America’s Decline in Economic Freedom

Last week, Terry Miller lamented the decline of the United States in the 2011 Index of Economic Freedom (a joint project of the Heritage Foundation and The Wall Street Journal). The good news, Miller wrote, is that “One hundred and seventeen countries, mainly developing and emerging market economies, improved their scores, and the average level of economic freedom around the world improved.” However, the U.S. fell to 9th place and the UK fell to 11th overall.

But in a letter to the editor James D. Jameson, member of the Global Advisory Board of Trilantic Capital Management (and a Reason Foundation trustee), argues the U.S. rank should probably be worse:

Regarding Terry Miller’s “The U.S. Loses Ground on Economic Freedom” (op-ed, Jan. 12): For all of its methodological strength, the Index of Economic Freedom entirely leaves out one of the most treasured individual freedoms—the freedom to migrate out of one’s own country without undue interference from government. As long as a person has remained current on tax payments, the ability to leave a nation to establish citizenship elsewhere should be a sacrosanct human right. As Article 13 of the Universal Declaration of Human Rights states: “Everyone has the right to leave any country, even his own.”

In the U.S., the economic penalty for permanent expatriation is so severe that it is unduly burdensome to exercise the “right to emigrate.” If the Index were to account for this freedom (or lack thereof), there is no doubt that our country would finish even further down the list.

Under U.S. tax law, a citizen who wishes to renounce his citizenship must pay a mark-to-market exit tax. This tax treats all assets in excess of $600,000 as if they had been sold, and thus liable for immediate payment of capital gains taxes. There is also a 10-year reporting requirement to the IRS, post expatriation.

Other countries have found more fair ways to deal with this issue. Ireland taxes its expatriating citizens only when they actually sell their assets within three years of emigrating. Denmark gives its former citizens the option to pay when they sell their assets anytime in the future. Switzerland avoids a mark-to-market exit tax and requires only that a citizen be current on his existing taxes when he leaves.

Adding this metric would enhance an otherwise interesting set of measurements on economic freedom. It would also further demonstrate our eroding economic freedom.

James D. Jameson

Rancho Santa Fe, Calif.

See here for the piece at WSJ.

Anthony Randazzo

Anthony Randazzo is director of economic research for Reason Foundation, a nonprofit think tank advancing free minds and free markets. His research portfolio is regularly evolving, and he maintains a wide interest in economic policy at both a domestic and international level.

Randazzo is also managing director of the Pension Integrity Project, which provides technical assistance to public sector retirement system stakeholders who are seeking to prevent pension plan insolvency. His research focus on the national public sector pension crisis has a dual focus of identifying the systemic factors that cause public officials to underfund pension obligations as well as studying the processes by which meaningful pension reform can be accomplished. Within the Project he leads the analytics team that develops independent, third party actuarial analysis to stakeholders considering changes to public sector retirement systems.

In addition, Randazzo writes about the moral foundations of economic theory, and is currently developing research on the ways that the moral intuitions of economists influence their substantive findings on topics like income inequality, immigration, or labor policy.

Randazzo's work has been featured in The Wall Street Journal, Forbes, Barron's, Bloomberg View, The Washington Times, The Detroit News, Chicago Sun-Times, Orange-County Register, RealClearMarkets, Reason magazine and various other online and print publications.

During his tenure at Reason he has published substantive research on housing finance, financial services regulation, and various other aspects of economic policy at the federal level. And he has written regularly on labor economics, tax policy, privatization, and Turkish-U.S. political and economic issues.

Randazzo has also testified before numerous state and local legislative bodies on pension policy matters, as well as before the House Financial Services Committee on topics related to housing policy and government-sponsored enterprises.

He holds a multidisciplinary M.A. in behavioral political economy from New York University.

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