Why Your Income Tax Rises Even When the Law Stays the Same

Felipe Castro holds a sign advertising a tax preparation office - Joe Raedle/Getty Images

Felipe Castro holds a sign advertising a tax preparation office – Joe Raedle/Getty Images

Everyone who works an on-the-books job pays income tax. On a good day, this is an irritating but necessary evil. But on a bad day, like when taxes increase even without the government passing new legislation, it’s outrageous.

According to a new brief from the Organisation for Economic Co-operation and Development, or OECD, that’s precisely what’s happening. Countries all over the world, including the United States, have experienced subtle tax increases over the past few years.

The Taxing Wages 2015 study says that “taxes on wages have risen by about 1 percentage point for the average worker in OECD countries between 2010 and 2014 even though the majority of governments did not increase statutory income tax rates,” and that out of 33 total countries, 23 saw rate hikes. “In 2014, the tax burden on the average worker across the OECD increased by 0.1 of a percentage point to 36.0%, even though no OECD country increased its statutory income tax rates on the average worker.”

The reason it’s happening, the OECD says, is that in most cases wages have been rising faster than tax credits and allowances. There is also what the group refers to as a “tax wedge” at play, which is basically a summation of employee and employer-paid income taxes plus social security taxes, sans cash benefits paid to the employee. These “tax wedges” play a key role in making decisions about hiring for businesses, and also in the ultimate tax burden an employee and employer will end up ponying over to the government.

In short, income taxes are going up because of rising wages and their effect on the ‘tax wedge,’ even if governments aren’t intending for it to happen.

What the numbers indicate is the continuation of a pattern seen worldwide since the end of the Great Recession in 2010. In 2014, as we know, average income taxes worldwide hiked up 0.1%. “This followed rises of 0.2, 0.1 and 0.5 percentage points in the three years since 2010,” the OECD says. “These rises reversed the decline from 36.1% to 35.1% between 2007 and 2010.”

Belgium and Chile, the two countries on the most extreme ends of the spectrum with 55.6% and 7% average annual income tax burdens, saw very little to no change over the past seven or eight years, interestingly enough. The countries that have seen some rapid changes, particularly when their ‘tax wedges’ come into play, include Hungary and Ireland. Across all OECD countries, the average income tax rate is 26.9% with the U.S. coming in at 29.4% — which has also creeped upward.

At the end of the day, the importance of the OECD’s findings are that we are, slowly but surely, paying a bit more in income taxes. America’s tax code is diabolically complex, much by design, so getting into the nitty-gritty of a particular individual Americans tax bill would be a near-impossible task. Suffice it to say that federal income tax rates are merely a portion of an individual’s ultimate tax bill, which also includes state and local taxes on income (if applicable), as well as consumption taxes.

Follow Sam on Twitter @Sliceofginger

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