Six reasons America is only the ninth-most free economy in the world

Amanda Carey Contributor
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The Heritage Foundation, a Washington, D.C.-based free market think tank, along with the Wall Street Journal, released its 17th annual Index of Economic Freedom. While the report contains a lot of good news for less-developed nations with emerging economies around the world, the picture isn’t so good for the United States.

For the second year in a row, the U.S. has actually fallen in economic freedom, from a score of 78.0 to 77.8, at a time when more than half of the countries around the world experienced an increase in their economic freedom ranking. The U.S. currently ranks as the 9th freest country economically, but its score puts it in the “mostly free,” only the second best category to be in.

According to the list, the U.S ranks behind Hong Kong, Singapore, Australia, New Zealand, Switzerland, Canada, Ireland and Denmark, in that order.

According to the study’s authors, America’s response to the economic downturn is responsible for the U.S.’s poor performance.

“But policy responses by the U.S. government to the economic slowdown have hurt the United State’s standing – and that of the region,” they write in a press release. “Government bailouts, burdensome regulations, loose monetary policy and increasingly protectionist trade policy all contributed…”

North America was the only continent that experience an overall decline in economic freedom.

Below are six specific reasons the study cites for America’s decline in economic freedom.

1. Government Spending: As of November 2010, the national debt stood at about $14 trillion. Most of the increase in America’s debt level can be attributed to unprecedented levels of spending in recent years and government efforts to resolve the financial collapse of 2008. According to the Treasury Department, in fact, the public debt rose dramatically from 2009 to 2010 alone – about $2 trillion. And lest anyone forget, the stimulus package passed by Congress in 2009 cost $787 billion.

2. Healthcare reform: “President Obama’s new health care law calls for massive new spending and vastly expanded regulatory powers for the federal government,” noted Terry Miller and Kim R. Holmes, both editors for the Index. The health reform bill came with regulatory schemes for the health industry. Instead of leaving insurance decisions up to private companies, the bill requires that providers accept patients with pre-existing conditions, an expansion of Medicaid eligibility, and that most businesses provide insurance for its employees. And that’s in addition to the individual mandate that forces people to purchase insurance.

3. The Frank-Dodd Act: Widely hailed as the “sweeping Wall Street reforms” needed to prevent another financial meltdown, it is ironic the bill has actually contributed to the nation’s economic decline, at least according to the Index of Economic Freedom. “It is likely to burden our banks and financial markets with new requirements that have been increasing costs for consumers,” said Miller. Passed in July 2010, the act seeks to streamline regulatory oversight of financial institutions, credit card companies, to name just two. The act also gives the federal government unprecedented authority to shut down banks if they deem them too harmful to the rest of the market.

4. Bureaucratic Regulations: The study’s authors specifically cited regulations from the Environmental Protection Agency (EPA) for America’s economic ranking decline. The agency has recently doubled down on regulating greenhouse gases, which not only places burdensome rules on private companies that will increase cost, but will also discourage new coal plants from opening, or any other company that emit large amounts of fossil fuels, for that matter. While the regulations especially target regulating carbon dioxide under the Clean Air Act, they also put in place stricter standards for cars and trucks.

5. Corporate Tax Rate: The study goes on to warn that the U.S. has one of the highest corporate tax rates in the world. And because of reforms in Japan, that could change to the U.S having the highest rates. Like most of the nation’s tax codes, the corporate tax is progressive, and ranges from 15 to 35 percent.

6. Failure to pass free trade agreements: During the 2010 election cycle, now-Speaker of the House John Boehner promised the ratification of pending free-trade agreements with South Korea, Colombia, and Panama. Last month, the White House touted the agreement with South Korea, saying it would increase exports by up to $11 billion and “support at least 70,000 American jobs.” That same month, however, the White House decided against sending their Colombia Free Trade Agreement to Congress, arguing that there were not enough votes for it to pass.  A deal with Panama, it seems, has reached a similar fate. That’s bad news for the American economy, since according to the study, protectionist trade policies contribute to economic decline.