Why Chinese-controlled Hong Kong beats the United States on economic freedom

Amanda Carey The Daily Caller 01/16/2011 16:30

Earlier this week the Heritage Foundation, along with the Wall Street Journal, released its 17th annual economic freedom index. Hong Kong, once again, ranked number one. The United States, however, slid down to number nine. So what’s Hong Kong doing right?

According to Anthony Kim, a policy analyst at the Center for International Trade and Economics at Heritage, the difference between the U.S. and Hong Kong lies in tax rates, spending, free trade, and regulatory burdens.

The late economist Milton Friedman supposedly once described Hong Kong as the world’s greatest experiment in laissez-faire capitalism. The city state, technically a special administration region of China, has the sixth-largest stock exchange in the world, has almost no public debt, and has a Gross Domestic Product (GDP) that grows just about every year.

That’s a far cry from the U.S. economy today.

Hong Kong’s corporate tax rate, at 16.5 percent, is among the lowest in the world. The U.S. has a tax system that goes as high as 35 percent, and according to Kim, it’s been that high for at least a decade, even though average rates for the 20 largest economies in the world is 27 percent.

“U.S. tax rates are increasingly uncompetitive compared to other countries,” Kim told The Daily Caller. “The U.S. corporate tax rate is roughly double that of Hong Kong, but we collect less as a percentage of GDP than Hong Kong.”

Kim also said Hong Kong’s tax system is more transparent, and the low rate provides “better incentives for long-term investment.”

In Hong Kong, it’s easier to start a business because there’s less regulatory uncertainty — and fewer regulations overall. The U.S. is hemorrhaging businesses overseas, which Kim attributes that to “ongoing regulator changes that hurts investment.”