Economic freedom slippage

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Originally published 09:33 p.m., January 12, 2005, updated 12:00 a.m., January 13, 2005

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Here's a shocker for those who track the winners and losers in the global economy: The United States no longer ranks among the 10 freest economies in the world, and has slipped to 12th place in a tie with Switzerland.

The U.S. is still one of the most dynamic economies on the planet, and still the biggest, according to the Index of Economic Freedom, published annually by the Heritage Foundation and the Wall Street Journal, which rates the world's economies on a broad range of fiscal, regulatory and free enterprise measurements.

America's score on these and other indexes have not changed. But several other countries -- such as Chile, Australia and Iceland -- have significantly improved their economies, which pushed them ahead of the United States in the scoring and knocked us out of the top 10 for the first time in the Index's 11-year history.

"America has long been a global leader in the spread of economic and political freedom, but over the past several years, we have seen too many instances of the pupil passing the teacher," writes Ed Feulner, Heritage Foundation president.

Four years ago, the United States ranked fourth as the freest economy in the world. But "the rest of the world has begun to catch on to the dividends that freedom pays," Mr. Feulner said.

Thus, in the last four years, countries like Luxembourg, Ireland, Estonia, the United Kingdom and Denmark have moved ahead of us in the rankings.

In a stinging critique of administration policies in a separate report proposing an agenda for the next four years, Mr. Feulner said noncompetitive labor costs "pose the greatest threat to our economic growth."

"The federal government continues to influence prices by purchasing excess production, overregulating the economy, restricting imports and providing subsidies to companies like Amtrak. Ronald Reagan's summary of how the government thinks -- 'If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it' -- remains very much alive today," Mr. Feulner said.

The Index of Economic Freedom rankings are calculated in a point index based on a country's tax burden, foreign investment, trade policies and level of government intervention in the economy, among other things.

Pushing the United States back in the rankings was its dismal score on the fiscal burden of government, particularly taxation. "The U.S. corporate tax rate ranks 112th out of the 155 countries scored, and its top individual tax rate ranks only a somewhat better 82nd," according to the Heritage Foundation. Both top rates are at 35 percent , down from nearly 40 percent in 2000.

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