Here it is. Eff Bozos.
Americans look longingly at Europe, where many countries have relatively high social spending, and dream of bringing that system to the United States. U.S. politicians, aware of this desire, campaign on two falsehoods.
First, that the U.S. government does not already spend massively on pensions and health care. Second, that the only obstacle to bringing a European-style welfare state to the U.S. is a lack of taxes on the rich.
The reality is more complicated, and growing America’s tax wedge brings serious risks in and of itself.
Some of the other wealthy countries in the world do indeed have more robust safety nets than America. Yet they don’t rely on narrow taxes on their most wealthy citizens; rather, they’re financed by broad levies on the middle class. And as rising defense spending squeezes national budgets, those already high taxes are rising.
Average tax rates on wages rose for the fourth consecutive year across the majority of the 38 countries that comprise the Organization for Economic Cooperation and Development (OECD). An average earner faced a tax burden of 35.1 percent in 2025, the highest level in a decade, according to
a recent OECD report.
The tax wedge for a single worker reached its highest level in a decade
Average tax wedge as percentage of labor costs
Single
worker
One-
earner married couple with two children
Two-
earner married couple with two children
Source:
OECD Taxing Wages 2026 (Figure 1.1)
The leaders of too many OECD countries have overpromised, and now they’re targeting income because it’s easy to tax and guaranteed to bring in consistent revenue. Some countries have avoided increasing tax rates, but by not adjusting income thresholds to reflect inflation, they drag more workers into higher brackets.
Doing this is not free of consequences. The OECD report finds that the tax wedge grew in 24 countries compared with 2024, contracted in 11 and held steady in three. In 13 of the countries where the tax wedge grew, it was a direct result of a rising personal income tax as a percentage of labor costs.
Of the 11 countries where the tax wedge fell, nine cut their personal income taxes, including Australia, Denmark, Iceland, Ireland, Italy, Latvia, Portugal, Sweden and the United States.
The United Kingdom
suffered the largest rise in taxes between 2024 and 2025 after the country increased its jobs tax.
In 9 of 11 OECD countries with a declining tax wedge, the drop was driven by lower income taxes
Percentage point change from 2024 to 2025
Country
ANNUAL CHANGE OF TAX WEDGE
ANNUAL CHANGE OF INCOME TAX
Australia
−1.67
−1.7
Latvia
−1.44
−1.44
Italy
−1.21
−1.21
Ireland
−0.63
−0.79
Denmark
−0.41
−0.48
Sweden
−0.37
−0.37
Portugal
−0.24
−0.24
Greece
−0.16
0.54
United States
−0.09
−0.08
Norway
−0.07
0.02
Iceland
−0.05
−0.04
Source: OECD Taxing Wages 2026 (Table 1.1)
The U.S. helps pull down the OECD average. America’s tax wedge is the lowest of all advanced economies in the Group of Seven.
Households with children are squeezed harder than singles on average across the OECD. The difference in the tax wedge for a one-earner household with two children versus a single household fell to 8.9 percentage points, from a pandemic-peak of 10 percentage points in 2021. This shows a reduced tax advantage for families.
The U.S., however, is particularly generous when it comes to fiscal breaks for one-earner families. When an average American family received an extra $1 in wages, they kept 9.3 cents more of it than a single-earner household did.
But not all parents are treated equally. A single parent with two children in America earning 67 percent of the average wage loses half of any pay raise they get at work due to higher taxes and reduced benefits.
For low-income single parents, a raise pays less than expected
After a $1 increase in gross labour costs, how much reaches a single parent with two children earning two-thirds of the average wage, after higher taxes and reduced benefits
Canada
France
Germany
Italy
Japan
United Kingdom
United States
OECD-EU 22
OECD-Average
Source: OECD Taxing Wages 2026 (Table 3.9)
It’s also worth noting that
about half of federal spending in the U.S. goes to pensions and health care. Despite spending like some European countries, America keeps taxes low by running deficits.
Being the global reserve currency helps hide fundamental problems with this arrangement, but America’s relatively low tax regime is not sustainable if politicians don’t get sober about spending. The U.S.
national debt, over $39 trillion, has surpassed 100 percent of gross domestic project, an ignominious milestone.
The spending addiction risks undercutting the rewards of economic policies that America is getting right. Last year, real wages rose 1.2 percent and post-tax income rose 4 percent. In simple terms, this means Americans are earning and keeping more of their own money.
Economic growth can help alleviate fiscal pressures, and lower tax rates lead to higher growth.
Americans’ wages increased as average tax rates declined
Annual percentage change in 2025
Country
CHANGE OF WAGE BEFORE TAX
CHANGE IN TAX RATE
Canada
−0.2%
−0.2%
France
0.5%
0.3%
Germany
2.8%
3.3%
Italy
1.6%
−5.3%
Japan
−0.3%
2.2%
U.K.
2.8%
5.5%
U.S.
1.2%
−0.4%
Change of wage is adjusted for inflation. Tax rate is based on the personal average tax rate of the average worker (single without children).
Source: OECD's Taxing wages 2026 report (Table 1.7)
See how much of their earnings people could keep based on family size and income level across developed countries.
Select a household type
Single
No children
Single parent
2 children
Married
2 children
Married
No children
Select an income level
Lower income
67% of avg. wage
Typical
100% of avg. wage
Higher income
167% of avg. wage
Household income at this level:
$73,520 (100% of U.S. avg. wage)
Due to data limitations, a standard set of household types and income levels is used to compare countries consistently.
Share of labor costs not taken home, 2000-2025
How much of what employers pay doesn’t reach the pocket of your chosen household?
How much would be taken out of the next $1 raise of your chosen household?
Where does each dollar of compensation from employers go?
Total labor cost:
$79,466
Take-home
$55,644
Income tax
$12,278Employee social security contribution
$5,661Employer social security contribution
$5,946
How much is the take-home income for the same household across the G7 countries and EU?
This chart uses Purchasing Power Parity (PPP) dollars as a currency unit to real living standards across countries.
* EU22 includes 22 countries in the European Union
Source: OECD's Taxing Wages 2026 report
