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Tax Foundation Report Shows Harmful Effects of Higher Dividend Tax Rates

Higher U.S. Dividend Tax Rate Resulting from Expiration of Bush Tax Cuts, Health Care Reform Would Put U.S. Rate at 68 Percent, Highest Among Industrialized Countries

June 7, 2010 — The Tax Foundation   Bookmark and Share

Washington, DC, June 7, 2010 – The expiration of the Bush tax cuts and new Medicare taxes on investment income that were part of recent health care reform will push the top effective tax rate on dividends in the U.S. to 68 percent in 2011 – highest among all industrialized nations, according to a new Tax Foundation report.

The paper, authored by Tax Foundation Senior Fellow Robert Carroll, Ph.D., found that the double tax on corporate profits—first under the corporate income tax and again under the individual income tax as dividends or capital gains—discourages productive capital formation, ultimately reducing wages and living standards for U.S. citizens.

“The U.S. integrated dividend tax rate of 68 percent is substantially higher than in other nations,” Carroll said. “The average rate among OECD member nations is about 44 percent and the average among the larger G-7 economies is about 47 percent. The higher dividend rate is in addition to the high U.S. corporate tax rate of 39.1 percent, second only to Japan among industrialized countries.”

Tax Foundation Special Report, No. 181, “The Economic Effects of the Lower Tax Rate on Dividends,” is available online at http://www.taxfoundation.org/publications/show/26384.html.