Wednesday, August 26, 2009

Death and taxes

Only two things are certain in life... there’s little we can do about the first but wait, but for the second… well, there’s little we can do there either.

A common complaint of expatriates living in Norway is the notion that income taxes are sky high. This is true, compared to say, Qatar, where there are no personal income taxes (PIT), or Paraguay, where PIT maxes out at 10%. But is Norway really much higher than other countries? Some nifty little wizards at KPMG have compiled a report addressing just that.

According to the 2009 Individual Income Tax and Social Security Rate Survey, Norway has a PIT rate* of 40%, the UK 40%, and the US 35%**. However, these are not the highest PIT rates. Denmark has a PIT rate of 62.3%, Sweden 56.7%***, Netherlands 52%, and Austria, Belgium, and Japan 50%. But that’s only part of the story.

When you consider a combination of the highest tax rates based both on personal income tax and social security tax, the highest-taxed locations might surprise you (well, it did me, but I am easily surprised). KPMG found that “When taking both the personal income tax rate and social security rates into account for employees earning 100,000USD, the countries with the highest rates were Slovenia (54.9 percent), Croatia (53.5 percent) and Hungary (48.1 percent).”

In fact, if you consider both PIT and social security tax, on 100,000USD of gross income, one would pay 32.9% in Norway and 25.3% in the US. While a difference of more than 7% might seem quite large, it is worth noting that I am getting a lot for that 7.6% differential in Norway. I am pretty sure that difference is worth inexpensive-to-free health care, subsidized-to-free childcare and schooling, and even a gratis university education from a public institution (how I wish I would have had this kind of benefit before Sallie Mae and I met).

There’s really nothing witty or clever to joke about regarding tax rates so I won’t bother trying (although please feel free to comment if you do have some humor to share about this). However, it’s good to know that I am not being gouged by the Norsk tax system quite as badly as I thought I was. Cheers, Norge!
For some reason a discussion of taxes requires a lot of footnotes. Of course it does.
* Note that this is the highest tax rate in countries with graduated tax systems.
** This is the federal tax rate only and does not take into account state income taxes.
***The PIT rates for Denmark and Sweden include a social security component as this is rolled into the PIT rate. They get a lot of free stuff for their tax dollars so don't feel too sorry for them.