Markets in a Minute

Mapped: International Tax Competitiveness by Country

Published

3 years ago

March 10, 2022

Jenna Ross

This infographic is available as a poster.

International Tax Competitiveness

This infographic is available as a poster.

Mapped: International Tax Competitiveness by Country

Many multinational companies, such as Google and Facebook, have their European headquarters in Ireland. Why? Ireland has low corporate taxes.

In fact, a country’s tax structure can have a significant impact on its economic performance. Countries with low marginal tax rates encourage business investment, while countries with high taxes may drive investment elsewhere.

This Markets in a Minute from New York life Investments looks at international tax competitiveness among countries within the Organization for Economic Co-operation and Development (OECD).

How is Tax Competitiveness Measured?

The Tax Foundation measured international tax competitiveness using two aspects of tax policy: competitiveness and neutrality.

Competitiveness measures how low a country’s marginal tax rates are. On the other hand, a neutral tax code raises the most revenue with the fewest economic distortions. This means that it doesn’t favor consumption over savings, which is what happens with investment or wealth taxes. It also means there are few or no tax breaks for specific business or individual activities.

With these two aspects in mind, the Tax Foundation looked at five types of taxes:

Corporate taxes
Individual income taxes
Consumption taxes
Property taxes
Cross-border taxes

According to research from the OECD, corporate taxes are most harmful for economic growth while taxes on immovable property (real estate) have the smallest impact.

International Tax Competitiveness, Ranked

Here is how the OECD countries rank on their international tax competitiveness. A low score means the country’s taxes are relatively less competitive, while a score of 100 indicates the most competitive tax code among OECD countries.

Country	Overall Rank	Overall Score
🇪🇪 Estonia	1	100.0
🇱🇻 Latvia	2	85.1
🇳🇿 New Zealand	3	81.3
🇨🇭 Switzerland	4	78.4
🇱🇺 Luxembourg	5	76.5
🇱🇹 Lithuania	6	76.5
🇨🇿 Czech Republic	7	75.5
🇸🇪 Sweden	8	72.9
🇦🇺 Australia	9	71.3
🇳🇴 Norway	10	70.6
🇸🇰 Slovak Republic	11	69.3
🇳🇱 Netherlands	12	69.2
🇭🇺 Hungary	13	69.0
🇮🇱 Israel	14	67.6
🇫🇮 Finland	15	67.4
🇩🇪 Germany	16	67.2
🇹🇷 Turkey	17	66.7
🇦🇹 Austria	18	65.7
🇮🇪 Ireland	19	64.7
🇨🇦 Canada	20	64.6
🇺🇸 United States	21	62.4
🇬🇧 United Kingdom	22	61.8
🇧🇪 Belgium	23	61.6
🇯🇵 Japan	24	61.5
🇸🇮 Slovenia	25	61.3
🇰🇷 Korea	26	60.6
🇨🇱 Chile	27	58.2
🇩🇰 Denmark	28	57.9
🇬🇷 Greece	29	57.5
🇪🇸 Spain	30	57.1
🇨🇴 Colombia	31	55.0
🇮🇸 Iceland	32	53.7
🇲🇽 Mexico	33	52.5
🇵🇹 Portugal	34	49.0
🇫🇷 France	35	48.7
🇵🇱 Poland	36	45.7
🇮🇹 Italy	37	44.6

Costa Rica joined the OECD in 2021 and was not included in the ranking due to data availability.

For the eighth year in a row, Estonia has the most competitive taxes. The country has a 20% corporate tax that only applies to profits when they are distributed to shareholders, and property tax that only applies to the land value. Switzerland, one of the world’s biggest tax havens, ranks fourth. It boasts a low, broad-based consumption tax of 7.7% and an individual income tax that partially excludes capital gains from taxation.

Meanwhile, the U.S. falls in the middle of the pack for international tax competitiveness. It allows for full expensing for business investments in machinery. However, a weakness is that the states’ sales taxes apply to only a third of the potential tax base on average. This is largely due to the fact that most personal services are exempt from sales tax.

Italy has the least competitive taxes. The country has a wealth tax on financial assets and real estate assets held abroad, and a financial transaction tax on assets when they are sold. Not only that, it takes businesses an estimated 169 hours to comply with the individual income tax.

Balancing Budget and Competition

While many factors contribute to economic performance, tax structure does play a role. Governments face the task of collecting sufficient revenue to meet their budgetary requirements, while also maximizing their international tax competitiveness. These tax structures are constantly evolving.

Starting in 2023, 137 countries—including Ireland—have agreed to a global minimum tax rate of 15% on large multinational firms. The agreement aims to stop a “race to the bottom” on corporate taxation in order to attract foreign investment. Notably, the OECD estimates this could raise $150 billion in additional global tax revenues every year.

