I'm pretty sure that most people, if asked for their opinion of the U.S. tax system, would exclaim that it's far from perfect. Honestly, there seems to be something inherently wrong with the idea that Berkshire Hathaway (NYS: BRK.A) (NYS: BRK.B) CEO Warren Buffett can take home a salary of $100,000 a year and be ranked among the richest people in the world, yet pay less in taxes than his own secretary by his own admission. Moreover, Berkshire's longtime investors also pay less in taxes on all the gains they've enjoyed from their share price appreciation over the years, thanks to low rates on capital gains.
It's true that the rich in this country bear a considerable amount of the tax burden. According to The Economist, the top 1% of earners in the U.S. contributed to 74% of all taxes paid in 2007, up dramatically from the 24% they contributed in 1976. But by all accounts, things could be considerably worse.
There are three countries out there that have an even more profound "tax first, ask questions later" policy, and they just might have you thanking your lucky stars that you live in the good old U.S. of A.
Britain is downright stingy when it comes to tax time if you're a top-earning chap. In 2010, Britain passed a new tax law that would tax those Brits at a rate of 50% for every pound earned beyond 150,000 pounds, or about $237,500. Blimey!
Indications so far are that Britons are finding ways around the new tax. In January, the British government received 10.35 billion pounds in self-assessments, which was actually a drop-off of 509 million pounds from the previous year. The new tax was meant to generate an additional 1 billion pounds this year but appears to be having the opposite effect.
According to data from the Organization of Economic Co-operation and Development, the top-earning French pay about 28% of all taxes. While the top-tier marginal tax rate of 40% might not seem that bad considering that it used to be north of 50% prior to 2000, it's the potential for a huge tax hike that should have French citizens concerned.
Francois Hollande, the Socialist Party's nomination for president, currently has a slight advantage over Nicolas Sarkozy, the current French president. While he's no lock to win, his tax plan for the rich is perhaps one of the harshest on record. His plan includes a 75% tax rate on French citizens earning more than 1 million euros a year. Can I raise the white flag now?
This last spot was a toss-up between Belgium and Denmark. The Danes have the highest income tax on those earning over $100,000, but their social security contribution is a minuscule 0.2%. Therefore, Belgium, which will take about 48% of your $100,000 in income, takes the cake in my book.
If that's not enough of a kick in the pants for top earnings, Belgium's residents are also subject to a 21% value-added tax. Unlike traditional sales taxes, which are just paid to the government on final sale, value-added taxes are required to be paid at every point along the product development line, from manufacturer to consumer, giving governments faster revenue but adding complexity to the system.
If that doesn't make you love the tax system in the U.S. just a tiny bit more, then I'm not sure what will.
The U.S. tax system also affords you numerous ways to reduce your taxable income, including contributing to your 401(k). Many companies even make it worth your while to participate. For instance, Nucor (NYS: NUE) not only offers a profit-sharing plan that divides 10% of its operating profit among its employees, but matches the first 7% of your contributions. Depending on the company's health, this could be a 5% to 25% match. McDonald's (NYS: MCD) will match three times an employees' first 1% and, for those with the company for more than a year, double the next 4%. In addition, the company can, at its discretion, divvy out a profit-sharing match.
In short, the opportunities to minimize your tax liability are there. You just have to act on them -- and be thankful you live in the U.S.A.
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At the time this article was published Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. He's definitely glad he lives in the U.S.A. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway, Nucor, and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that always goes above and beyond your expectations.
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