Norway-USA in contrast: Wages and taxes
M. Michael Brady
Norway is considered to be a high-cost country. According to figures compiled by The Economist Intelligence Unit*, the cost of living in Norway ranks third in the world, behind first place Singapore, while the USA ranks 16th. That is in part offset by Norway having the world’s fourth highest GDP per person—well ahead of the USA in 14th place. Likewise, Norway ranks ninth in purchasing power in GDP person, ahead of the USA, which, with Bermuda, is tied for 15th place.
Figures compiled each year by the Organization for Economic Cooperation and Development (OECD) on the wages and taxes of its 34 member countries reveal why Norway is so well off. According to Taxing Wages 2015 (Further reading), a simplified comparison of the wages and taxes paid by an average single worker without children showed that in 2014 the gross wage earnings and take-home pay in Norway were higher than in the USA. In Norway the average gross annual wage was NOK 542,386 ($63,336) and the take-home pay NOK 386,014 ($45,095). (NOK to dollar conversion at the Norges Bank exchange rate of 8.56 for early March 2016.) In the USA in 2014, the gross annual wage was $50,075 and the take-home pay $37,637. The tax wedge, which is the difference between the total labor costs to the employer and the net take-home pay for the employee also was higher: 37.0% in Norway compared to 31.5% in the USA. In short, employees earn more, take home more, and cost their employers more in Norway than in the USA.
The taxation of individual incomes is simpler in Norway than in the USA. National and local income taxes are levied by one agency, Skatteetaten, equivalent to the IRS in the USA. In the USA, income taxes are levied at the national level by the IRS and at the local level at varying rates by 43 of the 50 states as well as by some municipalities. So depending on location of residence, the total tax burden on the American wage earner may be as much as that on the equivalent Norwegian wage earner.
As in other European countries, Norway has a uniform Value-Added Tax (VAT) on consumption, charged at the retail level on goods and services at fixed rates of 25% for non-food goods and services, 15% for food, and 10% for travel. Some goods and services are exempt from VAT, including books and newspapers at the retail level, used cars, and essential services such as healthcare. In the USA, sales taxes, the equivalent of VAT, are levied by 45 states, at rates of up to 7.5% (California).
The upshot of these comparative figures is that depending on location within the USA and on consumption habits, the typical American wage-earner may be as heavily taxed as the Norwegian one, who earns more.
Taxing Wages 2015, a compilation of data on the income tax paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types. OECD Publishing, Paris, 566 page softcover, ISBN 9789264230507 print, 9789264230521 PDF, DOI: 10.1787/tax_wages-2015-en; “Norway” pages 417-426 and “United States” pages 523-533.
*Pocket World in Figures, 2016 Edition, rankings of 183 countries against a mix of indicators, published by The Economist, London, Profile Books Ltd., 255 page hardcover, ISBN 978-1-78125-447-9.
This article originally appeared in the April 29, 2016, issue of the Norwegian American Weekly.