Is it possible to comprehensively compare personal tax rates between countries?

Question

I am trying to compare the "effective income" for several countries, by comparing (gross) salaries from sites such as levels.fyi, and estimating how much would be left for actual spending each month.

I’ve looked at some websites that attempt this, but the problems I encounter with some of the sites I have tried so far are:

• Local taxation is outdated and/or incorrectly modeled. E.g., income taxes for some salary bands in Germany follow a geometric progression instead of flat levels (source).
• Additionally, income tax is not the always the only mandatory deduction. Again, in Germany, there are additional costs for statutory healthcare, public retirement funds, etc., which make up a quite significant portion of someones paycheck. However, most sites I tried were giving me simply an estimate for the marginal tax rate, plus maybe some federal taxes (for US locations).
• Similarly, some states in the US have a widely differing implementation, I don't know if other countries have similarly stark differences in the taxation rates.
• Coverage. Some sites simply detail taxes only for the US states, but don't have access to information from European/Asian countries.

Note that this is not so much about living costs, for which I think there are more decent sites available.

Are there any comprehensive comparisons of taxation between multiple countries? Is such a comparison even possible? How might such a comparison be done?

Answer 1

It's a very difficult question to answer - it becomes political in nature, and the nature of definitions used can massively swing the data.

I've spent ages and years trying to find this sort of data. There area number of problems:

• One instant practical problem. One ridiculously stupid thing is that in some countries, there are taxes that have "a different name". I find this completely ridiculous. For me...

(1) if a government takes money from you, and you must "give" it or you will go to jail or be shot,

(2) you can refer to that as a "tax"

There are endless, often humorous, examples of this. You can name a zillion examples, but in the UK they gloat that the "tax" on petrol is low. (You will be shocked, shocked to hear the "duty" on petrol is incredibly high.)

Its often a HUGE - HUGE - OVERWHELMING factor. For example, in some Scandinavian and Baltic countries, they gloat that the "income tax is really low!" However, there's a, wait for it, " social! security! contribution! " that is staggeringly high.

But interestingly, and it's a free world, as well as merely the naming confusion, many folks - and it's a free world, so their opinion is as valid as mine - actually agree with this "tax renaming".

I've had many friends from country XYZ who will say to me, in all honesty, with a straight face, but really Fattie, that's not tax, it's a social security contribution ! I refer them to (1) and (2), but - whatever; again, this is instantly a hot potato.

So at a basic level, when you look at "lists of tax by country", watch out for....

...immediately, they often just don't include all taxes.

• Moving up from the mere naming issue, you get the difficult "macroeconomic accounting issues".

A fiscally ENORMOUS example.

As we all know, in the USA, the government collects a staggering amount of " ' social security ' " money from humans (see point (1).)

Now as we know, the entire US government structure from top to bottom, is incredibly careful to segregate this money and use it only for that purpose.

So straightaway, if you're trying to "compare taxes", we immediately have a staggeringly large line item that you have to decide one way or another how to treat - and that's a completely political question.

Next!

• There's the huge issue of different types of tax.

It's extremely hard to quantize...

• VAT and similar sales taxes (Aside. Again, it's hilarious that the position of politicians in countries with VAT is often "Why, sales tax, we'd never do that - we have VAT!")

• Duties and tariffs (which can be a massive cost economically)

• Fees of all types

• Property taxes, council taxes and similar

• Enforced costs. Often a killer. If lobbyists from an industry (say, insurance) succeed in making the regional government force you to pay money for something (say, insurance) what do you think of that - is it a tax? Note that it precisely passes the (1) and (2) test.

I can assure you that if you live in a place with zero sales tax / VAT, you feel REALLY lightly taxed all day and all night. Conversely I can assure that if you set up in a so-called "tax haven", it is a total PITA paying 5, 10, 20 thousand a year in fees to merely, say, have a shelf company, versus almost nothing for that in say the US.

Next!

• There's the difficult issue of "do you get anything for it"

An incredibly stark contrast: go live in France for a few years. You will walk around saying "In this country we all pay a fortune in tax towards healthcare. But at least, we get incredibly good healthcare for little or nothing." In contrast, if you go live in the UK or US for a few years, you will walk around saying "In this country we all pay a fortune in tax towards healthcare AND WE GET F** NOTHING."*

For example, a family we know lived in the US for some years and then moved to Sweden (!!!) because the savings cost in healthcare absolutely beat out the fact that Sweden has in a general sense "higher taxes" than the US. (If you've never lived in the US you can easily spend 20, 30, 40 k a year merely on health insurance for a family if you're self-employed. Is that "like a tax"? Tough question.)

• And then there's government debt! And don't even mention monetary inflation!

Governments, by an amazing coincidence, also completely control the Fiat money we all typically use. If you live in country X, and government X is inflating away the value of your $X - is that a tax? You could easily argue that this is WORSE than any other tax, and indeed dwarfs any other tax considerations.

What about if, instead of taking billions of dollars from the populace, to buy military toys, country X in fact just borrows billions of dollars to buy military toys: meaning that your children and all generations ahead of you now inherently suffer (1) and (2) to pay off the loans? Is that "tax"?

The "total tax revenue" approach...

https://www.taxpolicycenter.org/briefing-book/how-do-us-taxes-compare-internationally

You can dig up charts of "total tax take by governments"...

The thing is: I call B.S. There are just too many wiggles that would change one of the bars on that chart tremendously one way or the other. I've lived in and ran businesses in countries at the top, bottom, and middle of that list - and the "feeling of being taxed" was not a match.

I feel it is almost impossible to concretely quantify what OP is asking, due to the many factors discussed here.

Answer 2

Assuming you are looking for a place to retire, you might be able to get a vague idea on expatriates. The only way to get a closer idea is first to get someone you trust (to know how) to actually compute with your numbers what you would have paid if you lived there.

And then, use Numbeo’s customization form to estimate the cost of living for your lifestyle.

Still not accurate: now you need reliable numbers for the things Numbeo doesn’t include, like health insurance, schools, …

Answer 3

The best way to make such a comparison is to:

1. Make a list of countries you would be interested to live in
2. Narrow it down to countries where you would be able to actually move to given immigration restrictions. I.e. permanently moving to Czech Republic as a non-EU citizen can be quite tough if all you want to do is work on your laptop remotely for a US company.
3. Figure out your exact pre-tax income in every country. No “rules of thumb”, you want exact salary bands for the jobs you’re qualified for, unless you plan on continuing to work remotely for your current employer.
4. Find a local tax calculator, designed for locals. As a rule of thumb, if this calculator isn’t in the local language by default, it’s probably not the right tool. I.e. for Switzerland I’d look for a German/French website hosted on a .ch domain. I have experience calculating total tax levels in the US and Czech Republic - I can assure you that local websites got it exactly right.
5. Throw in real estate costs into the calculus. I find Numbeo to be accurate enough for this - use their estimate for a 1 or 3 bedroom rental in the city you’ll be moving to. You want to subtract your annual renting costs from your after tax income. If instead of renting you’d prefer to get a mortgage, calculate your monthly mortgage payments using local real estate prices and the country’s median mortgage rate.
6. After painstakingly verifying the details for the steps above, put the data into an Excel spreadsheet and sort by “total savings after tax and real estate costs”. Congratulations, now you know exactly how much you stand to gain or lose by emigrating.

It would be nice if there was a website that did this all automatically for every country in the world but such an app would be far too costly to maintain properly and far too little paying customers. Hence manually grabbing all that data is the only feasible option.

Also see this Expats question.