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Markets in a Minute

The Average American’s Financial Portfolio by Account Type

From retirement plans to bank accounts, we show the percentage of an American’s financial portfolio that is typically held in each account.

Published

10 months ago

September 11, 2024

Jenna Ross

The Average American’s Financial Portfolio by Account Type

Where does the average American put their money? From retirement plans to banks, the typical financial portfolio includes a variety of accounts.

In this graphic from Morningstar, we explore what percentage of a person’s money is typically held within each account.

Breaking Down a Typical Financial Portfolio

People put the most money in employer retirement plans, which make up nearly two-fifths of the average financial portfolio. Bank accounts, which include checking, savings, and CDs, hold the second-largest percentage of people’s money.

Account Type	% of Financial Portfolio
Employer retirement plan	38%
Bank account	23%
Brokerage/investment account	14%
Traditional IRA	10%
Roth IRA	7%
Crypto wallet/account	4%
Education savings account	3%
Other	1%

Source: Morningstar Voice of the Investor Report 2024, based on 1,261 U.S. respondents.

Outside of employer retirement plans and bank accounts, the average American keeps nearly 40% of their money in accounts that advisors typically help manage. For instance, people also hold a large portion of their assets in investment accounts and IRAs.

Account Insight for Advisors

Given the large focus on retirement accounts in financial portfolios, advisors can clearly communicate how they will help investors achieve their retirement goals. Notably, Americans say that funding retirement accounts is a top financial goal in the next three years (39% of people), second only to reducing debt (40%).

Americans also say that building an emergency fund is one of their financial goals (35%), which can be supported by the money they hold in bank accounts. However, it can be helpful for advisors to educate clients on the lower return potential of savings accounts and CDs. In comparison, advisors can highlight that investment or retirement accounts can hold assets with more potential for building wealth, like mutual funds or ETFs. With this knowledge in mind, clients will be better able to balance short-term and long-term financial goals.

The survey results also highlight the importance of advisors staying up to date on emerging trends and products. People hold 4% of their money in crypto accounts on average, and nearly a quarter of people said they hold crypto assets like bitcoin. Advisors who educate themselves on these assets can more effectively answer investors’ questions.

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Markets in a Minute

5 Factors Linked to Higher Investor Engagement

Engaged investors review their goals often and are more involved in decisions, but which factors are tied to higher investor engagement?

Published

10 months ago

August 22, 2024

Jenna Ross

Partial bar chart showing the factors linked to higher investor engagement along with a picture of a man looking at a cell phone.

5 Factors Linked to Higher Investor Engagement

Imagine two investors. One investor reviews their investment goals every quarter and actively makes decisions. The second investor hasn’t reviewed their goals in over a year and doesn’t take part in any investment decisions. Are there traits that the first, more involved investor would be more likely to have?

In this graphic from Morningstar, we explore five factors that are associated with high investor engagement.

Influences on Investor Engagement

Morningstar scores their Investor Engagement Index from a low of zero to a high of 100, which indicates full engagement. In their survey, they discovered five traits that are tied to higher average engagement levels among investors.

Factor	Investor Engagement Index Score (Max = 100)
Financial advisor relationship	Don’t work with financial advisor: 63
	Work with financial advisor: 70
Sustainability alignment	No actions/alignment: 63
	Some/full alignment: 74
Trust in AI	Low trust: 61
	High trust: 74
Risk tolerance	Conservative: 62
	Aggressive: 76
Comfort making investment decisions	Low comfort: 42
	High comfort: 76

Morningstar’s Investor Engagement Index is equally weighted based on retail investors’ responses to seven questions: feeling informed about composition and performance of investments, frequency of investment portfolio review, involvement in investment decision-making, understanding of investment concepts and financial markets, frequency of goals review, clarity of investment strategy aligning to long-term goals, and frequency of engagement in financial education activities.

On average, people who work with financial advisors, have sustainability alignment, trust AI, and have a high risk tolerance are more engaged.

The starkest contrast was that people with high comfort making investment decisions have engagement levels that are nearly two times higher than those with low comfort. In fact, people with a high comfort level were significantly more likely to say they were knowledgeable about the composition and performance of their investments (84%) vs. those with low comfort (18%).

Personalizing Experiences Based on Engagement

Advisors can consider adjusting their approach depending on an investor’s engagement level. For example, if a client has an aggressive risk tolerance this may indicate the client is more engaged. Based on this, the advisor could check if the client would prefer more frequent portfolio reviews.

On the other hand, soft skills can play a key role for those who are less engaged. People with low comfort making investment decisions indicated that the top ways their financial advisor provides value is through optimizing for growth and risk management (62%), making them feel more secure about their financial future (38%), and offering peace of mind and relief from the stress of money management (30%).