Posts Tagged ‘high marginal taxes’

Economic freedom on the wane in the United States

January 16, 2013

Land of the Free

It is right up there in the national anthem. And it is surely treasured by many Americans. But economic freedom is just as surely on the wane during the early years of the 21st century. The Index of Economic Freedom – published annually by the Heritage Foundation and The Wall Street Journal, chronicles this sad story.

As recently as 2008, the United States was ranked 7th worldwide (out of 177 nations) by this Index. It attained an average score of 81 on a scale of 0-100, with 100 reflecting the freest ranking. Last year, the 2012 Index ranked the United States only 10th in the world. In 2013, the Index held the United States in 10th place, with a score of only 76 out of 100, only because of a significant decline in the ranking of Ireland. Save for this, the United States would no longer rank within the top 10 in terms of economic freedom. And that would be a shameful result for this supposedly ‘exceptional nation’.

Economic freedom is measured by the Index in terms of four broad areas, namely (1) rule of law, (2) limited government, (3) regulatory efficiency, and (4) open markets. For the most part, the United States performs moderately well on these measures. Yet, with a score of 76 out of 100, it ranks only under the category of ‘relatively free’. So what specifically drags it down?

Regulatory inefficiency is a major source of US decline in economic freedom. More than 100 new federal regulations have been imposed since President Obama came to office in January 2009. at an annual cost to gross domestic product in excess of $46 billion. Yet, this is not the nation’s weakest spot.The United States remains above the global average for this category.

The Achilles heel, for the United States is category 2. Limited government is subject to severe erosion, with the United States ranking below the global average in this category. The United States has the highest effective corporate tax rate in the developed world. The top-rate for income tax is now 39.6 percent (compared with 13 per cent in Russia for example). The overall tax burden is 24.8 per cent of gross domestic product. Total government spending (at all levels) is 42 per cent of gross domestic product. The debt burden is a consequence of the gap between spending and revenues, and is growing unsustainably.

The drift is clear and the nature of the problem is well-identified. The prognosis is for a continuing decline in the world rankings unless U.S. politicians wake up and initiate significant reforms: income tax reform, major spending cuts, and a significant trimming of regulations are all on the menu. But President Obama has no taste for such an economic diet. And, seemingly, a slim majority of Americans share his prodigality, at least when paid for by rooting through the pockets of others.

Hat Tip: Ed. Feulner, ‘Economic freedom on the wane: limited government isn’t so limited anymore’, The Washington Times, January 15, 2013


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