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January 13, 2005

January 13, 2005 | News Releases on

Analyst Offers Steps for U.S. to Regain Leadership in Economic Freedom

WASHINGTON, JANUARY 12, 2005-Policy-makers should respond to the news that the United States is no longer among the 10 freest economies in the world with a package of pro-growth, pro-market legislation to restore the country's standing, says a new paper from The Heritage Foundation.

The United States slipped to 12th this year in The Heritage Foundation/Wall Street Journal's "Index of Economic Freedom," an annual study that assesses economic opportunity and obstacles to doing business around the world. Its score was unchanged for the past two years, but three countries-Chile, Iceland and Australia-passed it this year by advancing reforms in their countries. It was the first time in the 11-year history of the Index that the United States ranked outside the top 10.

Ana Eiras, an analyst in Heritage's Center for International Trade and Economics and author of the rankings, says the United States must address four key policy areas to reclaim a top-10 ranking:

  • Cut corporate tax rates. Corporate tax rates in Iceland, Chile, Hong Kong and Ireland are half the U.S. rate. Estonia has no corporate tax; Singapore and Luxembourg have corporate tax rates 13 percentage points below the U.S. rate. Even high-tax nations such as Britain and New Zealand do slightly better than the U.S. Corporate taxes amount to a second tax on wages that already have been taxed once and thus contribute to economic stagnation, and they should be eliminated or at least cut, Eiras says.
  • Cut government spending. Government spending tops $20,000 per household in real dollars for the first time since World War II. The government already owes $42 trillion if one counts money promised to retirees and users of government health services. "Such spending mortgages our economic future and creates bills our children will find it difficult to pay," Eiras says.
  • Support free trade, especially at home. It's not enough to negotiate free-trade agreements with various countries or even to establish free-trade zones, Eiras says. We must move to the next frontier: Repeal anti-dumping laws and agricultural subsidies, and stop protecting inefficient industries, such as sugar. 
  • Deregulate. America is considered one of the most business-friendly nations in the world. But that won't continue, Eiras says, unless we stem the flow of regulations. We could start by allowing foreigners to invest in sectors of the economy from which they currently are forbidden, such as nuclear energy, maritime and air shipping, broadcasting and communications, she says. Also, health and product-safety regulations, as well as food and drug labeling rules, should be reviewed regularly and eliminated where possible, as they can be particularly burdensome to small- and medium-size businesses.

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