US Tax System Review

US Tax System Ranks 32nd out of 34 OECD Countries

Tax Foundation, a US-based taxation think tank, has recently published its rankings of the tax systems of 34 countries. Out of the 34 countries, which form the Organisation for Economic Co-operation and Development (OECD), US is ranked at an abysmally low, 32. Only two countries are ranked below the US -- Portugal and France.

The study has ranked the countries' tax systems on the basis of five key criteria: corporate taxes, consumption taxes, property taxes, individual taxes, and international tax rules. The US has scored low on almost all key accounts. Let's look at some of the key factors as to why the US is ranked so low.

High corporate tax: US corporate tax rate of 39.1 percent is the highest among all the developed countries of the world. Only Japan is ranked below the US in this category, with all the other countries scoring higher than the US.

Worldwide taxation: US is one among the only six OECD countries to have a worldwide taxation system. This means US companies have to pay an additional global tax on their foreign income. Among all the countries, US is at the bottom when it comes to worldwide taxation.

Complex corporate tax code: The United States corporate tax code is very complex when compared to OECD countries. As per the OECD average, it takes 52 hours to abide by the corporate income tax laws. On the other hand, the time needed for such compliance in the US is 87 hours.

Property taxes: The US has also scored low when it comes to property taxes. One of the key reasons is the high amount of estate taxes and the complicated structure of state and local property taxes.

Individual taxes: In this category, what went against the US is the highest top marginal tax rate, which is 39.6%. Also, individuals have to pay double tax on capital gains and dividend income. Compared to other categories, US is slightly better off in this category at 26th rank.

As per the Tax Foundation study, Estonia is ranked at number 1 when it comes to internationally competitive tax systems. New Zealand is ranked at number 2. In particular, the study cites the example of New Zealand, which has put in efforts to improve its tax systems. In the past few years, New Zealand has reduced both its corporate tax and the highest marginal tax rate systems.