One of the hot topics of the ongoing presidential election campaign is related to the income tax rate being too high. While many think, that taxes in US are the highest in the world, it is not so.
If we look around the world, we see France, where the elected Socialist Party is considering a major tax hike on the nation’s wealthiest, to help reduce the country’s debt. French President Francois Hollande plans to raise taxes on income over 1 million euros (or $1.23 million), from 48 percent to 75 percent, which would affect only about 30,000 French citizens – or .046 percent of the population. These tax reforms were part of his presidential campaign platform.
France is not alone, as there are many countries in Europe, which already have a tax rate of 50 percent or more. In the US however, the top tax rate currently is 35 percent, and on that also a fierce political battle is going on between the two presidential candidates, Obama and Romney, with each promising his own version.
The following table provides information about the highest tax rates in various countries:
Current President Barack Obama wishes to carry-on with the Bush-era income tax cuts, which are to expire this year, for 98 percent of Americans. Obama like his French counterpart, wants Americans with earnings over $1 million a year, to pay a minimum 30 percent tax.
On the other hand, Republican presidential candidate Mitt Romney is in favor of reducing everyone’s taxes by 20 percent, which, according to the nonpartisan Tax Policy Center, would benefit the wealthy, and hurt America’s lowest earners.
Below an interesting chart from Nerd Wallet:
|ExxonMobil Tax Expense, Past 5 Years|
|“Tax Expense” including Operating Costs as “Taxes”||57.5||12.3||9.8||7.7||13.3||14.3|
|U.S. Federal Tax Expense (Official Accounting)||12.2||3.1||1.3||-0.2||3.4||4.5|
|U.S. Taxes Paid||9.6||1.5||1.2||-0.8||3.0||4.7|
Despite having a 35 percent tax rate, many companies General Electric Company (NYSE:GE), Exxon Mobil Corporation (NYSE:XOM) etc) and individuals take advantages of various loop holes in the tax system and pay a much lower tax, as much as 13 percent less. GE’s effective tax rate in 2008 was 5.3 percent and 15 percent in 2007. Even Romney’s 2010 return shows that he paid an effective tax rate of 13.9 percent. The former Massachusetts governor paid taxes worth $3 million (£1.9 million) on an income of $21.7 million (£14 million) that year. Mr Romney like many others benefited from the low rate of CGT, which applies to so-called “carried interest”. This loophole has even been criticized by billionaire investor Warren Buffett, who himself benefits from it. Currently, President Barack Obama is working to close the loophole with a proposed “Buffett Rule.” Apart from this ‘carried interest’, there are various other loop holes, like allowing investors who make a loss one year, to write this off against their tax liability in future years.
What US actually needs are not tax cuts, which we have seen above, considering that its tax rates are not that high when compared to others, but a system that can plug the loop-holes that are used by many to lower their effective tax rate.