ISBN 978-92-64-03192-0 – © OECD 2007 3
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TABLE OF CONTENTS
TTaabbllee ooff CCoonntteennttss
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2. Review of results for2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Special Feature: The Tax Treatment of Minimum Wages . . . . . . . . . . . . . . . . . . . . . . . . 22
1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2. Minimum-wage levels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3. After-tax values of minimum wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4. Minimum labour costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5. Summary and concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Part I
International Comparisons
Tax Burdens, 2006Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
I.I. Income tax plus employee and employer contributions less cash benefits
(as % of labour costs), 2006
Table. By family-type and wage level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Figure. By family-type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
I.2 Income tax plus employee contributions (as % of gross wage earnings), 2006
Table. By family-type and wage level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Figure. By family-type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
I.3. Income tax plus employee contributions less cash benefits (as % of gross wage
earnings), 2006
Table. By family-type and wage level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Figure. By family-type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
I.4. Income tax (as % of gross wage earnings), 2006
Table. By family-type and wage level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Figure. By family-type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
I.5. Employee contributions (as % of gross wage earnings), 2006
Table. By family-type and wage levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Figure. By family-type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
I.6. Marginal rate of income tax plus employee and employer contributions less
cashbenefits (as % of labour costs), 2006
Table. By family-type and wage level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Figure By family-type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
I.7. Marginal rate of income tax plus employee contributionsless cash benefits
(as % of gross wage earnings), 2006
Table. By family-type and wage level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Figure. By family-type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
TAXING WAGES: 2005/2006 – ISBN 978-92-64-03192-0 – © OECD 2007 5
TABLE OF CONTENTS
I.8. Increase in net income after 1% increase in gross wage (%), 2006
Table. By family-type and wage level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
I.9. Increase in net income after 1% increase in labour costs (%), 2006
Table. By family-type and wage level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
I.10. Annual gross wage and net income (in US dollars using PPP), 2006
Table. By family-type and wage level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
I.11. Annual labour costs and net income (in US dollars using PPP), 2006
Table. By family-type and wage level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Tax Burdens, 2005 Definitive Results (Tables). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
I.12. Income tax plus employee and employer contributions less cash benefits,
by family-type and wage level (as % of labour costs), 2005. . . . . . . . . . . . . . . . . . . . 65
I.13. Income tax plus employee contributions, by family-type and wage level
(as % of gross wage earnings), 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
I.14. Income tax plus employee contributions less cash benefits, by family-type
and wage level (as % of gross wage earnings), 2005. . . . . . . . . . . . . . . . . . . . . . . . . . 67
I.15. Income tax, by family-type and wage level (as % of gross wage earnings), 2005 . 68
I.16. Employee contributions, by family-type and wage levels
(as % of gross wage earnings), 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
I.17. Marginal rate of income tax plus employee and employer contributions
less cash benefits, by family-type and wage level (as % of labour costs), 2005 . . . 70
I.18. Marginal rate of income tax plus employee contributions less cash benefits,
by family-type and wage level (as % of gross wage earnings), 2005 . . . . . . . . . . . . 71
I.19. Increase in net income after 1% increase in gross wage, by family-type
and wage level (%), 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
I.20. Increase in net income after 1% increase in labour costs, by family-type
and wage level (%), 2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
I.21. Annual gross wage and net income , by family-type and wage level
(in US dollars using PPP), 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
I.22. Annual labour costs and net income , by family-type and wage level
(in US dollars using PPP), 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Part II
Tax Burden Trends 2000-2006
Important trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Tax wedge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Personal income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Net personal income tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Progressivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Families. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
II.1.a. Evolution of the tax burden, 2000-2006. Single persons without children
at 67% of average earnings. Income tax plus employee and employer
contributions less cash benefits as a % of labour costs. . . . . . . . . . . . . . . . . . . . . 84
II.1.b. Evolution of the tax burden, 2000-2006. Single persons without children
at 67% of average earnings. Income Tax as a % of gross wage earnings. . . . . . . 85
II.1.c. Evolution of the tax burden, 2000-2006. Single persons without children
at 67% of average earnings. Income tax plus employee contributions
less cash benefits as a % of gross wage earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 86
6 TAXING WAGES: 2005/2006 – ISBN 978-92-64-03192-0 – © OECD 2007
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II.2.a. Evolution of the tax burden, 2000-2006. Single persons without children
at 100% of average earnings. Income tax plus employee and employer
contributions less cash benefits as a % of labour costs. . . . . . . . . . . . . . . . . . . . . 87
II.2.b. Evolution of the tax burden, 2000-2006. Single persons without children
at 100% of average earnings. Income Tax as a % of gross wage earnings. . . . . . 88
II.2.c. Evolution of the tax burden, 2000-2006. Single persons without children
at 100% of average earnings .Income tax plus employee contributions
less cash benefits as a % of gross wage earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 89
II.3.a. Evolution of the tax burden, 2000-2006. Single persons without children
at 167% of average earnings. Income tax plus employee and employer
contributions less cash benefits as a % of labour costs. . . . . . . . . . . . . . . . . . . . . 90
II.3.b. Evolution of the tax burden, 2000-2006. Single persons without children
at 167% of average earnings. Income Tax as a % of gross wage earnings. . . . . . 91
II.3.c. Evolution of the tax burden, 2000-2006. Single persons without children
at 167% of average earnings .Income tax plus employee contributions
