The United States ranks 32nd out of the 34 countries in the OECD. With the 3rd least competitive tax code in the developed world, only Italy and France have less competitive codes. On the other end of the spectrum, Estonia, New Zealand, and Switzerland have the most competitive tax codes among OECD nations.

The ITCI attempts to determine which countries provide the best tax environment for investment and business growth and development. It does this by measuring the competitiveness of tax systems in the OECD’s 34 countries based on over 40 tax policy variables in five categories: corporate income taxes, individual taxes, consumption taxes, property taxes, and the treatment of foreign earnings.

While countries like the Iceland, Portugal, and Japan have improved their ranking since 2014, the United States’ ranking remains virtually stagnant. The U.S. scores poorly largely due to three factors. The U.S. is one of the six remaining countries in the OECD that doesn’t have a territorial tax system; it maintains the highest corporate income tax rate in the industrialized world at 39 percent; and it has a relatively high and poorly structured individual income tax system that taxes both dividends and capital gains.

Close by, France comes in last place with the least competitive tax system among developed nations. In addition to having one of the highest corporate tax rates in the OECD at 34.4 percent, France maintains high and poorly structured property taxes along with high, progressive individual income taxes.

Estonia, on the other hand, enjoys the distinction of having the most competitive tax system in the developed world. It maintains a relatively low corporate tax rate at 20 percent that does not impose double taxation on dividend income and allows full expensing of capital investment. Additionally their tax code touts a nearly flat 20 percent individual income tax rate and a property tax that taxes only land (i.e., not buildings and structures).

“No longer can a country levy high taxes on business investment and activity without adversely affecting its economic performance,” said Tax Foundation Economist Kyle Pomerleau. “In recent years, many countries have recognized this fact and have moved to reform their tax codes to be more competitive. However, others have failed to do so and are falling behind the global movement.”

The United States is a chief example. The last major change to the U.S. tax code occurred 29 years ago as part of the Tax Reform Act of 1986, when Congress reduced the top marginal corporate income tax rate from 46 percent to 34 percent in an attempt to make U.S. corporations more competitive overseas. Since then, other OECD countries have followed suit, reforming their tax codes and leaving the United States with one of the least competitive tax codes in the world.