Today, the Tax Foundation released its 2014 International Tax Competitiveness Index (ITCI). The ITCI measures the competitiveness of tax systems in the 34 countries in the Organisation for Economic Cooperation and Development (OECD) based on criteria in five categories: corporate income taxes, individual taxes, consumption taxes, property taxes, and the treatment of foreign earnings.
So how did we do? Well, brace yourself.
You won’t find the United States at #1. That honor belongs to Estonia.
You won’t find the United States at #2 either. New Zealand claims that spot.
You won’t find the United States rounding out the top ten: Switzerland, Sweden, Australia, Luxembourg, Netherlands, Slovak Republic, Turkey, and Slovenia take up those notches.
Annnnd the United States doesn’t crack the top twenty-five. We’re bested by Finland, Austria, Korea, Norway, Ireland, Czech Republic, Denmark, Hungary, Mexico, Germany, United Kingdom, Belgium, Iceland, Canada, and Japan.
It gets worse. Guess who else made the list ahead of the United States? Poland, Greece, Israel, Chile, Spain, and Italy. That’s right: our system is ranked below a country whose own Tax Director makes jokes about the lack of compliance and a number of other countries with economies so precarious that they had to be bailed out by their neighbors.
The United States measures in at 32. Of 34 countries. Only Portugal and France were considered to have less competitive tax systems than the United States.
So what makes the United States less desirable from a tax perspective than many countries I’m fairly certain our taxpayers can’t find on a map? (And for the record, yes, I’m including myself in that pool.)
For one – and this won’t come as a surprise – our corporate tax system. Despite the headlines that advertise how our corporations don’t pay taxes, the United States actually imposes the highest corporate tax rate in the OECD: a whopping 39.1%. All other developed countries have a lower rate, even France (34.4%) and Portugal (31.5%). The lowest corporate tax rate in the OECD belongs, not surprisingly, to Ireland (12.5%). The average in the OECD is 25.4%. Every OECD country except the United States, Norway, and Chile have cut corporate tax rates since 2000.
The United States is one of just six OECD countries that imposes a global tax on corporations meaning that its reach extends beyond its own border. Global taxation is the reason that companies like Apple, Microsoft, and more recently, Twitter, have all established corporate centers in more tax-friendly countries: those companies are hoping to avoid the long, long reach of the United States tax system. In contrast, Estonia exempts 100% of foreign profit earned by domestic corporations from domestic taxation.
The complexity of the corporate tax code also contributes to the United States’ low ranking in the report. By the numbers, it takes approximately 87 hours to comply with corporate income tax laws in the United States – compared to just 10 hours in Ireland. The average time to comply with corporate income tax laws across the OECD is 52 hours.
The criticism of our tax system doesn’t end with our treatment of corporations. The Tax Foundation cited poorly structured property taxes and high individual income taxes as reasons for the overall poor showing by the United States. In particular, the United States was singled out for its estate tax as excessively burdensome, although curiously, most OECD countries do impose an estate or inheritance tax on its taxpayers: just eight (Australia, Canada, Estonia, Israel, Mexico, New Zealand, Slovakia, and Sweden) have no such tax.
Finally, the Tax Foundation points a huge finger at the United States for its lack of serious efforts for tax reform: the last major change to our Tax Code happened nearly 30 years ago as part of the Tax Reform Act of 1986. The report notes that other countries, like New Zealand, have made significant changes in their tax policies in recent years in order to stay competitive. You can read the entire report here (downloads as a pdf).
While it might be tempting to treat the report as a fluke, that kind of attitude would be misplaced. More and more organizations are signaling the United States out for having a poor tax culture. How bad is it? Just a few weeks ago, The Telegraph reported that German economists rank the United States at 94 out of 100 nations for overall “business tax attractiveness.” In that study, we trailed behind Pakistan, Greece, Russia, and Nigeria. Think about that.
