Originally Published: January 19, 2005 7:10 a.m.
WASHINGTON – Here's a shocker for those who track the winners and losers in the global economy: The United States no longer ranks among the 10 most free economies in the world, and has slipped to 12th place in a tie with Switzerland.
The United States is still one of the most dynamic economies on the planet, and still the biggest, according to the Index of Economic Freedom, published annually by the Heritage Foundation and The Wall Street Journal.
America's score on these and other indexes have not changed, but several other countries, such as Chile, Australia and Iceland, have made significant improvements in their economies that pushed them ahead of the United States in the scoring, and that has knocked us out of the top 10 for the first time in the Index's 11-year history.
"America has long been a global leader in the spread of economic and political freedom, but over the past several years, we have seen too many instances of the pupil passing the teacher," writes Ed Feulner, president of the Heritage Foundation.
Four years ago, the United States ranked fourth as the most free economy in the world. But "the rest of the world has begun to catch on to the dividends that freedom pays," Feulner said. Thus, in the past four years, countries like Luxembourg, Ireland, Estonia, the United Kingdom and Denmark have moved ahead of us in the rankings.
In a stinging critique of the administration's policies in a separate report setting forth a proposed agenda for the next four years, Feulner said non-competitive labor costs "pose the greatest threat to our economic growth. The federal government continues to influence prices by buying excess production, overregulating the economy, restricting imports and providing subsidies to companies like Amtrak.
"Ronald Reagan's summary of how the government thinks – 'If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it' – remains very much alive today," he said.
Pushing the United States back in the rankings was its dismal score on the fiscal burden of government, particularly taxation. "The U.S. corporate tax rate ranks 112th out of the 155 countries scored, and its top individual tax rate ranks only a somewhat better 82nd," according to the Heritage Foundation. Both top rates are at 35 percent now, down from nearly 40 percent in 2000.
"The fiscal burden rating also reflects the fact that federal spending has reached levels not seen since World War II, and now costs the average household more than $20,000 per year," the conservative think tank said.
As for America, the Index of Economic Freedom says that although the United States is still a very vibrant economy, it is now "at a crossroads: It will either continue to be a leader in economic freedom or idly watch other countries pass it by."
In other words, the global competition is only going to get tougher. So we better get busy on a pro-growth agenda. There's nothing wrong with the U.S. economy that a stronger dose of tax cuts, government spending restraints, deregulation and trade expansion wouldn't cure.