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.” That is the last thing Obama wants for the American people.