On September 28
2015, the Tax Foundation released its 2015 International
Tax Competitiveness Index (ITCI) and the United States ranks 32nd
out of 34 OECD countries. The ITCI ranks countries based on policies which
limit taxation of businesses and investment and seek to raise the most revenue
with the fewest economic distortions.
The ITCI says the following
regarding the United States’ low score:
There are three main drivers behind the U.S.’s low
score. First, it has the highest corporate income tax rate in the OECD at 39
percent (combined marginal federal and state rates). Second, it is one of the few
countries in the OECD that does not have a territorial tax system, which would
exempt foreign profits earned by domestic corporations from domestic taxation.
Finally, the United States loses points for having a relatively high,
progressive individual income tax (combined top rate of 48.6 percent) that
taxes both dividends and capital gains, albeit at a reduced rate.
The United States
was unable to improve from its 2014 ITIC score. This is likely because the U.S.
tax code has remained fairly unchanged since the Tax Reform Act of 1986, when
Congress reduced the top marginal corporate income tax rate from 46 percent to
34 percent. Since then, many OECD countries have lowered their own rates,
reducing the OECD average corporate tax rates from 47.5 percent in the early 1980s
to around 25 percent today. The U.S. government actually raised the top
marginal corporate rate to 35 percent in 1993, giving the U.S. the highest
corporate income tax rate in the industrialized world.
It is important
that Congress use the ITCI to understand and address why many U.S. companies
have moved their headquarters abroad. Job creation is essential for a growing
economy, and lower tax rates and a competitive tax code would allow for
entrepreneurs and businesses to invest in new opportunities. Lowering U.S. tax
rates, especially the corporate rate, would not only lead to more jobs and
higher incomes. Consumers also would pay lower prices as the U.S. expands trade
around the globe.