Lost in the intense scrutiny of the 15 percent 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 that Mitt Romney paid on his capital gains and dividend income is the fact that capital gains and dividend taxes are a second layer of tax on corporate profits. In other words, before a company distributes $1 of profits to its shareholders, it must pay the 35 percent federal income tax on that profit. Individual shareholders, then, must pay the 15 percent personal tax rate on that dividend income.
When both of these taxes are added together, along with state-level taxes, the U.S. currently has the fourth-highest overall tax rate on dividend income among the leading economies at 52.1 percent, according to the OECD. As the table below indicates, this is actually an improvement over 10 years ago when the U.S. had the second-highest dividend rate at 67.3 percent. The improvement is the result of the Bush-era tax cuts that lowered the tax rate on dividends from 39.6 percent – equal to the top individual tax rate in 2000 – to 15 percent, equal to the tax rate on capital gains.
Ten years ago, the simple average dividend tax rate for OECD nations was over 49 percent. Today, the simple average has fallen to around 41 percent. This is largely due to the dramatic decline in corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate across the OECD. These figures for 2011 do not account for the most recent corporate rate cuts in Canada, the United Kingdom, nor the forthcoming cut in the Japanese corporate rate.
President Obama’s proposed “Buffett Rule” would undo the modest improvement the U.S. has made in lowering the total cost of capital over the past decade. The Buffett Rule would effectively raise the tax rate on dividend income for millionaires from 15 percent to 30 percent. As the chart below illustrates, this policy would give the U.S. the highest overall dividend rate at 62.1 percent.
Capital is the most mobile factor in the global economy and highly sensitive to tax rates. The Buffet Rule would surely make the U.S. a less attractive place for investment and undermine our competitiveness. Other nations will gladly accept the capital that is unwelcome in the U.S.
| Overall Statutory Tax Rates on Dividend Income (Corporate & Individual Rate) |
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| Country | 2011 Rate% | 2011 Rank | 2000 Rate % | 2000 Rank | Change in Rate 2000 to 2011 | Change in Rank 2000 to 2011 |
| France | 57.8 | 1 | 63.2 | 5 | -5.4 | 4 |
| Denmark | 56.5 | 2 | 59.2 | 8 | -2.7 | 6 |
| United Kingdom | 52.7 | 3 | 47.5 | 20 | 5.2 | 17 |
| United States | 52.1 | 4 | 67.3 | 2 | -15.3 | -2 |
| Germany | 48.6 | 5 | 60.9 | 7 | -12.3 | 2 |
| Sweden | 48.4 | 6 | 49.6 | 17 | -1.2 | 11 |
| Ireland | 48.4 | 7 | 57.4 | 9 | -9.1 | 2 |
| Norway | 48.2 | 8 | 28.0 | 33 | 20.2 | 25 |
| Canada | 48.0 | 9 | 61.0 | 6 | -13.0 | -3 |
| Korea | 47.8 | 10 | 44.6 | 24 | 3.1 | 14 |
| Australia | 46.5 | 11 | 48.5 | 19 | -2.0 | 8 |
| Japan | 45.6 | 12 | 66.7 | 3 | -21.1 | -9 |
| Belgium | 43.9 | 13 | 49.1 | 18 | -5.3 | 5 |
| Austria | 43.8 | 14 | 50.5 | 16 | -6.7 | 2 |
| Netherlands | 43.8 | 14 | 74.0 | 1 | -30.3 | -13 |
| Spain | 43.3 | 16 | 52.7 | 12 | -9.4 | -4 |
| Israel | 43.0 | 17 | 52.0 | 14 | -9.0 | -3 |
| Luxembourg | 42.5 | 18 | 52.2 | 13 | -9.7 | -5 |
| Portugal | 42.3 | 19 | 51.4 | 15 | -9.1 | -4 |
| Chile | 42.2 | 20 | 45.0 | 22 | -2.8 | 2 |
| Finland | 40.5 | 21 | 29.0 | 32 | 11.5 | 11 |
| Switzerland | 36.9 | 22 | 56.5 | 10 | -19.6 | -12 |
| Italy | 36.6 | 23 | 44.9 | 23 | -8.3 | 0 |
| Iceland | 36.0 | 24 | 37.0 | 29 | -1.0 | 5 |
| Slovenia | 36.0 | 24 | 47.5 | 21 | -11.5 | -3 |
| Poland | 34.4 | 26 | 44.0 | 25 | -9.6 | -1 |
| Turkey | 34.0 | 27 | 65.0 | 4 | -31.0 | -23 |
| New Zealand | 33.0 | 28 | 39.0 | 28 | -6.0 | 0 |
| Greece | 32.5 | 29 | 35.0 | 30 | -2.5 | 1 |
| Hungary | 32.0 | 30 | 55.7 | 11 | -23.8 | -19 |
| Czech Republic | 31.2 | 31 | 41.4 | 26 | -10.2 | -5 |
| Mexico | 30.0 | 32 | 35.0 | 30 | -5.0 | -2 |
| Estonia | 21.0 | 33 | 26.0 | 34 | -5.0 | 1 |
| Slovak Republic | 19.0 | 34 | 39.7 | 27 | -20.7 | -7 |
| Simple Average= | 41.1 | 49.3 | ||||
| Source: OECD tax database http://www.oecd.org/dataoecd/26/51/33717596.xls |
