How Would House Dems’ Tax Plan Change Competitiveness of U.S. Tax Code?

News, Wealth

The International Tax Competitiveness Index has been used to compare the tax systems of OECD countries since 2014. At that time, the United States ranked 28th out of 36 countries in the Index. Following the 2017 tax reform, the rank improved dramatically, to 20th, and the U.S. now ranks 21st.

The legislation put forward by Democratic members of the House of Representatives would reverse many of the 2017 reforms while increasing burdens on businesses and workers.

From the standpoint of the International Tax Competitiveness Index, the corporate and individual tax hikes envisioned by the House Democrats would push the U.S. down the rankings to 28th place, tied with the U.S. ranking in 2017 prior to tax reform. On corporate taxes, the U.S. rank would fall from 19th to 30th. On individual taxes, the U.S. rank would fall from 23rd to 29th.

While some policymakers in Congress are focused on making changes to the tax code that would increase the burden faced by higher-income individuals, this also comes with a consequence of making the U.S. a less attractive place for businesses and workers.

Competitiveness is not necessarily about low taxes, however. For instance, Sweden, which has one of the largest tax burdens in the world, ranks 7th on the Index because the way it raises that revenue is less distortive to economic activity and worker decisions. Instead, competition is about designing tax systems in line with the goal of minimizing economic distortions while raising sufficient revenue in the context of a global economy where firms and workers can move across borders.

From the standpoint of the International Tax Competitiveness Index, this effort from House Democrats would make the U.S. tax system less competitive.

House Democrats tax plan would impact US competitiveness. See analysis of House Democrats tax plan competitiveness impact (Build Back Better reconciliation tax proposals)

The United States’ International Tax Competitiveness Index Rank in 2017, 2020, and under the Biden Administration and House Democrats’ Proposals
ITCI Rank Category Final Rank Corporate Rank Income Rank Consumption Rank Property Rank International Rank
2017 Rank 28 35 26 5 28 33
2020 Rank 21 19 23 5 28 32
Biden Plan Rank 30 33 36 5 28 32
House Democrats’ Plan 28 30 29 5 28 32

Source: Author’s analysis of the Biden and House Democrats’ tax plans using the International Tax Competitiveness Index.

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