House Tax Cuts and Jobs Act Would Substantially Improve the U.S.’s International Tax Competitiveness

November 3, 2017

The United States ranks an unenviable 30th out of 35 OECD nations on the Tax Foundation’s newly-released 2017 International Tax Competitiveness Index, which seeks to measure the competitiveness and neutrality of a country’s tax system. It is also dead last on the corporate tax component of the Index. That could change substantially under federal tax reform.

Yesterday, House Ways and Means Chairman Kevin Brady (R-TX) unveiled a committee draft of tax reform legislation which makes substantial changes to the individual, business, and international code. While revisions are inevitable, were Congress to enact the tax reform legislation introduced yesterday, the United States would improve from 30th to 21st overall, and from 35th to 15th on the corporate component of the International Tax Competitiveness Index.

A description of the major features of the chairman’s mark can be found here. The following provisions drive the projected rank change on the International Tax Competitiveness Index:

  • Cutting the corporate income tax rate from 35 to 20 percent
  • Eliminating net operating loss (NOL) carrybacks
  • Allowing NOLs to be carried forward indefinitely, but with a cap of 90 percent of taxable income
  • Adopting a territorial system, albeit with some country limitations
  • Implementing an “effectively connected income” regime
  • Providing (temporary) full expensing of machinery and equipment

The increase in the estate tax threshold is not represented in the Index. The estate tax is, however, slated for elimination in six years, and its ultimate repeal would further improve the United States’ ranking.

Considered as a whole, these changes would make the United States substantially more competitive, not only with rates that are more in line with the rest of the developed world, but also with a tax structure that rolls back some of the current disincentives to investment in the United States. Here’s how the U.S. ranks on the Index now, and how it would rank if all the proposals in the Ways and Means committee draft were implemented:

  Overall Rank Corporate Tax Consumption Taxes Property Taxes Individual Taxes International Tax Rules

Current

30

35

4

29

25

33

Projected

21

15

4

25

25

32


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