Daniel sent us this one. He’s been hearing a lot of chatter that Israel is a high-taxation jurisdiction, and he thinks that’s off base when you compare it fairly to other developed countries. He wants us to break down the actual differences in global tax burdens for individuals, figure out which countries have the objectively lowest rates, and get into the weeds on how countries tax regular income versus capital gains. The core question is, what are the most striking differences in how countries approach this whole thing?
That is a fantastically nerdy prompt. I love it.
Fun fact, today’s episode is being written by deepseek-v-three-point-two.
Always good to have a different perspective on the fiscal policy. Maybe it’ll calculate our effective tax rates while it’s at it.
Where to start? How about a number that might surprise people. The average income tax rate in Israel is around twenty-two point five percent.
And the average across the entire OECD, the club of developed economies, is twenty-four point four percent. So, right off the bat, Israel’s average is actually a bit below that developed-world benchmark.
Which immediately undercuts the "sky-high taxes" narrative. Understanding where your country sits on this scale isn't just an academic exercise. For global citizens, remote workers, entrepreneurs, investors—knowing the real tax burden is crucial for everything from deciding where to live to where to incorporate a business.
It's the difference between feeling like you're being squeezed and realizing you might actually be in a relatively moderate position. But to make sure we're on the same page, let's define our terms first.
Right, that’s crucial. When we say "tax burden," what exactly are we summing up?
It's the total compulsory payment to the government as a percentage of your income or the economy's output. For an individual, that's not just the income tax line on your payslip. It includes social security contributions, which are effectively another tax, and then the consumption taxes you pay, like VAT or sales tax, on everything you buy.
It's the holistic squeeze. The "what percentage of what you earn ultimately ends up with the state" number.
And that's why it varies so wildly globally. It's a fundamental policy choice. A country like Denmark chooses a high overall burden to fund an extensive welfare state. A place like the United Arab Emirates chooses a very low burden, funding the state through other means, like resource wealth.
Which brings us to the three lanes Daniel wants us to run in. First, the individual burden comparison—where does Israel really stand among its peers? Second, the hunt for the objectively lowest-tax jurisdictions in the world. And third, the critical distinction between taxing earned income and taxing capital gains, because how a country treats profits from investments versus profits from labor tells you a lot about its economic priorities.
That last one is especially key. The difference in rates between your salary and your stock market gains can be massive depending on your postal code. So, the question of why this all matters to compare is simple: it reveals the implicit contract between you and the state. What are you paying, and what are you getting for it? Take Israel, for example.
Among its peers, the average tax wedge for a single worker in Israel, according to the OECD's latest data, is about twenty-two point five percent. That's the combination of income tax and social security contributions.
The wedge being the difference between what it costs my employer to have me and what I actually take home.
And that puts Israel in the middle of the pack. Germany's wedge is around thirty-eight point four percent. France is even higher. The United States is around twenty-eight point four percent. Japan is around twenty-three point one percent. So, Israel sits below Germany and the U., and just a whisper above Japan. It's firmly in the moderate zone.
Which immediately begs the question Herman just posed—why the massive variation? What are Germany and France buying with that extra fifteen to twenty percent of my theoretical salary that Israel isn't?
It largely comes down to the social contract and the scope of public services. Those high-tax European models fund universal healthcare, extensive unemployment benefits, generous state pensions, subsidized higher education, and robust public infrastructure. The tax isn't just a cost; it's a prepayment for a comprehensive suite of services you'd otherwise have to pay for out-of-pocket, often at a higher price.
The tradeoff is direct choice versus collective guarantee. In a lower-tax system, you keep more of your money but bear more individual risk and responsibility for your healthcare, your retirement, your kid's tuition. In a high-tax system, you surrender more upfront but get a safety net that's theoretically there for everyone.
Denmark is the classic case study. Their tax-to-GDP ratio is the highest in the OECD at around forty-six point three percent. But in return, they have virtually free university education, heavily subsidized childcare, and a famously strong social safety net. The public broadly accepts the high burden because they perceive high value. The pitfall, of course, is the potential for inefficiency and a lack of market-driven innovation in service delivery.
The other side of that coin is what you get in a moderate-tax country like Israel, or a relatively low-tax country like the U.You might have a more dynamic private sector and more money in your pocket month-to-month, but you also have more inequality, more personal debt for things like medical bills or student loans, and a patchier social floor.
So when we compare Israel's burden to Germany's, we're not just comparing numbers. We're comparing two different philosophies of government. Israel's model is more of a hybrid—it has nationalized healthcare, which is a huge expense covered by those social security payments, but it has a less generous pension system and higher out-of-pocket costs for things like education compared to Scandinavia.
Let's break down the components, because that's where the devil is. My Israeli payslip has income tax, which is progressive—the more you earn, the higher the marginal rate.
