Don't Mess With Taxes

Global taxes can be a real puzzle. (Rubik's Globe photo by Alan Kotok via Flickr CC)

Every presidential year, some U.S. citizens proclaim they’ll move out of the country is their candidate loses.

This year, some wealthy folks say they’ll contemplate international relocation if Vice President Kamala Harris wins and moves to enact higher taxes on their income demographic.

Even if she does defeat her Republican opponent, she’ll need support of Congress. And whether the House or Senate or both will break for the Democrats is as unclear as the presidential race, even as Nov. 5 nears.

But just in case taxes are a prime motivator for your next move, regardless of who takes over the Oval Office and Capitol Hill, you might find the Tax Foundation’s latest International Tax Competitiveness Index (ITCI) of interest.

Measuring how well global tax regimes work: The Washington, D.C.-based tax policy organization’ annual analysis measures how well a country’s tax system follows two critical components of sound tax policy: competitiveness and neutrality.

The Tax Foundation notes that competitive tax code is one that keeps marginal tax rates low to drive economic investment, while a neutral tax code seeks to raise the most revenue while causing the fewest economic distortions.

“The structure of a country’s tax code is a determining factor of its economic performance,” said Tax Foundation Economist Alex Mengden. “A well-structured tax code is both easy for taxpayers to comply with and best positioned to promote economic development while raising sufficient revenue for a government’s priorities.”

To determine which nations best meet those goals, the ITCI analysis looks at the tax codes of 38 countries in the Organisation for Co-operation and Economic Development (OECD).

The process considers more than 40 tax policy variables, including tax rates and structures across countries’ corporate taxes, individual income taxes, consumption taxes, and property taxes, as well as the treatment of profits earned overseas.

Where the U.S. of A. ranks: OK, I know. You’re wondering how the United States came out in the 2024 ITCI. We climbed five spots from last year, coming in at 18th this year.

That was the most improvement of all the OECD nations, according to the Tax Foundation.

However, it also noted that the move from number 23 to number 28 is largely because many other nations’ rankings fell due to the implementation of global minimum tax rules.

And which nation fell the most in this year’s ITCI rankings? Slovenia. That European nation dropped six places, from 16th to 22nd. The decline, says the Tax Foundation, was largely due to its three percentage point increase in corporate tax rate.

An interesting nontax fact is Slovenia is the home nation of Melania Trump, wife of GOP presidential nominee Donald J. Trump.

And the winner is…: Now it’s time for the announcement of the country with the best tax system vis-à-vis ITCI criteria. Drum roll please.

For the 11th year in a row, Estonia is the country with the most competitive tax code in the OECD.

The top five are —

1. Estonia
2. Latvia
3. New Zealand
4. Switzerland
5. Lithuania

In general, noted the Tax Foundation, the highest-ranked countries all received excellent scores in one or more of the major tax categories.

At the other end of the ITCI scale, the worst competitive tax ranking once again went to Colombia. Its repeat poor ranking resulted from, among other factors, a net wealth tax, a financial transaction tax, and the highest worldwide corporate income tax rate.

Joining the South American nation as the five lowest-ranked countries are —

1. Iceland
2. Portugal
3. France
4. Italy
5. Colombia

Whoa! Total bummer for me if I were inclined to move. I’ve always had Italy at the top of la mia nuova casa list. The hubby’s out of luck too, as he’s considered a place in Portugal.

The Tax Foundation map above provides an overview of most of the nations whose tax systems were evaluated. Move your cursor over the country for more information.

You also can find an interactive table at the organization’s website that breaks out each country’s ranking in various tax areas.

Other notable changes: The Tax Foundation’s ITCI also found that several countries had significant shifts in rankings due to one or more policy changes.

Those moving up included —

• Austria, by reducing its corporate income tax over several years and making accelerated depreciation measures permanent, improved it rank from 17 to 15.
• Germany’s partial reinstatement of its accelerated depreciation schedule and relaxing of its limits on loss carryforwards improved its ranking from 18 to 16.
• United Kingdom was able to move from 31 to 30, after making permanent full expensing for plant and equipment and additional improvements to capital allowances.

And heading the other direction in the ITCI rankings were —

• Canada phased out full expensing, adopted a digital services tax, and increased its capital gains rate. That led the ranking of our neighbor to the north to fall from 15 to 17.
• Czech Republic phased out extraordinary depreciation for machinery and equipment, reduced the value of its capital allowances, and increased its corporate tax rate. Then it watched its ranking drop from 5 to 8.

“With multiple countries holding elections this year, tax policy will undergo significant changes across the globe,” said Daniel Bunn, president and CEO of the Tax Foundation. “As the tax landscape continues to evolve, policymakers must prioritize their countries’ ranking if they wish to attract investment and maximize opportunities for economic growth.”

You also might find these items of interest:

• HMRC error lets suspected tax schemer avoid £14M penalty
• Inflation adjustments that will apply to Americans abroad in 2024
• A global wealth tax on billionaires would bring in $250B a year, says EU tax group

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