Tax-Wise, U.S. Just Isn’t That Competitive for Business

With tax season upon us, if you were a
foreign business owner regarding all of this scurrying around to
file forms and pay the United States government its take, would you
consider the activity as relatively attractive compared to the
alternatives? Or would you consider it a turnoff?

To judge by rankings
released last year by the consulting firm
PricewaterhouseCoopers (you can call it PwC), businesses may
venture into the Land of the Free for market opportunities, but
that may well be despite a pretty uncompetitive tax regime. The
U.S. ranks 64 out of 189 for ease of paying taxes, has a total tax
rate that’s above average and, importantly, barely seems to be
trying to compete with other countries that Americans once mocked
as overtaxed and overgoverned.

According to PwC, “Paying Taxes 2014 looks not only at
corporate income tax, but at all of the taxes and mandatory
contributions that a domestic medium-size case study company must
pay. It considers the full impact of all these taxes in terms of
both their tax cost and their compliance burden on business.”

In considering the tax hassles faced by its hypothetical
company, the report states the average total rate as 43.1 percent,
the average hours spent on compliance each year as 268, and the
average number of annual payments as 26.7. By comparison, the U.S.
imposes a total tax rate of 46.3 percent, and requires 175 hours
and 11 payments to comply.

Well, that’s how the U.S. stacks up compared to the average. But
the average includes garden spots like Zimbabwe and Uzbekistan. How
do we compare to the in-crowd?

Err… Well the good news is that the U.S. seems to be improving
in many areas, such as compliance time. The bad news is that we’re
a bit of an also-ran, even in our own neighborhood. Canada, for
instance, ranks at 8, has a total tax rate of 24.3 percent, and
requires 131 hours and eight payments to comply each year.

Canada has now been in the top ten of the rankings for the last
three studies. There are two major factors producing Canada’s high
ranking for this type of business. First is the significantly
reduced corporate income tax rate on the first CAD500,000 of annual
Canadian profits made by a privately owned corporation. Second is
Canada’s sustained effort to simplify electronic reporting, filing
and payment, and the tax regulatory and compliance aspects of
running a business (‘tax red-tape’).

Well… Our tax system is more attractive than Mexico’s. So we
have that going for us.

The United Kingdom is ranked at 14, with a total tax rate of 34
percent, and 110 hours and eight payments required every year.

Australia ranks at 44, with a total tax rate of 47 percent, and
105 hours and 11 payments required every year.

Sweden, the one-time welfare state poster child, but recent
convert to
free market-ish
policies, ranks at 41, with a total tax rate of 52 percent, and
122 hours and 4 payments required every year.

Even France ranks higher than America, offsetting higher taxes
(yes, higher than Sweden) with less burdensome compliance
requirements.

The U.S. still does better, overall, than China, or Germany
(which kill themselves on compliance time), and a business making a
go of it in Russia probably worries as much about the local goons
as tax environment, but you’d like to think the U.S. could do
better.

But then, if you’re filing your income taxes, you probably knew
the U.S. should be doing better.