Families use savings to pay for down payments on homes, education, retirement, unexpected bills, or anything else that they may desire to buy in the future. High rates discourage them from saving by making spending today more attractive than spending in the future. High tax rates on interest income, dividends, and capital gains discourage families from saving, thereby reducing the amount they can spend in the future by forgoing spending and saving today. When they save less today, families are less secure in the future.
Pass-through businesses, which pay their taxes on their owners’ individual tax returns rather than through the corporate tax system, also pay the high rates that families pay. More than 4 million of them have employees.[1] Those with more than 100 workers employ 20 million Americans.[2] The high tax rates that they pay reduce the amount of earnings that they can reinvest into their businesses. This hurts families because the reduction in investment reduces the number of jobs that the businesses create and the wage increases they give to their workers.
Further reducing investment are the multiple layers of taxes that investors face when contemplating an investment. Much investment is taxed first at the corporate level, where businesses organized as C-corporations pay the U.S. corporate tax rate of 35 percent—the highest corporate tax rate in the world. Investment is then taxed at the investor level through taxes on capital gains and dividends, which are both taxed at 23.8 percent. Combined, these rates mean that investment returns face a tax rate of almost 54 percent, including state taxes.
