Congratulations, my fellow Americans!
We rank 32nd in a new global index that measures the competitiveness of the world’s economies.
As an editorial in the Wall Street Journal (“We’re Number 32!”) explains, our unimpressive ranking is largely because of a U.S. tax code that harms businesses. FYI: that rank of thirty-second is out of thirty-five industrial nations.
The U.S. tax burden for business, the Journal notes, is close to the heaviest in the world. No doubt, the Obama administration and Senator Chuck Schumer, who is particularly outraged that businesses relocate to more tax-friendly nations in order to survive, will work to make it heavier, even as our once powerful economy stagnates.
The new global index is the International Tax Competitiveness Index, which is being launched by the State Business Tax Index, managed by the Tax Foundation. The index measures "the extent to which a country's tax system adheres to two important principles of tax policy: competitiveness and neutrality."
A competitive tax code is one that allows business to thrive so that it won’t go elsewhere. The Journal explains what the foundation means by neutrality:
By neutrality the foundation means "a tax code that seeks to raise the most revenue with the fewest economic distortions. This means that it doesn't favor consumption over saving, as happens with capital gains and dividends taxes, estate taxes, and high progressive income taxes. This also means no targeted tax breaks for businesses for specific business activities."
Crony capitalism that rewards the likes of green energy with lower tax bills while imposing higher bills on other firms is political arbitrage that misallocates capital and reduces economic growth.
With the developed world's highest corporate tax rate at over 39% including state levies, plus a rare demand that money earned overseas should be taxed as if it were earned domestically, the U.S. is almost in a class by itself. It ranks just behind Spain and Italy, of all economic humiliations. America did beat Portugal and France, which is currently run by an avowed socialist….
The new index also suggests taxation is a greater burden on business in the U.S. than in countries that American liberals have long praised as models of enlightened big government. Finland, Germany, Norway and Sweden, with their large social safety nets, all finish in the top 20 on the new ranking. The United Kingdom manages to fund socialized medicine while finishing 11 spots ahead of the U.S.
As the editorial points out, this index comes out when the Obama administration and Senator Schumer want to make the tax code even more hostile to business as a way to prevent them from doing what, in the light of the already horrible burdens the U.S. imposes, makes sense: relocating.
The editorial concludes:
Liberals argue that U.S. tax rates don't need to come down because they are already well below the level when Ronald Reagan came into office. But unlike the U.S., the world hasn't stood still. Reagan's tax-cutting example ignited a worldwide revolution that has seen waves of corporate tax-rate reductions. The U.S. last reduced the top marginal corporate income tax rate in 1986. But the Tax Foundation reports that other countries have reduced "the OECD average corporate tax rate from 47.5 percent in the early 1980s to around 25 percent today."
This is also a message to self-styled conservative "reformers" who lecture that today's economic challenges aren't the same as they were under Reagan but propose to do nothing about the destructive U.S. corporate tax code. They're missing what could be the single biggest tax boost to economic growth and worker incomes. Abundant economic research, by Kevin Hassett and Aparna Mathur among others, has shown that higher corporate taxes lead to lower wages.
Rather than erecting an iron tax curtain that keeps U.S. companies from escaping, the White House and Congress should enact reform that invites more businesses to stay or move to the U.S.