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US Lags Behind Most OECD Countries in Tax Competitiveness

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Sep 30th 2015.
Ken Berry

According to a new report from the Tax Foundation, a conservative-leaning think tank located in our nation’s capital, the United States continues to lag far behind most other industrialized nations in competitive tax policy.

The United States ranks 32nd among the 34 member countries in the Organization for Economic Cooperation and Development (OECD), according to the Tax Foundation’s 2015 International Tax Competitiveness Index. The index is based on an analysis of more than 40 variables spanning five categories:

- Corporate taxes
- Consumption taxes
- Property taxes
- Individual taxes
- International tax rules

The Tax Foundation’s stated aim is to determine which countries provide the best tax environment for investment, as well as the best tax environment to start and grow a business.

Now let’s look a little closer at the latest results. The United States also landed in the 32nd spot in last year’s index. For 2015, only Italy and France have less competitive tax codes than the United States. Conversely, Estonia, New Zealand, and Switzerland have the three most competitive tax codes among OECD nations.

The United States is falling way behind the leaders, claims the Tax Foundation, due mainly to the following three factors:

It is one of the six remaining countries in the OECD that doesn’t have a territorial tax system.
It maintains the highest corporate income tax rate in the industrialized world at 39 percent.
It has a relatively high and poorly structured individual income tax system that taxes both dividends and capital gains.
According to the report, France has the least competitive tax system among developed nations. Besides having one of the highest corporate tax rates in the OECD at 34.4 percent, France maintains high and poorly structured property taxes along with high, progressive individual income taxes.

On the other hand, Estonia enjoys the distinction of having the most competitive tax system in the developed world, the Tax Foundation says. It maintains a relatively low corporate tax rate at 20 percent that does not impose double taxation on dividend income, plus it allows full expensing of capital investments. Also, Estonia features a nearly flat 20 percent tax rate on individual taxes and a property tax that only applies to land – not buildings and other structures.