For the first time ever, the U.S. does not rank among the world's 10 freest economies in the Index of Economic Freedom, published annually by The Heritage Foundation and The Wall Street Journal.
The U.S.' score in the 2005 Index did not change from 2004. But improvements in the economies of Chile, Australia and Iceland enabled all three to surpass the U. S., leaving it in a tie for 12th with Switzerland and out of the top 10 for the first time in the 11-year history of the Index.
"The United States is resting on its laurels while innovative countries around the world are changing their approaches and reducing their roadblocks," said Marc Miles, a co-editor of the book, along with Ed Feulner and Mary Anastasia O'Grady. "The U.S. is eating the dust of countries that have thrown off the 20th-century shackles of big government spending and massive federal programs."
As in previous years, the Index ratings reflect an analysis of 50 different economic variables, grouped into 10 categories: banking and finance; capital flows and foreign investment; monetary policy; fiscal burden of government; trade policy; wages and prices; government intervention in the economy; property rights; regulation; and informal (or black-) market activity. Countries are rated one to five in each category, one being the best and five the worst. These ratings are then averaged to produce the overall Index score.
World-wide, the scores of 86 countries improved, the scores of 57 declined and the scores of 12 are unchanged from last year's Index.
The U. S. recorded an overall score of 1.85 for the second consecutive year, making it one of 17 countries rated as having "free" economies. Another 56 countries finished between 2.0 and 3.0 and are considered "mostly free," 70 finished between 3.0 and 4.0 and received a "mostly unfree" rating, and 12 were considered "repressed."
With top scores in property rights, banking/finance and monetary policy, the U.S. is still a vibrant and dynamic economy, the editors note.
But a 4.0 rating in fiscal burden of government, which ranks worse than all but 30 countries in the survey, held it back. This reflects poor scores in the area of taxation. The U.S. corporate tax rate ranks 112th out of the 155 countries scored, and its top individual tax rate ranks an only somewhat better 82nd. 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.
This is the 11th consecutive year The Heritage Foundation and The Wall Street Journal have published the Index. Marc Miles is director of Heritage's Center for International Trade and Economics, Ed Feulner is Heritage's president, and Mary O'Grady edits the "Americas" column and is a senior editorial page writer at the Journal.
You may access the entire Index, which is available online for free at http://index.heritage.org