Targets and Options of Tax Reform: Reform of Income Tax Rates

The study analyses the as-is situation, objectives and options of a reform of the system of taxing income from work, focusing on the burden imposed on the incomes of workers and self-employed by social insurance contributions and income taxes. Using international comparisons, the specificities of the Austrian tax system and their primary causes are discussed. Quite apart from the high overall burden, it is the high marginal tax rates imposed in particular on low and medium incomes which has an adverse effect on employment. The sheer intransparency of the Austrian tax system also makes for a negative incentive for employment uptake. A tax reform should therefore focus on relieving low and medium incomes, simplifying the system and, possibly, granting tax cuts for high incomes. These goals could be achieved by changing marginal rates, reducing tax rates as well as social insurance contributions and offering tax credits for lower incomes. An integrated income tax rate would help make the system more transparent and straightforward.