Understanding Tax Burden in Wealthy Countries

Americans often admire European nations for their high social spending and imagine adopting a similar system in the U.S. Politicians tap into this sentiment with two misconceptions: that the U.S. government doesn’t already spend heavily on pensions and health care, and that taxing the rich alone could establish a European-style welfare state in America. The situation is more complex.

Some affluent nations provide more substantial safety nets than the U.S., funded not solely by taxing the rich but through broader levies on the middle class. As defense budgets grow, these high taxes continue to increase.

Tax rates on wages have risen for four consecutive years in most of the 38 countries in the Organization for Economic Cooperation and Development (OECD). In 2025, an average income earner faced a 35.1 percent tax burden, the highest in a decade according to an OECD report.

OECD leaders often make unrealistic promises. They frequently target income for taxes because it’s straightforward and provides steady revenue. Some countries avoid rate hikes, but failure to adjust income brackets for inflation leads more workers into higher tax brackets. This strategy has consequences.

The tax wedge grew in 24 countries compared to 2024, decreased in 11, and stayed the same in three. In 13 countries with a rising tax wedge, increased personal income tax as a share of labor costs was the cause. Among the 11 countries where the tax wedge declined, nine—including Australia, Denmark, Iceland, Ireland, Italy, Latvia, Portugal, Sweden, and the U.S.—reduced personal income taxes. The U.K. experienced the largest tax increase between 2024 and 2025 after raising its jobs tax.

The U.S. lowers the OECD average with the smallest tax wedge among advanced G7 nations. Families face greater tax pressures than singles on average within the OECD. The gap in the tax wedge for a one-earner household with two children compared to a single household decreased to 8.9 percentage points from a pandemic peak of 10 points in 2021, showing a reduced benefit for families.

The U.S. is notably generous with fiscal breaks for one-earner families; an average American family retains an additional 9.3 cents per dollar earned compared to single-earner households. However, a single American parent with two children earning 67 percent of the median wage loses half of any raise to increased taxes and reduced benefits.

Nearly half of federal spending in the U.S. goes to pensions and health care. Although it spends like some European countries, America maintains low taxes by operating on deficits. As the global reserve currency, the U.S. masks fundamental issues with its fiscal approach. The country’s tax regime is unsustainable without sensible spending reforms. The national debt surpasses $39 trillion, exceeding 100 percent of GDP.

This spending addiction threatens the benefits of sound economic policies. Real wages increased by 1.2 percent last year, and post-tax income rose 4 percent, signifying that Americans keep more of their income.

Economic growth can ease fiscal strains, and reduced tax rates boost growth. See below for earnings retention based on family size and income level across developed countries.

• Labor Costs versus Take-home Pay: An example household income is $73,520 (100% U.S. average wage).
• Share Not Taken Home: From 2000 to 2025, the U.S. average was 30% compared to the OECD average of 35.1%.
• Next Dollar Tax Impact: The U.S. takes 40.8% from an extra dollar earned compared to the OECD average of 43.8%.
• Net Income and Labor Costs by Country: For instance, in the U.S., the take-home income is $55,644 out of a $79,466 total labor cost.

The data illustrates how taxation affects different households across G7 countries and the EU.