International and Country Perspectives
Edited by Iris Claus, Norman Gemmell, Michelle Harding and David White
Chapter 5: Dual Income Taxes: A Nordic Tax System
Peter Birch Sørensen PRINCIPLES OF DUAL INCOME TAXATION What is a Dual Income Tax? 5.1 5.1.1 The Nordic dual income tax (henceforth termed the DIT) is a particular form of schedular income tax which combines progressive taxation of labour and transfer income with a low flat tax on all capital income. In the pure version of the system the flat tax rate on capital income is aligned with the corporate income tax rate and with the marginal tax rate on labour income in the first bracket. In this case the DIT may be described as a system that combines a flat tax on total income with a progressive surtax on labour and transfer income. An important part of the philosophy underlying the DIT is that the capital income tax base should be broad, to ensure the greatest possible degree of tax neutrality. Under a consistent DIT, the personal capital income tax base would thus include the following components: ● ● ● ● ● ● ● interest dividends capital gains rental income royalties imputed returns on owner-occupied housing imputed returns on capital invested in non-corporate firms In case the sum of these components is negative, the taxpayer is entitled to a tax credit equal to the capital income tax rate times the negative balance. The quest for tax neutrality was well reflected in the Norwegian DIT introduced in 1992 which aimed to tax all capital income once but only once. Hence the Norwegian tax reform involved full alleviation of the 78 Dual income taxes 79 double taxation...
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