Even if you live in a country with a high tax rate and many social benefits (i.e., France) and pay a tax rate of over 40%, you may still owe taxes in the U.S. From your perspective, 40% of your income is coming out of your wallet and going towards taxes. However, from the IRS’s perspective, only 15% of that is considered income tax and qualifies for the Foreign Tax Credit. This is why:
Mandatory social contributions in France represent about 25% of the gross salary. Those contributions feed funds that pay for various Social benefits. In France, these pooled public funds provide social benefits (health coverage, education, accident insurance).
In the U.S., similar benefits are paid for by each individual using their income after taxes. The IRS disallows deductions for social contributions made in exchange for access to public benefits in a country of residence.
Allowed tax credits and income deductions may eliminate your income tax (line 56 of Form 1040).
However, there’s also a surcharge imposed on taxpayers with high income: the Net Investment Income Tax (line 63 of Form 1040).
This resembles the wealth taxes imposed on assets in some European countries. It is unrelated to income tax and cannot be offset by foreign tax credits, even if you also pay a wealth tax in your country of residence.