Which tops out at fifty percent for the highest earners, plus a three percent surcharge.
Then it has social security, which is a flat percentage up to a ceiling.
Right, Bituach Leumi. And that's around twelve percent total, split between employer and employee. Then, on top of that, when you spend your after-tax income, you pay a seventeen percent value-added tax on most goods and services. So the total burden is that layered effect.
How does that layering compare to, say, the American system? Because when I talk to friends in the States, they often quote a lower income tax rate, but then the story gets complicated.
is a fascinating patchwork. Federal income tax is progressive. Then you have state income tax in most states, which can be flat or progressive. Then you have Social Security and Medicare payroll taxes, which are flat up to a high ceiling. And then, instead of a national VAT, you have sales tax at the state and local level, which is usually a single rate at point of sale. The overall effect can be less transparent. You might have a lower income tax rate than in Israel, but then you're paying for private health insurance that can cost thousands a month, which is a de facto tax with a private middleman.
The simple "who has higher taxes?" question is almost meaningless without specifying "taxes for what?" and "instead of paying for what privately?
And that's why the OECD's "tax wedge" calculation is useful—it standardizes the major compulsory payments for a single average worker. It shows the baseline government claim on labor income. And by that measure, Israel is not an outlier. It's unremarkable. The narrative that it's some uniquely high-tax haven just doesn't hold up against the data from Berlin, Paris, or Brussels.
Here’s a follow-up. You mentioned the VAT in Israel. Seventeen percent is significant. How does that consumption tax layer change the experience of the tax burden versus a place that relies more on income tax?
A high VAT is often called a regressive tax because it takes a larger percentage of income from lower earners, who spend more of what they make. So a country with a moderate income tax but a high VAT, like Israel, might feel more burdensome to someone on a lower or middle income, because that seventeen percent hits every purchase. In contrast, a country with a very progressive income tax but a lower VAT might feel more burdensome to a high earner. It’s all about where the bite is felt most acutely.
If Israel’s tax burden is moderate, and Western Europe’s is high, where does that leave those whose primary goal is minimizing their personal tax burden? That’s where the hunt for the objectively lowest-tax jurisdictions comes in.
I assume we're not talking about shady offshore havens, but legitimate countries with transparent, low-rate systems.
The headline champions are places that fund government through means other than broad income taxation. The United Arab Emirates is the prime example. There's no federal personal income tax at all. No capital gains tax for individuals. Their revenue comes from corporate taxes, fees, and, historically, oil.
A software engineer earning a high salary in Dubai keeps one hundred percent of it, at least from the federal government.
Now, there is a five percent value-added tax, and some emirates have introduced local payroll-type taxes for expat workers, but the core income tax burden is zero. Singapore operates on a similar principle, though with more nuance. Personal income tax rates are highly progressive but top out at twenty-four percent, which is still below Israel's top rate. And they have no tax on capital gains. The state is funded through corporate taxes, a goods and services tax—their version of VAT—and hefty fees on things like car ownership.
It's the city-state model. Small, wealthy populations, strategic geographic positions for trade, and a focus on attracting global talent and capital with favorable terms. You couldn't scale that to a country of eighty million people with a large agricultural sector and legacy industries.
Other notable low-tax economies include Switzerland, with its decentralized cantonal system allowing for competition, and Monaco. But the key insight is that these are either resource-rich, micro-states, or hyper-efficient hubs. For a regular developed country with a diverse economy and population, replicating that is nearly impossible.
When someone says "move to a low-tax country," the realistic options are a very specific set of places with very specific economic models. It's not a menu of fifty normal countries.
And this leads directly into the third lane—the critical difference between taxing income and taxing capital gains. This is where a country's economic priorities are laid bare. How do you treat money earned from working versus money earned from investing?
I'm guessing the spread is even wider here than with income tax.
Let's use Israel and the U.as our comparison, since Daniel's prompt hinted at it. In Israel, the capital gains tax rate for individuals is a flat twenty-five percent.
Twenty-five percent. Regardless of how long you held the asset?
For most publicly traded securities, yes. There's a distinction for real estate, but for stocks, bonds, funds—it's a flat twenty-five percent. Now, in the United States, it's tiered based on holding period and income. For assets held more than a year, the long-term capital gains rate is zero, fifteen, or twenty percent, depending on your total taxable income.
A middle-class American investor might pay only fifteen percent on their stock market profits, while their Israeli counterpart pays twenty-five.
And a lower-income American might pay zero. tax code is explicitly designed to favor long-term investment. The message is: we want you to put your money to work in the economy. Israel's flat rate is simpler, but it doesn't make that same distinction. It treats a lot of capital gains more like regular income.
Which philosophy is better for growth?
That's the trillion-dollar question. The pro-growth argument says lower capital gains taxes encourage risk-taking, fuel venture capital, and help companies access capital markets. You see more investment, more startups, more innovation. The counter-argument is that it disproportionately benefits the wealthy, who derive more of their income from investments, and exacerbates inequality. It's a choice between dynamism and equity, to some degree.
