American Tax Exceptionalism

Another year of slow economic growth, and another year of zero progress reforming the U.S. tax system. This week the Tax Foundation will release its annual International Tax Competitiveness Index and once again the U.S. ranks a dismal 32nd out of 34 industrialized nations.

The index measures various factors that determine how friendly a government is to business and investment, including the amount of taxation and the complexity of tax rules. While Washington gets credit for refraining from a value-added tax on top of its other levies, the U.S. comes in dead last among the 34 developed countries in the Organization for Economic Cooperation and Development (OECD) when it comes to taxing corporate income.

The U.S. has the highest top marginal corporate income tax rate at 39%, reports the Tax Foundation, and it has a complex method of collecting it. The U.S. rate—the 35% federal rate plus the average state rate—is a full 14 points above the OECD average of 25%. It’s worse if your CEO and board are crazy enough to be based in Pennsylvania with its 9.99% rate. The U.S. could also attract investment and spur growth by reducing regulation and tort-law plundering, but the U.S. isn’t pursuing those options either.

President Obama has sometimes questioned whether the U.S. is exceptional. His absence from the tax reform debate suggests he’s happy if the U.S. is the land of the highest taxes.


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