Tax Wedge

You’re tired of working for the man. Almost all of your wages go to taxes, so you’re thinking of chucking it all, moving to Peru, and running a llama farm.

A tax wedge puts a mathematical description to that feeling. In economic terms, it represents the deadweight loss caused by taxes. It’s gets its name from the fact that, on an economic graph, the area representing the deadweight looks like a triangle, or a wedge.

To calculate the tax wedge, take the amount of taxes paid by an average single worker and divide it by the total labor cost for the employer who pays for that laborer. It's basically the ratio of taxes taken out of wages and the amount the employer is paying to get that work done.