Can we make that concrete with a case study? Say, two tech workers, one in Tel Aviv, one in Austin, Texas. Both get a bonus of $100,000 in company stock. They both hold it for two years and then sell when it’s doubled to $200,000. What’s the tax hit?
The Israeli worker pays twenty-five percent on the $100,000 gain. That’s $25,000 owed to the tax authority. The Texan, assuming they’re a single filer with a total taxable income that puts them in the 15% long-term capital gains bracket, pays $15,000. That’s a $10,000 difference on a single transaction. Over a career, with multiple equity events, that gap becomes life-changing money. It’s a powerful incentive structure.
Other countries run the full gamut. Some tax capital gains as ordinary income, like Denmark or Finland. Others, like Belgium or Switzerland, have very generous exemptions or low rates. It's one of the least harmonized areas of global tax policy.
Which creates huge opportunities for tax planning, of course. But the striking difference is this: a country that taxes capital gains at a much lower rate than earned income is signaling that it values investment wealth over labor wealth. A country that taxes them similarly, like Israel largely does, is making less of a distinction. It's a silent but powerful statement about what kind of economy you want to have—and one that listeners should consider carefully when making financial decisions.
And that's why the practical takeaway for anyone listening, especially if they're weighing an international move or an investment, is to look at the whole picture, not just the headline income tax rate.
Ask the layered questions. What's the capital gains regime? Is there a wealth tax or an inheritance tax? What essential services—healthcare, education—are provided publicly, and what will you need to fund privately? The number on your payslip is just the starting point.
Our key insight here is that Israel, contrary to a lot of local grumbling, is a moderate-tax jurisdiction by developed-world standards. Its overall burden is lower than much of Western Europe and roughly on par with other tech-heavy economies. The frustration often isn't with the tax rate itself, but with the perceived value for money—the state of public services relative to what's being paid.
So the actionable advice is this: if you're considering a relocation for work or lifestyle, don't just compare salaries. Model your net financial position after all taxes and mandatory costs, including those for services you'll have to buy. A higher gross salary in a high-tax country might leave you with less disposable income than a lower gross salary in a low-tax country, once you account for healthcare premiums, tuition savings, and transportation costs.
For investors, the jurisdiction of the asset matters as much as your own residence. You need to understand the source country's withholding taxes on dividends and interest, and how your home country treats foreign capital gains. It's a puzzle.
The simplest step is to use the official resources. Most national tax authorities have English-language guides for non-residents. The OECD and PwC have annual tax summaries that compare systems side-by-side. A few hours of research can prevent a very expensive surprise.
The final message is boring but true: do your homework. Understand what you're actually signing up for, because the global tax landscape is a patchwork of wildly different philosophies, all hidden behind a deceptively simple question: how much do you pay? But here's the thing—that homework doesn't stay relevant forever.
The real question is where this patchwork is headed. We've spent this whole episode comparing static pictures, but tax policy is fluid. How do you see these global approaches evolving over the next, say, decade?
Pressure is coming from two huge directions. First, the digitalization of the economy makes it easier for profits and high-earning individuals to be geographically flexible. That pushes countries to compete on rates to attract them. But second, there's rising political pressure to address inequality, which pushes for higher taxes on capital and high incomes. The next ten years will be a tug-of-war between those forces.
We might see more countries adopt hybrid models. Keep corporate and capital gains rates competitive to attract business, but fund that with higher consumption taxes or new digital levies that are harder to avoid.
We're already seeing experiments with global minimum corporate tax rates, debates about wealth taxes, and novel taxes on specific sectors. The old binaries of high-tax versus low-tax might break down into something more granular. The key for anyone paying attention is to stay informed. Tax trends move slowly, but when they shift, they can redefine your financial landscape overnight.
Fun fact tangentially related to this: the concept of an income tax is surprisingly modern. Britain had one to fund the Napoleonic Wars in the late 1700s, but it was considered a temporary emergency measure. federal income tax was only permanently established in 1913 with the 16th Amendment. So the systems we’re comparing are, in the grand scheme, relatively young and constantly evolving experiments.
It reminds us that none of this is set in stone. The social contract gets rewritten. Which is all the more reason to understand the current terms before you sign on the dotted line.
A cheerful thought to end on. Thanks to our producer, Hilbert Flumingtop, for keeping the gears turning. And thanks to Modal for providing the serverless GPUs that power our production pipeline—reliable infrastructure matters, even for podcasting.
If you found this dive useful, please leave us a review wherever you listen. It helps others discover the show. You can find all our episodes, including this one, at myweirdprompts.
This has been My Weird Prompts. I'm Corn.
I'm Herman Poppleberry. Do your homework.
