How attractive is the Unites States tax system? Not very, according to a recent analysis by two German economists.
In their paper, Measuring Tax Attractiveness Across Countries, Sara Keller of the WHU-Otto Beisheim School of Management and Deborah Schanz of Ludwig-Maximilians-University Munich, created the Tax Attractiveness Index.
It purports to quantify countries' tax environment attractiveness. And the U.S. system is pretty darn ugly. Of the 100 national tax systems analyzed by the duo, the United States ranked 94th. And that sad number of 94 is this week's By the Numbers figure.
The table below (a larger, clearer version can be found on page 45 of the report) shows all 100 rankings.
So how did America end up with such a low ranking? Keller and Schanz designed a measuring system that produces an equally-weighted sum of 16 different tax factors for each of 100 countries between 2005 and 2009.
Among the factors are the statutory rate, personal income tax rate, taxes on a variety of investment income, loss carry back and carry forward rules and a country's tax treaty network. All 16 components are covered in Table 1 (on page 43) in the report.
Basically, the closer the Tax Attractiveness Index is to one, the more attractive is the country's tax environment.
But, as The Joy of Tax Law blog notes, the table listing of tax attractiveness is alphabetical order, so it's not very user-friendly for comparison purposes.
"A simple rule-of-thumb is that any score about .6000 is relatively good and any score below .4000 suggests a country is shooting itself in the foot," notes JoT, which also created these easier-to-read top and bottom tax attractive lists:
Obviously, any analysis is limited by the data it uses. And this study's authors note that "by comparing the Tax Attractiveness Index with the statutory tax rate, we reveal that even high tax countries offer favorable tax conditions. Hence, the statutory tax rate is not a suitable proxy for a country's tax climate in any case since countries may set other incentives to attract firms and investments."
But, and this might be the sports fan in me, I always get a kick out of looking at rankings.
The chairmen of the Congressional tax-writing committees are hoping they can get their colleagues to agree on ways to remake the U.S. tax code into a more attractive set of laws. I'd love to hear your analysis of this study and suggestions for tax reform. Just drop me a note in the comments section below.
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