EDITORIAL: Uncompetitive U.S. tax system desperately needs reform

Taxes have great bearing on a country’s global competitiveness. And the rankings in the Tax Foundation’s annual International Tax Competitive Index show the United States is in trouble.

The country ranks 32nd out of 34 industrialized nations. It isn’t hard to see why. We have the most punitive corporate taxes and rank near the bottom in property taxes, individual taxes and international tax rules.

It isn’t merely the U.S. corporate tax rate, which averages about 39 percent when federal and various state rates are combined, that has the country near the bottom of the index. It’s the complexity of corporate and income taxes, the cost of recovering investment and an economically counterproductive approach to foreign earnings.

Unlike the United States, the rest of the industrialized world understands that, in a global economy, a country’s business climate has to be more favorable than those of its competitors. Take New Zealand, for example.

In 2010, the chief economist of that country’s treasury noted that global trends in corporate and personal taxes were making his nation “less internationally competitive.” In response, New Zealand reduced its top marginal individual income tax rate from 38 percent to 33 percent, increased its emphasis on its goods and services tax and dropped its corporate tax rate by 2 percentage points. All of those changes came on the heels of a shift to a territorial tax system the previous year, and were added to an already-competitive tax system that has no inheritance tax, no general capital gains tax and no payroll taxes. New Zealand now ranks second on the Tax Foundation list.

While New Zealand and other countries have been making concerted (and successful) efforts to establish tax codes that encourage economic growth, the United States — especially during the past seven years under the Obama administration — is so focused on redistributing wealth and funding a bloated government through higher taxes that it’s driving corporations and investment out of the country. It’s more proof that we desperately need tax reform.

A more competitive tax structure would improve U.S. economic growth, which would in turn boost tax collections at all levels of government. Other countries are reforming and climbing the Tax Foundation index, but the United States is doing nothing and dropping.

Democrats currently campaigning for president are perfectly happy with more (and more and more) of the same, so it’s up to Republican candidates to champion the better jobs, better wages and better standards of living that will result from major tax simplification and reform.

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