According to Tax News, Spain’s legislature has approved a 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. reform with the following changes:
- The Spanish 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. will fall from 30 percent to 28 percent in 2015. It will drop to 25 percent in 2016.
- The minimum personal income tax rate, or the bottom marginal rate, will be reduced from 24.75 percent to 19 percent in 2016.
- The personal income tax will become significantly less progressive: the top rate will fall from 52 percent to 45 percent. In addition, the top rate will apply to income over $74,500, down from $372,500.
- Personal exemption will be set to $14,900
- The top marginal capital gains income tax rate will fall from 27 percent this year to 23 percent in 2016.
In recent years, Spain has fallen behind the rest of the OECD in terms of tax reform. Its corporate income tax of 30 percent is higher than the OECD average of 25 percent and its income tax is high and very progressive compared to other member countries.
These reforms, which cut the corporate and individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rates, were billed as a means to boost economic growth. Spain’s reforms also reflect a decades-long trend in Europe and the OECD away from business and capital taxation. Spain’s tax system will be more in line with its trading partners’ tax systems.
Perhaps this is a sign that the United States should get moving on this front.
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