U.S. Ranks 5th Worst on International Tax Competitiveness Among OECD Nations

From the Tax Foundation

On October 5, 2016, we released the 2016 International Tax Competitiveness Index (ITCI), and this year the United States ranks 31st out of the 35 countries in the Organisation for Economic Co-operation and Development (OECD). With the fifth least competitive tax code in the developed world, only Greece, Portugal, Italy, and France rank worse than the U.S. The report finds that Estonia (#1), New Zealand (#2), and Latvia (#3) have the most competitive codes among the OECD nations. 

The ITCI attempts to determine which countries provide the best tax environment for investment and business growth and development. It does this by measuring the competitiveness of tax systems in the OECD’s 35 countries based on more than 40 tax policy variables in five categories: corporate income taxes, individual taxes, consumption taxes, property taxes, and the treatment of foreign earnings.

The United States ranks poorly largely due to five factors. The U.S. maintains the highest corporate tax rate among OECD nations at 39.1%, it levies relatively high property taxes on real property, has high progressive income taxes that apply to capital gains and dividends, has estate taxes, and ranks at the bottom with its treatment of foreign earnings. 

The least competitive tax code among OECD nations belongs to France. In addition to having the highest property and individual tax rates, France has the third highest corporate income tax rate at 34.4%, a financial transaction tax, and an annual net wealth tax. 

At the other end of the spectrum, Estonia for the third year in a row ranks as having the most competitive tax code among OECD nations. This is largely due to its 20% tax rate on corporate income that is only applied to distributed profits. It has a flat 20% tax on individual income that doesn't apply to personal dividend income. Its property tax applies only to the value of land rather than taxing the value of real property or capital. It also has a territorial tax system that exempts 100% of the foreign profits earned by domestic corporations from domestic taxation. 

“No longer can a country levy high taxes on business investment and activity without adversely affecting its economic performance,” said Tax Foundation Director of Federal Projects Kyle Pomerleau. “In recent years, many countries have recognized this fact and have moved to reform their tax codes to be more competitive. However, others have failed to do so and are falling behind the global movement.”

The U.S. is a great example of this. The last major change to the U.S. tax code occurred 30 years ago, when Congress reduced the marginal corporate income tax rate from 46 percent to 34 percent in an attempt to make U.S. corporations more competitive overseas. Since 1986, other OECD countries have followed suit, reforming their tax codes -- and leaving the United States with one of the least competitive tax codes in the world.

Full Report: 2016 International Tax Competitiveness Index