The economy is trying to pull itself out of a deep rut, and many voices are asking the same question: what can the government do to help? For real, sustainable growth, the answer is that the government needs to loosen its grip on the economy.
The Tax Foundation has recently published a report that analyzes the tax policy of the thirty-four Organisation for Economic Development (OECD) member countries, which are more or less all of the advanced economies in the world. The results are jarring. The United States ranks 32 out of 34 in terms of the competitiveness of our taxation – only Portugal and the Socialist-led France rank lower than we do. The main factor in in this embarrassment is our bush league corporate tax rate. The Tax Foundation makes it clear: “The United States provides a good example of an uncompetitive tax code… The largest factors behind the United States’ score are that the U.S. has the highest corporate tax rate in the developed world and that it is one of the six remaining countries in the OECD with a worldwide system of taxation.”
While the rest of the world has been reforming its tax codes, the United States has been left in the dust. The last major change in the US occurred in 1986, and since then, OECD average corporate tax rate has practically been cut in half. Corporations are leaving our shores, as Logan Albright pointed out, and our uncompetitive policies makes investment a bad idea in the first place.
Not only is the corporate tax rate astronomical, but the United States suffers from double taxation. A corporation’s earnings are taxed, and then the payments to its shareholders are taxed again in the form of capital gains. Other uncompetitive factors are our inefficient property tax system and our income tax rates, which rank at 31 and 26 respectively.
Competition leads to better results, and this extends to nation-states competing for the most efficient and economically friendly tax policy. When the agile tax reforms of other nations made New Zealand’s rates seem lackluster by comparison, they quickly took action. The government enacted tax cuts and now New Zealand occupies the number two position in the Tax Foundation’s rankings. Unfortunately, American politicians don’t seem to make these things a priority.
When a majority of European welfare states are outclassing the United States in free-market tax policy, it’s clear that we have a lot of room for improvement. Taxation penalizes the productive behavior of market participants and gets in the way of growth. Even with one of the world’s most inefficient tax codes dragging it down, the United States is the wealthiest country in the world. If our government took real action to make our tax system less burdensome, our prosperity would be unprecedented.