(This blog post has been updated to reflect the latest OECD data for 2011. OECD revised its methodology for calculating U.S. dividend rates ).
During his Rose Garden speech yesterday, President Obama once again fueled the general misperception that people who pay 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 on their capital gains and dividend income are paying a lower rate than salaried workers who pay at the individual rate (which ranges from 10 percent to 35 percent).
The reality is that capital gains and dividends are taxed at a lower rate at the individual level because this income has already been taxed at 35 percent at the corporate level before it was distributed to shareholders. Both Mr. Obama and his tax advisor Warren Buffett seem unaware that the U.S. has the 4th highest overall tax rate on dividend income among the largest industrialized countries in the OECD at 52.1 percent. Only Denmark (56.5 percent), France (57.8 percent) and the United Kingdom (54 percent) tax dividends at a higher rate.
The U.S. tax rate on dividend income has come down considerably over the past ten years. In 2000, the U.S. had the 2nd highest combined tax rate on dividend income at 67.3 percent when dividends were taxed at the individual tax rate. The Bush administration cut the top dividend tax rate from 39.6 percent to 15 percent (the capital gains rate was also cut from 20 percent to 15 percent) which only slightly improved the U.S. ranking because so many other countries cut their corporate income taxes. Indeed, Great Britain is scheduled to cut their corporate tax rate next year to 23 percent, which will likely propel the U.S. dividend rate into the third highest ranking.
The tax rate on dividend and capital gains income for wealthy taxpayers is already scheduled to rise in 2013 because of the 3.8 percent tax on non-wage income that was enacted in Obama’s health care legislation. This will push the overall rate on dividend and capital gains to over 50 percent. Obama’s new “alternative minimum tax” on high-earners would push the rate even higher.
With the U.S. corporate tax rate already the 2nd highest in the industrialized world, the country can hardly afford to become such a hostile environment for capital income.
|
Overall Statutory Tax Rates on Dividend Income |
||||||
|
Country |
2011 Rate |
2011 Rank |
2000 Rate |
2000 Rank |
Change in Rate 2000 to 2011 |
Change in Rank 2000 to 2011 |
|
Australia |
46.5 |
11 |
48.5 |
19 |
-2.0 |
-8 |
|
Austria |
43.8 |
14 |
50.5 |
16 |
-6.7 |
-2 |
|
Belgium |
43.9 |
13 |
49.1 |
18 |
-5.3 |
-5 |
|
Canada |
48.0 |
9 |
61.0 |
6 |
-13.0 |
3 |
|
Chile |
42.2 |
20 |
45.0 |
22 |
-2.8 |
-2 |
|
Czech Republic |
31.2 |
31 |
41.4 |
26 |
-10.2 |
5 |
|
Denmark |
56.5 |
2 |
59.2 |
8 |
-2.7 |
-6 |
|
Estonia |
21.0 |
33 |
26.0 |
34 |
-5.0 |
-1 |
|
Finland |
40.5 |
21 |
29.0 |
32 |
11.5 |
-11 |
|
France |
57.8 |
1 |
63.2 |
5 |
-5.4 |
-4 |
|
Germany |
48.6 |
5 |
60.9 |
7 |
-12.3 |
-2 |
|
Greece |
32.5 |
29 |
35.0 |
30 |
-2.5 |
-1 |
|
Hungary |
32.0 |
30 |
55.7 |
11 |
-23.8 |
19 |
|
Iceland |
36.0 |
24 |
37.0 |
29 |
-1.0 |
-5 |
|
Ireland |
48.4 |
7 |
57.4 |
9 |
-9.1 |
-2 |
|
Israel |
43.0 |
17 |
52.0 |
14 |
-9.0 |
3 |
|
Italy |
36.6 |
23 |
44.9 |
23 |
-8.3 |
0 |
|
Japan |
45.6 |
12 |
66.7 |
3 |
-21.1 |
9 |
|
Korea |
47.8 |
10 |
44.6 |
24 |
3.1 |
-14 |
|
Luxembourg |
42.5 |
18 |
52.2 |
13 |
-9.7 |
5 |
|
Mexico |
30.0 |
32 |
35.0 |
30 |
-5.0 |
2 |
|
Netherlands |
43.8 |
14 |
74.0 |
1 |
-30.3 |
13 |
|
New Zealand |
33.0 |
28 |
39.0 |
28 |
-6.0 |
0 |
|
Norway |
48.2 |
8 |
28.0 |
33 |
20.2 |
-25 |
|
Poland |
34.4 |
26 |
44.0 |
25 |
-9.6 |
1 |
|
Portugal |
42.3 |
19 |
51.4 |
15 |
-9.1 |
4 |
|
Slovak Republic |
19.0 |
34 |
39.7 |
27 |
-20.7 |
7 |
|
Slovenia |
36.0 |
24 |
47.5 |
21 |
-11.5 |
3 |
|
Spain |
43.3 |
16 |
52.7 |
12 |
-9.4 |
4 |
|
Sweden |
48.4 |
6 |
49.6 |
17 |
-1.2 |
-11 |
|
Switzerland |
36.9 |
22 |
56.5 |
10 |
-19.6 |
12 |
|
Turkey |
34.0 |
27 |
65.0 |
4 |
-31.0 |
23 |
|
United Kingdom |
52.7 |
3 |
47.5 |
20 |
5.2 |
-17 |
|
United States |
52.1 |
4 |
67.3 |
2 |
-15.3 |
2 |
|
Simple Average= |
41.1 |
49.3 |
||||
|
Source: OECD tax database |