Report: U.S. Ranks 24 Out of 35 on International Tax Competitiveness

By Emily Ward | October 25, 2018 | 10:42am EDT

( -- The United States improved its tax competitiveness rating during 2018 from 28th to 24th out of 35 countries on the International Tax Competitiveness Index (ITCI), following the implementation of its Tax Cuts and Jobs Act (TCJA), according to the Tax Foundation.

“Due to reforms made by the Tax Cuts and Jobs Act to lower the corporate income tax rate, improve expensing of capital investments, and adjust personal income tax rates, the U.S. improved four spots” on the ITCI, the Tax Foundation wrote in a press release.

The TCJA, which was signed into law in December 2017, was the “most significant tax code overhaul in over three decades,” according to the Tax Foundation.

(Getty Images North America.) 

The International Tax Competitiveness Index seeks to determine whether a country’s tax system is “neutral and competitive” by examining more than 40 “tax policy variables” in five categories, including “corporate income taxes,” “individual taxes,” “consumption taxes,” “property taxes” and “the treatment of foreign earnings.”

According to the Tax Foundation, a tax code that is both competitive and neutral “promotes sustainable economic growth and investment while raising sufficient revenue for government priorities.”

A country’s tax code structure can greatly influence its economic performance. For example, corporate taxes are “harmful” for economic growth and can lead to “lower wages for workers, lower returns for investors, and higher prices for consumers,” said the Tax Foundation.

The U.S., which received a score of 61.5 on the Index, reduced its corporate income tax rate
from 35 percent to 21 percent through the TCJA, according to the Tax Foundation. The TCJA also included “improvements to expensing of capital investments” and “rate changes for the personal income tax,” both of which helped the U.S. improve its ranking on the ITCI.

(Getty Images North America.)  

Despite its improved ranking on the Index, the U.S. still has work to do.

“The U.S. still ranks towards the bottom of the pack,” the Tax Foundation wrote, pointing out its “progressive income tax,” its “onerous” international tax system, and its “property tax burden” as weaknesses of its tax system.

The Tax Foundation explained that businesses, when deciding where in the world to invest, look for “countries with lower tax rates on investment” to maximize their rate of return. “If a country’s tax rate is too high, it will drive investment elsewhere, leading to slower economic growth,” the Foundation wrote.

The Index included data from the 36 countries in the Organization for Economic Co-Operation and Development (OECD), with the exception of Lithuania, which recently joined the OECD on July 5, becoming the organization’s 36th member.

Estonia earned the top spot on the ITCI “for the fifth year in a row” with “the best tax code in the OECD” and an overall score of 100.0, according to the Tax Foundation.

Also for the fifth year in a row, France had the “least competitive tax system,” with a score of 41.4. According to the Tax Foundation, France has an abundance of taxes, including a very high corporate income tax, high property taxes, a net wealth tax, an inheritance tax and a financial transactions tax, as well as “progressive” individual income taxes.


Latvia (86.0), New Zealand (83.0), Luxembourg (80.5) and the Netherlands (77.5) rounded out the top five countries on the Index.

The Tax Foundation is an American nonprofit that seeks to “improve lives” through tax policy research, education and advocacy. According to Tax Foundation President Scott Hodges, tax policy can “change the world.”

“The way that we change the world is through tax policy. Admittedly, it’s a rather narrow focus; a narrow solution to the world’s problems. But that’s our mission,” Hodges wrote. “We honestly believe, and it’s not just a slogan, that we can improve lives through smarter tax policy.”

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