Thursday, September 17, 2009

U.S. Income Taxes: Headed in the Wrong Direction

The chart above is based on global personal income tax data (highest marginal rate) just released in KPMG' study "Individual Income Tax and Social Security Rate Survey 2009." The trend globally over the last six years is towards reductions in the highest personal income tax rates, which have fallen from 31.2% in 2003 (average of 86 countries) to 28.9% in 2009. The highest marginal tax rate in the U.S. has been 35% since 2003.

As Chris Edwards at the Cato Institute points out:

The Obama administration plans to let the U.S. rate jump to 39.6% in 2011, which would be almost 11 points higher than the international average. Worse still, the United States has state income taxes with rates up to 10% that are piled on top of the federal tax. Some of the nations in the survey (e.g. Canada) also have subnational income taxes, but many, or most, of them do not.

HT: Cato Institute


At 9/17/2009 11:02 AM, Anonymous Anonymous said...

I love it when people talk about rates, but not deductions. It lets them believe that a marginal rate is making me contribute more than they do.

Let's see how many seminar vacations I can take this year. Maybe I should do one by car so I can write of some of that too.

I'll be sure to contribute to my retirement pre tax too, so that my adjusted gross income gets reduced. And, I love earning tax free interest in my retirement account.

I want to thank all of you low income earners for making my life pleasurable and enjoyable.

See you at the links.

Note that the countries with the lowest rates had the fews deductions.

At 9/17/2009 11:14 AM, Anonymous Anonymous said...

Just remember that no CEO has accepted Warren Buffet's challenge to show that they pay a higher rate (after deductions) than his secretary.

At 9/17/2009 1:37 PM, Blogger Gunnk said...

Also, the survey includes a couple of island nations (Cayman Islands and Bahama) that don't use income tax (i.e.: highest rate = 0%) as well as a few oil states with no income tax.

When the same study calculates the "Effective Income Tax and Social Security Rates on 100,000 USD of Gross Income" (one page after the stats discussed here), the U.S. ranks in the bottom half of tax rates globally. That's STILL before you apply the many deductions available here.

The same table applied to $300,000 Gross Income shows the same -- bottom half globally.

And what about the income level where those highest rates begin? The U.S. is the highest in the world (p.25 of the report) with only Germany using even remotely as low an income level for the highest rates.

At 9/17/2009 2:59 PM, Blogger 1 said...

"I love it when people talk about rates, but not deductions"...

I love it when people can't even figure out what part of the Constitution mandates that their money should be extorted by the federal government to finance the nanny state...

"Just remember that no CEO has accepted Warren Buffet's challenge to show that they pay a higher rate (after deductions) than his secretary"...

Yeah, just remember that Warren Buffet was told he could contribute more to the IRS but passed on the opportunity to prove yet again what raving hypocrite he is...

At 9/17/2009 3:25 PM, Anonymous Anonymous said...

Thanks, Gunnk, for pointing this information out in the report. OECD has the same conclusions.

On the subject of tax deductions, and effective rates, the real hypocrits are those folks who, on the one hand (rightly) talk about spending earmarks, and on the other hand introduce TAX EARMARKS for a constituent or local business. Every time the tax code comes up, every Congressperson gets approached by a lobbyist for a special deduction just for a family business, family, trust, or corporate business. The Code is full of tax earmarks targeted to one or two firms; a lobbyist friend in DC makes a living on this. Spending earmarks are good for the amount of the appropriation, but tax earmarks, my friend, are a gift that keeps on giving. Let you in on a little secret: the biggest talkers on earmarks are the biggest negotiators on tax earmarks and special exceptions to the Code. You wonder why small business feels they can't compete, it's because a bigger business competitor has a tax earmark.

At 9/17/2009 5:52 PM, Blogger OA said...

Why are people ignoring the topic of the story? Top US income tax rates, to include some state rates are going up, while many other countries are reducing rates.

Regardless of relative deductions and rates, Americans are looking at higher taxes. If the story had been about coming increases in gasoline taxes, would people be saying, yeah that's bad but we're still below Europe and Japan?

People's behavior will adapt to whatever rates they face, not what they face relative to people in other countries.

At 9/17/2009 8:28 PM, Anonymous geoih said...

Quote from Anonymous: "Note that the countries with the lowest rates had the fews deductions."

So, your argument is it's alright to have higher taxes, as long as you give favors to special interests (i.e., use the tax code to buy votes).

At 9/17/2009 8:30 PM, Blogger glenzo said...

It appears as if the average income tax rate includes a lot of 0% rates therefore bringing the average down. Would a GDP weighted average tax rate be more appropriate? Also, places like Hong Kong, where I live, have low income tax rates because lots of government income is collected through high property taxes collected as land premiums.

At 9/17/2009 8:34 PM, Blogger glenzo said...

But also, paying income taxes here is so very simple. 1 form, no taxes on interest, dividends and capital gains. Just take 10 minutes and done. Conversely, it takes me dozens of hours to prepare information for my tax accountant in the US. Hardly worth maintaining citizenship there.

At 9/17/2009 8:34 PM, Anonymous geoih said...

Quote from Anonymous: "Let you in on a little secret: the biggest talkers on earmarks are the biggest negotiators on tax earmarks and special exceptions to the Code."

What is your point? You obviously don't like the special interest deductions or the lobbying done to bribe Congress to enact them, but you use these same deductions to defend higher tax rates.

At 9/17/2009 10:12 PM, Anonymous Anonymous said...


1. Re earmarks: the whiners get deductions that you don't and pay through lobbying to get them; rates would be lower with fewer deductions;

2. Rates mean have to look at deductions, and deferalls, and exclusions, and tax credits. People do crazy things, like buy second homes, to avoid taxes. Those additional, leveraged purchases, with borrowings from China, are the result of stupid deduction policies. Cap and limit deductions; lower rates--good tradeoff. That's what Bill Bradley and Reagan did--and, they even snuck in a tax increase, but you never noticed it.


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