Taxes: US taxes vs. foreign taxes
THE US already enjoys a lighter tax burden than its West European and Japanese counterparts. Under President Reagan's tax-reform plan that advantage would remain and in some cases grow.
Some analysts say the lighter US tax burden is a key reason why its economy has outperformed Europe's. But Mr. Reagan's tax plan would not necessarily produce a clear change in the US international competitive position. ``You can't make that leap,'' says Charles R. Hulten, research associate at the Urban Institute. Studies show a ``very complicated link'' between lower taxes and an improved economy.
US manufacturers say their exports could be hurt by the plan's elimination of the investment tax credit and the ``windfall'' tax on previous depreciation benefits. National Association of Manufacturers Vice-President Paul Huard says the Reagan plan poses a significant threat to ``the ability of US-based manufacturing concerns to compete effectively in the world economy.''
Precise comparisons of international tax law are tricky; the subject is highly complex. But on individual taxes, the Reagan plan proposes a maximum rate of 35 percent on income greater than $70,000. By contrast the maximum rate in West Germany of 56 percent kicks in at $42,000. In Britain the maximum rate of 60 percent begins to bite at $48,000. In Japan the maximum 70 percent rate takes effect at $318,000 while allowing fewer deductions. Japan also levies heavy local taxes.
On corporate taxes, Reagan would impose a top rate of 33 percent on income greater than $345,000. In Germany the maximum rate is 56 percent, while in Japan it is 42 percent on most income. British companies pay a flat 40 percent rate, which will drop to 35 percent next spring.