The Organization for Economic Development (OECD) released a report on Monday that shows that the tax burden on Israeli workers is significantly lower than in most other OECD countries, including the United States. The tax burden fell in Israel over the past decade, even as it rose in 25 out of the 34 OECD countries.
Despite Israel’s reputation as a high-tax country, the OECD’s Taxing Wages 2014 report shows that Israeli workers pay lower taxes than their peers in other OECD countries. For example, an Israeli couple with two children earning an average income (with each worker earning 100 percent and 67% respectively of the average wage in the private sector) would pay 14.3% of income in taxes, including National Insurance payments. This amount is offset by benefits such as child allowance payments and the value of state-sponsored health insurance.
The total Israeli tax rate is less than half the average of 31.2% that a family with that income profile would pay in OECD countries, and less than the 26.7% in taxes a family in the US would pay. The top-taxed countries are in Europe, with a 48.7% tax burden for families in Belgium, and between 40% and 45% in France, Germany, Italy and Austria.
Israel ranks low in tax burden for other income profiles. A single Israeli earning 67% of the December 2013 average monthly wage of NIS 9,277.50 ($2,673.86) pays 13.9% of income in taxes and National Insurance payments (adjusted for benefits). The burden is also relatively low for a single person earning 167% of the average wage, who pays 29.5% of their income in taxes, compared to the OECD average of 40.3%. A worker in the US earning that much pays 36.2% of income in taxes. A Belgian at that income level pays 60.9% in taxes, and most European workers earning 167% of their country’s average income pay more than half their income in taxes.
Tax burdens for Israeli workers at all income levels have been falling since 2001, but they have fallen furthest for workers earning at least the average wage. In 2001, a worker earning 167% of the average wage paid 39.8% of income in taxes, with that figure dropping to the aforementioned 29.5% in 2013.
Taxes have fallen for lower- and middle-income workers, but data show that those earning significantly above average salaries have a tax burden closer to the OECD average. A couple in which only one partner works and earns 250% of the average wage pays 35.9% of income in taxes, compared to 40.9% on average in the OECD. An American at that income level has a tax burden of 32.9%. If that Israeli couple has two children, their tax burden is 34%, compared to 38.8% on average in the OECD and 29.1% in the US.
Tax burdens have increased in 25 OECD countries and fallen in nine since 2010, partially reversing the reductions seen between 2007 and 2010, according to the OECD. The Taxing Wages 2014 report “provides unique cross-country comparative data on income tax paid by employees as well as the associated social security contributions made by employees and employers; both are key factors when individuals consider their employment options and businesses make hiring decisions,” the OECD said.