Top Personal Income Tax Rates in Europe, 2019

Most countries have a progressive income tax structure. This means that the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. rate paid by individuals increases as they earn higher wages. The top income tax rate is applied to the share of income that falls into the highest tax bracket. If a country has five tax brackets with a top income tax rate of 50 percent at a threshold of €1 million, then each additional euro of income over €1 million would be taxed at 50 percent.

Individuals in the top tax bracket also pay social security contributions or payroll taxes. These are typically flat-rate taxes levied on wages and are additional to the tax rate on income.

Workers recognize the impact of marginal tax rates and thresholds when deciding whether to work an additional hour or whether to take a new job paying a higher salary. High marginal tax rates can make additional work more expensive and lead to individuals deciding to stay in less productive positions or choosing not to work. When high tax rates increase the cost of labor, this has the effect of decreasing hours worked, which decreases the amount of production in the economy.

Estonia (21.3 percent), Latvia (21.4 percent), and the Czech Republic (31.1 percent) have the lowest top income tax rates of all European countries covered. The countries with the highest top income tax rates are Slovenia (61.1 percent), Portugal (61.0 percent), and Belgium (60.2 percent).

The threshold at which the top income tax rate applies also plays an important role. Both the top tax rate and threshold can determine the amount of tax revenue raised by the top bracket. For instance, if a country has a top income tax rate of 50 percent on income over €1 million, only a small number of high-earning taxpayers will pay that rate and it may not generate significant tax revenues. In contrast, a top income tax rate of only 20 percent on all income over €10,000 would apply to most taxpayers, implying a broad income tax base and higher tax revenues from the top tax bracket.

The top income tax threshold can also be expressed as a multiple of a country’s average wage. While a low multiple indicates a flatter tax structure, high values signify more progressive tax systems.

Hungary applies a flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. of 33.5 percent on all income earned, setting the top income tax threshold to €0. Latvia (€804) and Estonia (€2,196) are the countries with the second and third lowest top income tax thresholds, respectively. In contrast, Austria (€1,096,059), France (€562,377), and Portugal (€280,899) have the highest thresholds for their top income tax rates.

Because Hungary applies a flat tax on all income, top-income earners are subject to the same tax rate as average income earners. On this measure, Austria has the most progressive taxA progressive tax is one where the average tax burden increases with income. High-income families pay a disproportionate share of the tax burden, while low- and middle-income taxpayers shoulder a relatively small tax burden. system, with a top income tax rate that applies at 23.8 times the average income.