Numbers and US

Story that numbers tell us

A Comparison of Tax rates

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Reacting to UK’s plan to raise top personal tax rate to 51%, a stream of hedge fund and financial service professionals are leaving UK for relative tax heaven lands. WSJ reports that hedge funds managing fund of $15 billion have moved to Switzerland in last one year.

There would always be debate on what should be ideal tax rate. What would be ideal for corporate, and what would be for individuals? Should Government extract more tax from corporates or should it be from individuals. In eighties, Laffer popularized a relationship between tax rate and government revenue. The idea being, increasing tax rate will increase revenue, but only up to certain limit. it is because, with higer tax rate individuals as well as corporates loose incentive to work.

Here is the curve. The major pain point is that from practical point of view it’s very difficult to decide the optimal tax rate. Optimal tax rate would change from time to time with changing demographics and culture. In these time of flattened world, it has become even tougher, as individuals don’t mind moving away. It’s evident from above news item.


Here is a comparison of tax rates among major countries. I have sorted it by corporate tax rate. Note that corporate tax rate in India is highest.  Understandably, this might be effect of Nehruvian affinity for socialism.


Observe all yellow colored cells. Denmark has highest personal top tax rate, almost 60%.  Japan too have higher individual tax rate. USA have lower corporate tax rate but higher personal tax rate compared to India. Russia, a country who is birth place of communism, has lower corporate and personal tax rate.  A comparative study on how these countries have played with tax rate, and how have they done in last fifty years will help us better understand the mechanism of tax rate. Will see if there has been any work on this.


Written by SK

August 25, 2009 at 3:35 pm

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