Today the Tax Foundation released its 2014 International Tax Competitiveness Index. (See here for more commentary by Charlotte Hays). The Index measures the how tax systems in 34 Organization for Economic Cooperation and Development (OECD) countries promote competitiveness and a fertile climate to grow business. Estonia comes out on top, while France ranks dead last.
Guess who’s also a cellar dweller when it comes to promoting a business-friendly climate? The United States. According to the Tax Foundation:
The ITCI finds that the United States has the 32nd most competitive tax system out of the 34 OECD member countries. The largest factors behind the United States’ score are that the U.S. has the highest corporate tax rate in the developed world [39.1 percent] and that it is one of the six remaining countries in the OECD with a worldwide system of taxation. The United States also scores poorly on property taxes due to its estate tax and poorly structured state and local property taxes Other pitfalls for the United States are its individual taxes with a high top marginal tax rate and the double taxation of capital gains and dividend income. …
No longer can a country tax business investment and activity at a high rate without adversely affecting its economic performance. …
The United States provides a good example of an uncompetitive tax code. The last major change to the U.S. tax code occurred 28 years ago as part of the Tax Reform Act of 1986, when Congress reduced the top marginal corporate income tax rate from 46 percent to 34 percent in an attempt to make U.S. corporations more competitive overseas. Since then, the OECD countries have followed suit, reducing the OECD average corporate tax rate from 47.5 percent in the early 1980s to around 25 percent today. The result: the United States now has the highest corporate income tax rate in the industrialized world.
What makes top-ranking countries good places for business? Like Estonia, countries with competitive tax codes have a lower overall rate (Estonia’s is 21 percent), and they do not tax personal dividend income. Property tax applies only to land value, not real property or capital. Importantly, Estonia’s territorial tax system largely exempts 100 percent of foreign profits earned by domestic businesses.
As the Wall Street Journal sums up:
The new ranking is especially timely coming amid the campaign led by Messrs. Obama and Schumer to punish companies that move their legal domicile overseas to be able to reinvest future profits in the U.S. without paying the punitive American tax rate. If they succeed, the U.S. could fall to dead last on next year's ranking. …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.