It seems like a simple question to answer, but in the U.S., the progressive tax system makes it difficult to pin down an “average” taxpayer. Tax brackets range from 10% to 37% as of 2019, and there are seven of them, so the “average” tax rate might be expected to be something like 24.57%.1 And conveniently, there is a 24% tax bracket. So is this what the average American pays in taxes?
Not really. The 24% bracket applies only to incomes from $84,200 through $160,725, at least for single taxpayers, as of 2019. Income thresholds vary by filing status.
So the 24% rate doesn’t affect an unmarried taxpayer earning $35,000 a year. He won’t pay this much. He’s in the 12% tax rate bracket—but only on his income over $9,700. That first $9,700 is taxed at just 10%.1
You see where this is going. Different spans of income are taxed at different rates. A single taxpayer who earns $84,201 would pay that 24% “average” rate on only one dollar of income. Someone earning $200,000 would pay it on $76,525 in income—the difference between $84,200 and $160,725, then he would pay 32% on the portion of his income over $160,725.1
All this makes the term “average” a slippery concept.
‘Median’ Might Be Better
It might be easier to understand the “median” tax burden of American taxpayers instead. A median number is one that falls right in the middle. Half of all taxpayers would pay less than a median figure, and half of all taxpayers would pay more.
According to the Tax Foundation, the top 50% of taxpayers paid 96.96% of all federal income taxes in 2016, the last tax year for which comprehensive and vetted statistics are available from the Internal Revenue Service. This means that the bottom 50% paid just 3.04%.2
Based on these and other figures, the Tax Foundation derives an “average” tax rate of 15.57% for the top 50%, just 3.73% for the bottom 50%, and an average of 14.20% overall.
But this is just one way of looking at the equation. There’s also something known as the “tax wedge,” and these figures from the Tax Foundation and the IRS reflect only incometaxes. Social Security and Medicare also take a percentage of Americans’ earnings. Technically, these should be considered when weighing an “average” tax burden, too.
The “Tax Wedge”
The “tax wedge” is a ratio between what the average Joe pays in taxes and what he would have taken home in earnings if he hadn’t had to pay those taxes.3 In economic terms, what Joe would have earned had he not paid taxes is referred to as the “total labor costs” for his employer—or what his employer would have paid him otherwise.
The Organisation for Economic Co-Operation and Development (OECD) calculates tax wedges annually, for the U.S. and 35 other developed countries. They’re based on the pay and tax brackets of single individuals, and the idea is that the higher the tax wedge, the less likely it becomes that some taxpayers will see any benefit in holding down a job.
Calculating the Tax Wedge
Tax wedge calculations include both income taxes and FICA taxes—Social Security, Medicare, and the Additional Medicare tax, where applicable. The federal income tax represents the biggest burden on American taxpayers—14.9% of their pay, or about 50% of the overall tax wedge.4
Both the employers’ and the employees’ shares of Social Security and Medicare are used to calculate the OECD tax wedge, the theory being that even if an employee doesn’t have to pay out of pocket for her employer’s share, that money would otherwise have been paid to her if her employer didn’t have to make that contribution. Social Security takes another 12.4% of a worker’s pay, including both the employee’s and the employer’s shares of the tax.4
The U.S. Tax Wedge
The Tax Foundation reported in May 2019 that the U.S. tax wedge was 29.6% in 2018. But as flinch-worthy as that might sound, it’s still less than the OECD average for all countries, which was 36.1% in the same year. And the U.S. tax wedge is actually down 2.2% from 2017 due to the Tax Cuts and Jobs Act (TCJA).
What does this mean in dollars? A tax wedge of 29.6% works out to about $17,596 of an “average wage earner’s” salary, cited at $59,485 for single individuals in 2018. The average Joe contributed that much to the federal government, according to OECD calculations.
The “Tax Wedge” vs. “Actual Taxes Paid”
One thing to note in all of this is that the OECD tax wedge only includes these three taxes: income, Social Security, and Medicare.4 It doesn’t include the sales taxes that individuals typically pay every day, or property or vehicle taxes.
But the OECD isn’t the only think tank out there that’s crunching numbers. The U.S. Bureau of Labor Statistics (BLS) came up with some slightly kinder numbers for tax year 2017.
One analysis of the BLS’ statistics put the percentage of taxes paid annually at 24% for all American families, even including property taxes but not sales taxes.
This lower figure is at least partly due to the fact that families with dependents are eligible for some tax breaks that elude single filers—those the OECD based their statistics upon. And it doesn’t include employers’ shares of Social Security and Medicare.