PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

On Tax Reform: Don’t Forget About Capital Gains Taxes

By at 23 August, 2017, 9:41 pm

U.S. Capital Gains Tax Rate Ranks Poorly Internationally

by Raymond J. Keating-

As the tax reform debate heats up, it’s important to keep in mind that capital gains tax relief must be part of any pro-growth reform effort.

After all, a capital gains tax is a direct tax on the returns on entrepreneurship and investment, which, of course, are the key sources of innovation, productivity growth, income growth and economic growth. Taxing capital gains means reducing the resources available for and diminishing the incentives for undertaking the risky endeavors of starting up, operating and investing in a business.

Therefore, the capital gains tax inflicts harm on the overall economy, and on workers, who need the jobs, productivity improvements and resulting income gains generated by such risk taking.

For good measure, it must be recognized that financial capital moves in a global market, and will flow to those locales where it is treated well. Unfortunately, the U.S. has a high capital gains tax when compared to world’s largest economies.

In fact, as noted in Table 1, the U.S. top individual capital gains tax rate of 28.3 percent (i.e., the combined federal rate (23.8 percent) and the average state rate (just under 5 percent)) ranks 40th among the nations with the top 50 economies.

Table 1: Ranking the Top 50 Economies in Terms of Top Individual Capital Gains Tax Rate

Rank Country Top Capital Gains Tax Rate
1t Belgium 0
1t Czech Republic 0
1t Hong Kong 0
1t India 0
1t Iran 0
1t Korea 0
1t Luxembourg 0
1t Netherlands 0
1t New Zealand 0
1t Russia 0
1t Switzerland 0
1t Taiwan 0
1t Thailand 0
1t United Arab Emirates 0
15t Mexico 10
15t Nigeria 10
17t Argentina 15
17t Greece 15
17t Hungary 15
17t Latvia 15
17t Slovenia 15
22 Poland 19
23t China 20
23t Estonia 20
23t Iceland 20
23t Japan 20
23t Saudi Arabia 20
23t United Kingdom 20
29 Brazil 22.5
30 Spain 23
31 Australia 23.5
32 Norway 24
33t Israel 25
33t Slovak Republic 25
35 Canada 25.47
36 Italy 26
37 Germany 26.375
38 Austria 27.5
39 Portugal 28
40 United States 28.6
41t Indonesia 30
41t Sweden 30
43 Philippines 32
44 Ireland 33
45t Finland 34
45t Venezuela 34
47t Chile 35
47t Turkey 35
49 Denmark 42
50 France 60.5

Tax relief and reform should make the U.S. a global magnet for capital.

Given all of the other positives that make the U.S. an attractive place to invest, eliminating the capital gains tax would be a major policy achievement. It would provide major boosts to entrepreneurship, investment and our economy. At the very least, the total U.S. capital gains tax rate should be reduced so that it is lower than the average 18 percent rate prevailing among these 50 nations, such as bringing the federal rate down to 10 percent.

In the end, the less you tax something, the more of it you get. Our economy – as illustrated in recent SBE Council reports here and here – needs more entrepreneurship and more private investment.

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Sources on tax rates:

Argentina Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-argentinahighlights-2017.pdf
Australia Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-australiahighlights-2017.pdf
Austria Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-austriaguide-2017.pdf
Belgium Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-belgiumhighlights-2017.pdf
Brazil KPMG https://home.kpmg.com/xx/en/home/insights/2015/03/tnf-brazil-new-tax-rates-for-capital-gains.html
Canada Fraser Institute https://www.fraserinstitute.org/blogs/personal-income-taxes-and-the-capital-gains-tax
Chile Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-chilehighlights-2017.pdf
China Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-chinahighlights-2017.pdf
Czech Republic PWC http://taxsummaries.pwc.com/ID/Czech-Republic-Individual-Income-determination
Denmark Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-denmarkhighlights-2017.pdf
Estonia Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-estoniahighlights-2017.pdf
Finland Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-finlandhighlights-2017.pdf
France Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-francehighlights-2017.pdf
Germany Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-germanyhighlights-2017.pdf
Greece Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-greecehighlights-2017.pdf
Hong Kong Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-hongkonghighlights-2017.pdf
Hungary Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-hungaryhighlights-2017.pdf
Iceland Dir of Internal Revenue https://www.rsk.is/english/individuals/taxable-income/
India Deloitte https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-india-int-tax-en-2017.pdf
Indonesia PWC http://www.iberglobal.com/files/2017/indonesia_deloitte.pdf
Iran Global Property Guide https://www.globalpropertyguide.com/Middle-East/Iran/Taxes-and-Costs
Ireland Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-irelandguide-2017.pdf
Israel Deloitte https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-israel-int-tax-en-2017.pdf
Italy Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-italyhighlights-2017.pdf?nc=1
Japan Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-japanhighlights-2017.pdf?nc=1
Korea Deloitte http://www.iberglobal.com/files/2017/corea_deloitte_guia.pdf
Latvia Deloitte https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-latvia-int-tax-en-2017.pdf
Luxembourg Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-luxembourghighlights-2017.pdf
Mexico Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-mexicohighlights-2017.pdf
Netherlands Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-netherlandshighlights-2017.pdf
New Zealand Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-newzealandhighlights-2017.pdf
Nigeria Global Property Guide http://www.globalpropertyguide.com/Africa/Nigeria/capital-gains-tax
Norway Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-norwayhighlights-2017.pdf
Philippines Deloitte https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-philippines-int-tax-en-2017.pdf
Poland Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-polandhighlights-2017.pdf
Portugal Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-portugalhighlights-2017.pdf
Russia Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-russiahighlights-2017.pdf
Saudi Arabia Deloitte https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-saudi-arabia-int-tax-en-2017.pdf
Slovak Republic Deloitte https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-slovakia-int-tax-en-2017.pdf
Slovenia Deloitte https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-slovenia-int-tax-en-2017.pdf
Spain Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-spainhighlights-2017.pdf
Sweden Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-swedenhighlights-2017.pdf
Switzerland Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-switzerlandhighlights-2017.pdf
Taiwan Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-taiwanhighlights-2017.pdf
Thailand Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-thailandhighlights-2017.pdf
Turkey Deloitte https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-turkey-tax-invest-en-2017.pdf
United Arab Emirates Global Property Guide http://www.globalpropertyguide.com/Middle-East/United-Arab-Emirates/Taxes-and-Costs
United Kingdom Deloitte https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-unitedkingdomhighlights-2017.pdf
Venezuela Global Property Guide http://www.globalpropertyguide.com/Latin-America/Venezuela/capital-gains-tax

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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