German tax burden 2nd highest in OECD

Taxes and social security deductions in Germany amount to nearly half of people's income, according to a new Organization for Economic Co-operation and Development (OECD) report released on Tuesday.

The report, Taxing Wages 2017, says that of the 35 countries in the OECD, income tax in Germany is only second to Belgium, where employees wages are taxed at a rate of 54 percent.

In Germany, 49.4 percent of an average worker's income is deducted through taxation, significantly higher than the OECD average of 36 percent.

With the upcoming federal election in September, taxation is central to the political discussion in Germany. Many parties are aiming to garner voter support with the promise of lowering the income tax.

Finance minister Wolfgang Schaeuble of the Christian Democractic Union (CDU), for instance, has promised tax relief measures totaling 15 billion euros (15.93 billion U.S. dollars).

The numbers published in the OECD report do not reflect the actual gains by the population in terms of state provision of social services, while the social security contributions are especially high when compared to income tax.

Countries such as the United States, Greece and Mexico impose lower taxes on earners but their social service provisions are not as extensive. Consequently, taxpayers in these nations have to undertake measures for their personal social security at their own expense. Many states with social security systems that are comparable to Germany, such as Scandinavian countries, however, tax their citizens less.

The OECD criticized Germany in the report, stating that the large, obligatory social security contributions not only increased labor costs for companies but also generated an unequal income distribution.

This is a result of the fact that there are tax allowances and increased tax rates for high-earners in the taxation system but no allowances for social contribution payments that could relieve low-income households.

The German tax burden was higher than the OECD average across all types of households investigated in the report. Families with children in Germany -- and almost all industrialized countries -- benefit from tax relief.

This is why, last year, a household with no children in Germany retained only 60.3 percent of their gross income, while a married couple with children and one earner took home 87.7 percent.

This sizable difference is primarily a consequence of the German "Ehegattensplitting" or standard marital status relief, which promotes a single-earner household. The OECD has long criticized this practice and demands its removal, since it reduces the incentive for second earners -- stay-at-home mums for example -- to work.

The OECD report measures the level of personal income tax and social security contributions in each OECD country by calculating the "tax wedge" -- the total taxes on income from labor paid by employees and employers, minus any family benefits received, as a percentage of the labor costs of the employer. Endit