- - Thursday, September 18, 2014


America’s tax system is broken, and every taxpayer knows it. An ambitious entrepreneur who invents the next best thing should buy an airline ticket to almost anywhere else and take his business plan with him. The United States has the single highest corporate-tax rate in the developed world, and that’s no way to attract business.

A new study by the Tax Foundation concludes that it’s actually worse than that, because the tax rules are just as bad. The nonprofit research foundation examined 40 kinds of business, consumption, property, individual and international taxes. If that ambitious entrepreneur avoids Lisbon or Paris, he’ll find a more hospitable business climate anywhere else than in the “land of the free.”

“In today’s globalized economy the structure of a country’s tax code is an important factor for businesses when they decide where to invest,” the researchers found. Twenty-two European countries, together with Canada, Mexico, South Korea, Israel and Chile all scored ahead of the United States. Tiny Estonia is friendliest of all, followed by New Zealand, Switzerland, Sweden and Australia.

Sweden, despite its reputation as a redoubt of socialism, finished in the top five. The Swedes figured out that the most efficient way to finance the welfare state is to cultivate a business-friendly, tax-competitive economy to generate tax revenues. Sweden imposes an average corporate-tax rate of 22 percent (compared to 39.1 percent in the United States), and there’s no estate or wealth taxes.

“In a world where businesses, people and money can move with relative ease,” write the report’s authors, Kyle Pomerleau and Andrew Lundeen, “having a competitive tax code has become even more important to economic success.” It happens with people, too. Many residents of Massachusetts, New York and California, high tax states, have moved to New Hampshire, Florida and Texas, where there’s no state income tax. That’s a strong motivator.

America’s poor showing isn’t solely the fault of the Internal Revenue Service. Local and state governments, ever anxious to tax and spend, are always eager to raise taxes on property and estates.

Instead of reducing the U.S. corporate-tax rate to make the nation more competitive, many Democrats want to punish initiative and ambition, to discourage companies from fleeing to where they are more appreciated. They denounce as “unpatriotic” companies that acquire a foreign business in a country with a lower corporate-tax rate and relocate the corporate headquarters, such as Burger King is relocating the home office to Canada.

The Democrats have the economics backward. It’s not unpatriotic to ensure the best return for shareholders and the lowest prices for consumers. H.L. Mencken observed, with only a little writerly exaggeration, that “the average American now pays out twice as much in taxes as he formerly got in wages.” What’s unpatriotic is tolerating a tax system that forces American business to play second fiddle to the likes of Estonia, Luxembourg and Slovenia.

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