The United States has the third least competitive tax system among developed nations, according to a new ranking of countries’ tax codes.
The right-of-center Tax Foundation reported Monday morning that the U.S. ranked 32nd out of the 34 member nations of the Organization for Economic Cooperation and Development for its tax code. Only France and Portugal placed behind the U.S. in the International Tax Competitiveness Index.
The U.S. rates poorly because it has the highest corporate tax rate in the world, at 39.1 percent combined at the federal and state levels. It is also hurt in the rankings because of its practice of taxing corporations on income earned overseas — only six OECD countries maintain such “worldwide” corporate tax systems, according to the Tax Foundation.
“No longer can a country tax business investment and activity at a high rate without adversely affecting its economic performance,” said Tax Foundation economist Kyle Pomerleau.
The index includes more than 40 variables and attempts to rank countries based on the burden the tax system places on business investment and on the distortions it imposes on different types of activities.
The former Soviet Bloc nation of Estonia leads the index with its 21 percent corporate tax rate and “nearly flat” 21 percent income tax rate.
Tax competitiveness has become a topic of increasing concern in Washington as dozens of U.S. corporations in recent years have sought to move their headquarters to lower-tax countries by merging with overseas forms. Such maneuvers, known as inversions, have led President Obama to label companies leaving the U.S. for tax purposes “corporate deserters.”
Some business leaders have justified inversions on the basis that they are needed for their companies to compete with corporations in other countries with more favorable tax regimes.
Several countries that are the destination for companies undergoing inversions rank above the U.S. in the Tax Foundation index. Canada, which will be home to Burger King if its merger with Tim Hortons is approved by regulators, ranks eight spots higher.
