Analyzing Tax Burdens in Wealthy Countries

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May 27, 2026
Politics

Americans often admire the social spending in Europe and aspire to replicate such systems in the U.S. Politicians in America frequently make two misleading claims. First, they suggest the U.S. government doesn’t already spend significantly on pensions and healthcare. Second, they imply that the only thing preventing a European-style welfare state is the absence of taxes on the wealthy.

The situation is more complex. Increasing America’s tax burden involves substantial risks. Other wealthy countries have stronger safety nets but don’t solely tax their richest citizens. Instead, they implement broad taxes on the middle class. As defense spending rises, national budgets tighten, and taxes increase further.

Within the 38 countries of the Organization for Economic Cooperation and Development (OECD), average tax rates on wages have been rising for four years. In 2025, the average tax burden reached 35.1 percent, the highest in a decade, according to an OECD report. Many OECD leaders have made excessive pledges and now look to income for easier taxation and steady revenue.

Some countries maintained stable tax rates but didn’t adjust income thresholds for inflation, which pushed more workers into higher tax brackets. This change doesn’t come without repercussions. The tax wedge increased in 24 countries compared to 2024, decreased in 11, and stayed the same in three. In 13 of these countries, the rise was due to increased personal income taxes as a labor cost percentage.

Among the 11 nations with decreased tax wedges, nine reduced personal income taxes. These include the U.S., as well as Australia, Denmark, Iceland, Ireland, Italy, Latvia, Portugal, and Sweden. The United Kingdom saw the largest tax increase, particularly after boosting its jobs tax.

The United States helps lower the OECD average, boasting the lowest tax wedge among all G7 advanced economies. Households with children are more affected than singles in the OECD. The tax difference between a single earner family with two children and a single household fell to 8.9 percentage points from a peak of 10 points in 2021, showing diminished tax benefits for families.

However, the U.S. is notably generous with tax breaks for single-earner families. An average American family can retain 9.3 cents more of each dollar earned than a single-earner household. Yet, not all parents benefit equally. A U.S. single parent with two kids earning 67 percent of the average wage loses half of any raise to increased taxes and reduced benefits.

About half of U.S. federal spending goes to pensions and healthcare. Despite similar spending levels as some European countries, America maintains low taxes by running deficits. The global reserve currency status masks the problems in this arrangement. America’s relatively low taxation is unsustainable without a reevaluation of spending.

With the U.S. national debt surpassing $39 trillion, over 100 percent of gross domestic product, this milestone highlights fiscal challenges. A spending habit threatens the benefits of effective economic policies. Real wages rose 1.2 percent last year, and post-tax income increased by 4 percent, indicating Americans are earning and saving more.

Economic growth can reduce fiscal pressures as lower tax rates contribute to economic expansion. See how earnings retention varies by family size and income level across developed countries.

Household income: $73,520 (100% of U.S. average wage)
Share of earnings not taken home:
Germany: 49.3%
France: 47.2%
Italy: 45.8%
EU22: 41.7%
Japan: 33.1%
U.K.: 32.4%
Canada: 32.1%
U.S.: 30.0%
OECD average: 35.1%