Study Claims U.S. Individual Taxes Compare Well Within Organization for Economic Co-operation and Development (OECD) countries.

Mike Godfrey for  Tax-News.com writes:  In notes issued by the Tax Policy Center (TPC) of the Urban Institute and Brookings Institution, it is calculated that, even with the recent increases, individual income tax rates in the United States compare favorably with those in other major Organization for Economic Co-operation and Development (OECD) countries.

The TPC points out that, while discussions on the effect of taxes on international competitiveness usually focus on corporate income tax rates, individual income tax rates may also affect a country's (or state's) ability to compete for workers. In the US, the competition issue has been mentioned in recent reports that golfer Phil Mickelson was planning to flee the higher California state income tax rates.

It is noted that the new 39.6% federal individual income tax rate (after the "fiscal cliff" Congressional agreement over the end of last year), combined with California's new 13.3% top state rate, have pushed the top combined US rate on wages to 47.6% for 2013, even though state income taxes are deductible for federal income tax purposes. This is higher than at any time since the top federal rate dropped below 50% in the mid-1980s.

The TPC calculates that recent rate increases will likely move the US higher than the rank of 20th place among the 34 OECD countries that it held in 2012. 2013's 47.6% rate would have ranked it in 17th place last year. However, this year's US rate is only 0.1% higher than the 2012 rates of the two countries (Australia and Germany) that rank just above it.
Furthermore, countries besides the US could have higher (or lower) rates in 2013 than in 2012. The US has previously ranked higher than 17th – it was 15th in 2002 and 16th in both 2008 and 2009. The TPC confirmed that it fell to 20th in 2010 only because several countries (Greece, Iceland, Ireland and the United Kingdom) raised their top rates.

It is therefore concluded that, even with its recent rate increases, US individual income tax rates compare favorably among major OECD countries, particularly as measured against European countries such as Denmark, Sweden, Belgium and the Netherlands, and for the majority of Americans who live in states with top income tax rates lower than California's or with no state income tax at all.

While most business tax receipts have come from a relatively small number of C corporations subject to the corporate income tax (because they are larger), the use of other organizational forms allowing businesses to pass their profits through to their owners, where they are subject to the individual income tax has grown, such that by 2007 they represented 94% of firms and accounted for 38% of business tax receipts.