Potential increases in U.S. income taxes would keep rates below those paid in most of the world’s largest economies, according to data that adds some perspective to the heated national tax debate.
Proposed changes to U.S. income taxes would keep the nation’s tax rate below those paid in most of the world’s largest economies, according to data that adds perspective to the country’s divisive tax debate.
Top earners could see their U.S. income taxes increase to 39.6 percent of adjusted gross income if Congress allows Bush-era tax cuts to expire as scheduled at the end of 2012. The top bracket would apply to an individual earning more than $200,000 or a married couple earning more than $250,000, which represents about 4 percent of the U.S. population. A proposed Medicare tax on unearned income could add another 3.8 percent tax to the top 2 percent of earners.
Dividends, now taxed at a 15 percent rate, would be taxed as ordinary income, and taxes on long-term gains would increase from the current rate of 15 percent to 20 percent.
The increases in U.S. income taxes and accompanying cuts in government spending – proposed strategies to reduce roughly $15.7 trillion in national debt – threaten to derail the nation’s modest economic recovery. Yet, a study compiled by KPMG, an international network of tax consultants, shows that even at a top rate 39.6 percent or 43.4 percent, U.S. income taxes would still be lower than those levied in most of the world’s largest economies.
Top earners in Germany – the Europe’s biggest economy - face a rate of 45 percent, as well as a 5.5 percent solidarity surcharge, according to KPMG’s Individual Income Tax and Social Security Rate Survey 2011. Social security payments in Germany are 11.45 percent up to $7,150 a month, and contributions to health and long-term care are 9.2 percent up to $4,846 a month.
Closer to home, Canadians pay hefty provincial tax on top of federal taxes. High earners face a top federal rate of 29 percent with investment gains included in this taxable income. Provincial taxes push this rate as high as 48.25 percent. In addition, Canadians pay up to 6.68 percent to social security. On the other side of the globe, residents of Japan face a top tax rate of 50 percent, while those in China face a top rate of 45 percent.
Meanwhile, the issues of tax reform and government spending continue to divide Congress and fuel political debate leading up to the general election. The potential for U.S. income tax increases also remains a top concern of high net worth investors, according to a survey conducted by Millionaire Corner over the first quarter of 2012. High net worth investors – who have investable assets of $5 million to $25 million – say tax consequences are a top investment criteria, and the majority invests in a tax-advantaged products to minimize their U.S. income taxes.