less cash benefits as a % of gross wage earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 92
II.4.a. Evolution of the tax burden, 2000-2006. Single parent with two children
at 67% of average earnings. Income tax plus employee and employer
contributions less cash benefits as a % of labour costs. . . . . . . . . . . . . . . . . . . . . 93
II.4.b. Evolution of the tax burden, 2000-2006. Single parent with two children
at 67% of average earnings. Income Tax as a % of gross wage earnings. . . . . . . 94
II.4.c. Evolution of the tax burden, 2000-2006. Single parent with two children
at 67% of average earnings. Income tax plus employee contributions
less cash benefits as a % of gross wage earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 95
II.5.a. Evolution of the tax burden, 2000-2006. One-earner married couple
with two children at 100% of average earnings. Income tax plus employee
and employer contributions less cash benefits as a % of labour costs . . . . . . . . 96
II.5.b. Evolution of the tax burden, 2000-2006. One-earner married couple
with two children at 100% of average earnings. Income Tax as a %
of gross wage earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
II.5.c. Evolution of the tax burden, 2000-2006. One-earner married couple
with two children at 100% of average earnings. Income tax plus employee
contributions less cash benefits as a % of gross wage earnings. . . . . . . . . . . . . . 98
II.6.a. Evolution of the tax burden, 2000-2006. Two-earner married couple
with two children, one at 100% average earnings and the other at 33%.
Income tax plus employee and employer contributions less cash benefits
as a % of labour costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
II.6.b. Evolution of the tax burden, 2000-2006. Two-earner married couple
with two children, one at 100% average earnings and the other at 33%.
Income Tax as a % of gross wage earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
II.6.c. Evolution of the tax burden, 2000-2006. Two-earner married couple
with two children, one at 100% average earnings and the other at 33%.
Income tax plus employee contributions less cash benefits
as a % of gross wage earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
II.7.a. Evolution of the tax burden, 2000-2006. Two-earner married couple
with two children, one at 100% average earnings and the other at 67%.
Income tax plus employee and employer contributions less cash benefits
as a % of labour costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
TAXING WAGES: 2005/2006 – ISBN 978-92-64-03192-0 – © OECD 2007 7
TABLE OF CONTENTS
II.7.b. Evolution of the tax burden, 2000-2006. Two-earner married couple
with two children, one at 100% average earnings and the other at 67%.
Income Tax as a % of gross wage earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
II.7.c. Evolution of the tax burden, 2000-2006. Two-earner married couple
with two children, one at 100% average earnings and the other at 67%.
Income tax plus employee contributions less cash benefits as a %
of gross wage earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
II.8.a. Evolution of the tax burden, 2000-2006. Two-earner married couple
with no children, one at 100% average earnings and the other at 33%.
Income tax plus employee and employer contributions less cash benefits
as a % of labour costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
II.8.b. Evolution of the tax burden, 2000-2006. Two-earner married couple
with no children, one at 100% average earnings and the other at 33%.
Income Tax as a % of gross wage earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
II.8.c. Evolution of the tax burden, 2000-2006. Two-earner married couple
with no children, one at 100% average earnings and the other at 33%.
Income tax plus employee contributions less cash benefits as a %
of gross wage earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
II.9. Annual average gross wage earnings, single persons without children,
2000-2006 (US Dollars using PPP). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
II.10. Annual average gross wage earnings, single persons without children,
2000-2006 (national currency) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Part III
Country Details, 2006
Australia (2005-2006Income tax year) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Austria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Czech Republic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169
Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
Finland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189
France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197
Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
Greece . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
Hungary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Iceland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
Luxembourg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305
Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315
New Zealand (2006-2007Income tax year). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
8 TAXING WAGES: 2005/2006 – ISBN 978-92-64-03192-0 – © OECD 2007
TABLE OF CONTENTS
Portugal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
Slovak Republic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383
Switzerland. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393
Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405
United Kingdom (2006-2007Income tax year). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421
Part IV
Methodology and Limitations
Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
2. Calculation of gross wage earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432
3. Estimating gross wage earnings in2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436
4. Coverage of taxes and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438
5. Taxpayer characteristics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
6. Calculation of personal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
7. State and local income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
8. Social security contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
9. Payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446
10. Church tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446
11. Family cash benefits from general government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447
12. Payable tax credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447
13. The calculation of marginal tax rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 448
Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
1. General limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450
2. Some specific limitations on the income tax calculation . . . . . . . . . . . . . . . . . . . . . 451
3. Limitations to time-series comparisons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451
A note on the tax equations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 454
Annex A. Tax Levels and Tax Structures, 1990-2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458
Annex B. Source of Earnings Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 460
Annex C. Exchange Rates and Purchasing Power Parities ofNational Currencies,
2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461
Annex D. Historical Series under the Old Definition ofAverageWorker, 1979-2004 . . . 462
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