Saturday, July 18, 2009

California's top income tax rate higher than Sweden's?

The current top marginal tax rate in the USA is 35% according to the Wall Street Journal. But with the increase scheduled for 2011 under President Obama's budget combined with the increases in the health care bill presently before the House, the average top federal rate is expected to rise to 47% or 48%. The top bracket in Canada is currently 29%. Figuring in state taxes, top income earners in Oregon, Hawaii, New Jersey, New York, and California would all be looking at Sweden's top rate of 56% or higher. Meanwhile, 47% of Americans pay no income tax at all.

Now this does not mean that US Democrats are going to crank up government's take to Swedish levels, since Sweden also has a 25% VAT. But when one considers that Alberta has no sales tax/VAT and has a current combined provincial/federal top bracket of 39%, the difference becomes significant (Alberta's corporate taxes are high, but then so are America's).

The Economist is not happy:
the Democratic party’s leadership plans to pay for it by imposing an ill-advised tax on business and a steep “surcharge” on the wealthy. ...

By embracing these two taxes, the House rejected the financing method recommended by most economists (and by this newspaper). The tax preference given to health insurance provided by employers (over, say, the coverage bought by the self-employed) is a market distortion that costs the exchequer some $250 billion a year. Abolishing or even merely restricting that policy could pay for much or all of the cost of universal coverage, as well as boosting labour mobility and making the cost of coverage more transparent to consumers. This virtuous policy never had a chance in the House, because union members get some of the best insurance packages.

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