Quick quiz: How does the United States compare to other countries in terms of its tax structure? How competitive is the U.S. internationally as a result?
There’s good news and bad.
Thanks to federal reforms enacted under the Tax Cuts and Job Act, the U.S. moved up four spots in the 2018 International Tax Competitiveness Index. Even with the bump, the U.S. still ranks 24th in the latest analysis.
The Tax Foundation — a nonprofit, nonpartisan tax research organization based in Washington, D.C. — compiles the index to offer a comparison among countries. The index takes into account 40 tax policy variables, including corporate, individual, consumption and property taxes as well as the treatment of profits earned overseas.
The U.S. fared best in the index in ranking fourth for consumption taxes and 20th for corporate taxes. The U.S. fared less well at 26th for individual taxes, 28th for property taxes and 32nd for international tax rules.
The Tax Cuts and Job Act lowered corporate income tax rates, improved expensing of capital investments and adjusted personal income tax rates.
The U.S. continues to fare poorly internationally, though, because of its progressive income tax with a top rate of 46 percent and a partial territorial system that doesn’t exempt foreign capital gains income. Moreover, the U.S. imposes one of the highest property tax burdens among the 36 member countries of the Organization for Economic Cooperation and Development (OECD).
In case you’re wondering, Estonia ranks first overall in the 2018 International Tax Competitiveness Index with top marks for corporate, individual and property taxes. Latvia comes in second, followed by New Zealand, Luxembourg and the Netherlands. In contrast, France fared the worst in the index among OECD countries, followed by Italy, Poland, Portugal and Chile.
While a lower corporate tax rate has made the U.S. more competitive, lawmakers also should keep in mind those things in the federal tax code that make the country less competitive — a progressive income tax and complex international tax systems.