The United States ranks 18th overall on the 2024 International Tax Competitiveness Index, three spots higher than in 2023.
How does the United States raise tax revenue? Explore the latest data regarding corporate taxes, individual taxes, consumption taxes, property taxes, and international taxes in United States below.
Get facts about taxes in your country and around the world.
The Tax Foundation' s International Tax Competitiveness Index (ITCI) measures the degree to which the 38 OECD countries' tax systems promote competitiveness through low tax burdens on business investment and neutrality through a well-structured tax code. The ITCI considers more than 40 variables across five categories: Corporate Taxes, Individual Taxes, Consumption Taxes, Property Taxes, and International Tax Rules.
The ITCI attempts to display not only which countries provide the best tax environment for investment but also the best tax environment for workers and businesses.
Countries raise tax revenue through a mix of individual income taxes, corporate income taxes, social insurance taxes, taxes on goods and services, and property taxes. The mix of tax policies can influence how distortionary or neutral a tax system is. Taxes on income can create more economic harm than taxes on consumption and property. However, the extent to which an individual country relies on any of these taxes can differ substantially.
The corporate income tax is a tax on the profits of corporations. All OECD countries levy a tax on corporate profits, but the rates and bases vary widely from country to country. Corporate income taxes are the most harmful tax for economic growth, but countries can mitigate those harms with lower corporate tax rates and generous capital allowances.
Capital allowances directly impact business incentives for new investments. In most countries, businesses are generally not allowed to immediately deduct the cost of capital investments. Instead, they are required to deduct these costs over several years, increasing the tax burden on new investments. This can be measured by calculating the percent of the present value cost that a business can deduct over the life of an asset. Countries with more generous capital allowances have tax systems that are more supportive to business investment, which underpins economic growth.
Individual taxes are one of the most prevalent means of raising revenue to fund government across the OECD. Individual income taxes are levied on an individual's or household's income to fund general government operations. These taxes are typically progressive, meaning that the rate at which an individual's income is taxed increases as the individual earns more income.
In addition, countries have payroll taxes. These typically flat-rate taxes are levied on wage income in addition to a country's general individual income tax. However, revenue from these taxes is typically allocated specifically toward social insurance programs such as unemployment insurance, government pension programs, and health insurance.
High marginal income tax rates impact decisions to work and reduce the efficiency with which governments can raise revenue from their individual tax systems.
Capital gains and dividend income—if not included in the individual income tax—are typically taxed at a flat rate.
Consumption taxes are charged on goods and services and can take various forms. In the OECD and most of the world, the value-added tax (VAT) is the most common consumption tax. Most consumption taxes either do not tax intermediate business inputs or provide a credit for taxes already paid on inputs, which avoids the problem of tax pyramiding, whereby the same final good or service is taxed multiple times in the production process. The exclusion of business inputs makes a consumption tax one of the most economically efficient means of raising tax revenue.
However, many countries fail to define their tax base correctly. To minimize distortions, all final consumption should be taxed at the same standard rate. However, countries often exempt too many goods and services from taxation or tax them at reduced rates, which requires them to levy higher standard rates to raise sufficient revenue. Some countries also fail to properly exempt business inputs. For example, states in the United States often levy sales taxes on machinery and equipment.
Property taxes apply to assets of an individual or a business. Estate and inheritance taxes, for example, are due upon the death of an individual and the passing of his or her estate to an heir, respectively. Taxes on real property, on the other hand, are paid at set intervals—often annually—on the value of taxable property such as land and houses.
Many property taxes are highly distortive and add significant complexity to the life of a taxpayer or business. Estate and inheritance taxes create disincentives against additional work and saving, which damages productivity and output. Financial transaction taxes increase the cost of capital, which limits the flow of investment capital to its most efficient allocations. Taxes on wealth limit the capital available in the economy, which damages long-term economic growth and innovation.
Sound tax policy minimizes economic distortions. With the exception of taxes on land, most property taxes increase economic distortions and have long-term negative effects on an economy and its productivity.
In an increasingly globalized economy, businesses often expand beyond the borders of their home countries to reach customers around the world. As a result, countries need to define rules determining how, or if, corporate income earned in foreign countries is taxed. International tax rules deal with the systems and regulations that countries apply to those business activities.
Tax treaties align many tax laws between two countries and attempt to reduce double taxation, particularly by reducing or eliminating withholding taxes between the countries. Countries with a greater number of partners in their tax treaty network have more attractive tax regimes for foreign investment and are more competitive than countries with fewer treaties.
Despite the potential of consumption taxes as a neutral and efficient source of tax revenues, many governments have implemented policies that are unduly complex and have poorly designed tax bases that exclude many goods or services from taxation, or tax them at reduced rates.
40 min read
Some lawmakers have expressed interest in repealing the SALT cap, which was originally imposed as part of the Tax Cuts and Jobs Act (TCJA) in late 2017. It is important to understand who benefits from the SALT deduction as it currently exists, and who would benefit from the deduction if the cap were repealed.
6 min read
The economy and climate change are two challenges the Biden administration has identified as priorities. One way to address both issues at the same time is to enact a carbon tax to discourage carbon emissions, and to use the resulting carbon tax revenue to lower—or in the case of the TCJA’s individual provisions, avoid increases of—other, more distortive, types of taxes. This would not only address the challenges of climate change but also support the economy.
3 min read
In her recent confirmation hearing, economist Janet Yellen, President Biden’s choice for Treasury Secretary, sought to reassure markets that the new administration would not raise corporate taxes until the economy improves. At the same time, however, she sent a troubling signal that when they do push for higher corporate tax rates, they would do so in coordination with other countries so that the U.S. doesn’t lose its competitive edge.
5 min read
Biden’s proposal to increase the corporate income tax rate and to tax long-term capital gains and qualified dividends at ordinary income tax rates would increase the top integrated tax rate above pre-TCJA levels, making it the highest in the OECD and undercutting American economic competitiveness.
17 min read
Expensing for capital investments is a powerful tax policy for economic growth. But expensing can also help shift the economy to a more sustainable future through increased investment in new, less carbon-intensive technology. Expensing for capital investment would eliminate a tax bias against energy efficiency improvements that reduce operating costs but involve high upfront investments. It could also serve to accelerate the existing trend of movement towards more green energy power sources.
28 min read
A multilateral solution to digital taxation would be preferable over DSTs and retaliatory measures, especially during these challenging economic times. DSTs are indeed distortionary taxes that can act as trade barriers. Retaliatory tariffs, however, only further weaken the U.S.-French trade relationship and will negatively impact both economies.
2 min read
The latest $900 billion coronavirus relief bill extends and modifies several provisions first enacted in the CARES Act, Congress’s $2.2 trillion pandemic relief law that was passed in March. With this package, lawmakers will have responded to the coronavirus and related economic hardship with a record-setting $3 trillion of fiscal support.
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The coronavirus relief package represents the second-largest recovery legislation, behind only the CARES Act, for a combined total of more than $3 trillion in support.
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Corporate tax rates have been declining in every region around the world over the past four decades as countries have recognized their negative impact on business investment. Our new report explores the latest corporate tax trends and compares corporate tax rates by country.
22 min read