56.5% Tax on Dividends & US Competitiveness

Here are a pair of articles of interest – Re-Blogged From NewsMax

Top Tax on U.S. Dividends Actually 56.5 Percent

The top federal tax on dividends is stated at 23.8 percent, one of the highest rates in the developed worlds, but the total tax is actually much higher — 56.5 percent, according to an analysis by the Tax Foundation.

The current federal top marginal tax rate on dividend income is 23.8 percent for individuals with an adjusted gross income of $200,000 or more and for married couples earning at least $250,000 and filing jointly.

That figure represents a 20 percent rate on dividends plus a 3.8 percent tax on unearned income to fund Obamacare.

But 43 of the 50 states also levy a tax on dividends, with the highest rate, 13.3 percent, in California, followed by Hawaii (11 percent).

The average top marginal tax rate for all states, including both federal and states levies, is 28.6 percent. That’s the ninth highest rate among the 34 nations in the Organisation for Economic Co-operation and Development (OECD). The highest rate is in Ireland, 51 percent, and the average is 24 percent, 4.6 percent lower than in the U.S.

Two OECD nations do not tax dividends: Estonia and the Slovak Republic.

But that 28.6 percent average top rate in the U.S. is misleading because dividend taxes are in fact examples of double taxation.

The Tax Foundation offers the example of a company that earns a profit of $100. It would need to pay the combined federal and state corporate income tax rate of 39.1 percent. Its after-tax profit is $60.90.

The company then distributes those profits as dividends to its stockholders, who need to pay the average 28.6 percent combined federal and state personal dividend tax, $17.42.

That means the total tax on the $100 in profits is $56.52 — a 56.5 percent tax rate.

“The U.S. personal dividend tax is a double tax on corporate profits, biases corporate behavior, and leads to lower savings, less investment, lower wages, and lower living standards for all,” the Tax Foundation observed.

“The combined burden of federal, state, and local taxes on dividend income creates marginal rates that exceed the dividend tax rates of most of the United States’ major trading partners. Reducing the tax burden on savings and investment will lead to faster economic growth, higher wages, and better standards of living.”

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US COMPETITIVENESS

The once-huge gap between manufacturing costs in China and the United States has narrowed to the point where it’s barely cheaper to produce goods in China than here in America.

Manufacturing wages adjusted for productivity have nearly tripled in China over the last decade, from $4.35 an hour in 2004 to $12.47 an hour last year, according to the Boston Consulting Group.

In the U.S., manufacturing wages adjusted for productivity have risen less than 30 percent since 2004, to $22.32. But the higher wages for American workers are offset by lower costs for energy and raw materials.

The total cost to manufacture goods in China for every $1 required in the U.S. is now $0.96.

“Everybody believed that China would always be cheaper,” Harold Sirkin, a senior partner at Boston Consulting, told The New York Times.

“But things are changing even faster than anyone imagined.”

The U.S. is becoming more competitive with other nations as well. It now costs more than $1 to manufacture goods in Korea for every $1 required in the U.S., and between $1.10 and $1.20 in Canada, Sweden, Japan, and the Netherlands.

For every $1 required in America, it costs between $1.20 and $1.30 to manufacture goods in Germany, Italy, Brazil, Belgium, France, and Switzerland.

The only nations cited by Boston Consulting where it costs less than $0.90 to produce goods for every $1 required in the U.S. are now India and Indonesia.

The Times offered the example of the textile industry. Rising costs in China due to higher wages, energy bills and cotton prices have actually induced Chinese companies to open up textile mills in the U.S., where energy is cheaper, and employ American workers.

Last year it cost just over $1.50 to manufacture one pound of yarn in the U.S., compared to more than $2.00 in China.

The cost is also lower in the U.S. than in India, Brazil, Korea, Italy, or Egypt.

“Once the epitome of cheap mass manufacturing, textile producers from formerly low-cost nations are starting to set up shop in America,” The Times observed. “It is part of a blurring of once seemingly clear-cut boundaries between high- and low-cost manufacturing nations that few would have predicted a decade ago.”

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