Heritage Report: U.S. Economic Freedom Ranking Drops, But Overall Score Increases

The Heritage Foundation has published its 2018 Index of Economic Freedom, and the five top-scoring countries or territories are once again Hong Kong, Singapore, New Zealand, Switzerland, and Australia. Trailing just behind Australia is Ireland (whose score improved significantly from 2017), followed by Estonia, the United Kingdom, Canada, the United Arab Emirates, Iceland, Denmark, Taiwan, Luxembourg, Sweden, Georgia, the Netherlands — and then the United States.

For those keeping track, the U.S. ranks 18th overall, compared with 17th overall in 2017. However, America’s total score in the index jumped from 75.1 to 75.7 (out of a possible 100).

“While the U.S.’s economic freedom ranking has dropped due to comparatively better improvements in other countries,” Heritage reports, “the increase in its overall score would seem to indicate that the decade-long decline in America’s economic freedom may have been arrested. There are signs of renewed labor market dynamism and increased growth, and major regulatory and tax reforms are spurring business confidence and investment. The continuing decline in the score for government integrity reflects a growing perception of cronyism, elite privilege, and corruption.”

It’s worth noting that America ranks behind several Western European countries with famously generous welfare states and larger overall tax burdens, including Denmark, Sweden, and the Netherlands.

In 2016, for example, total tax revenue from all levels of government amounted to nearly 46 percent of GDP in Denmark, over 44 percent of GDP in Sweden, and close to 39 percent of GDP in the Netherlands, compared with only 26 percent of GDP in the U.S., according to OECD data.

Yet Denmark, Sweden, and the Netherlands outscore the U.S. in categories such as fiscal health, property rights, government integrity, monetary freedom, and trade freedom. Denmark and Sweden also outscore the U.S. in business freedom and judicial effectiveness, while Denmark and the Netherlands outscore the U.S. in investment freedom.

One additional point about taxes: Plenty of advanced countries that collect more total revenue as a share of GDP than America does — including Canada, Iceland, New Zealand, Switzerland, Japan, Finland, and the United Kingdom — outscore America in the category of tax burden. In other words, the Heritage analysts believe those countries’ tax systems do less harm to economic freedom than the U.S. system, despite consuming a larger portion of economic output.

To read the entire report, go here.