Democrats’ highest tax rate would be among the highest in the OECD


Under the House Build Back Better Act, the highest average personal income tax rate would reach 52.3%, placing Sweden in 9th placee highest rate from the Organization for Economic Co-operation and Development (OECD).

The House Build Back Better Act would increase the top federal marginal tax rate on ordinary income from 37% to 39.6%. High income taxpayers would face an additional 3% surtax on income over $ 5 million. Finally, the plan would redefine the tax base to which the net investment income tax (NIIT) applies of 3.8% to include the “active” part of the income transmitted, so that all income above $ 400,000 (single filer) or $ 500,000 (joint filer) would be subject to a 3.8% tax due to the combination of NIIT and Medicare taxes. Overall, the top federal marginal personal income tax rate would rise to 46.4%.

In addition to the highest federal rate, individuals must pay personal income taxes in most states in the United States. Taking into account the local state’s average top marginal tax rate of 5.9%, the top personal income tax rate is 52.3%.

Individuals in six US states and the District of Columbia would face marginal tax rates higher than the average top rate of any OECD country. Taxpayers in New York and California would have the highest tax rates, at 61.2% and 59.7% respectively, while those in New Jersey, Hawaii, District of Columbia, Oregon and Minnesota would all have tax rates above the current OECD level. of 55.9 percent found in Denmark and Japan. Even in states that waive an income tax, like Florida, taxpayers would have a maximum rate of 46.4%, which exceeds the maximum rates found in more than half of all OECD countries.

But unlike other OECD countries, the top marginal personal tax rate in the United States sits at a much higher income threshold, currently around 9.2. times the average national income, and this figure is expected to increase under the proposal. In Denmark, the highest rate of 55.9% is barely 1.3 times the average income. If the United States took this approach, all income over $ 70,000 would be taxed at 55.9%, but would instead be subject to a rate of 12% or 22%, depending on filing status. This reflects the fact that the United States, under current law, generally has a much more progressive income tax system than other OECD countries, and that it would become more progressive under the draft. law of the House.

As policymakers explore options for increasing incomes, they should keep in mind how the United States compares to other countries and what the economic effects might be. Raising the top marginal tax rate on ordinary income to one of the highest in the OECD will hurt the competitiveness of the United States. It will also reduce incentives to work, save and invest, with broad implications for the US economy. We estimate that in the long run this would reduce the size of the economy by about 0.2% and eliminate over 100,000 jobs.

Launch Resource Center: President Biden’s Tax Proposals

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