Background

The United States has the largest and most technologically powerful economy in the world, with a per capita GDP of $37,800. In this market-oriented economy, private individuals and corporations make most of the decisions, and the federal and state governments buy needed goods and services predominantly in the private marketplace. U.S. business firms enjoy considerably greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, to lay off surplus workers, and to develop new products. At the same time, they face higher barriers to entry in their rivals' home markets than the barriers to entry of foreign firms in U.S. markets.

U.S. firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment; their advantage has narrowed, however, since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits.

Since 1975, practically all the gains in household income have gone to the top 20 percent of households. The years 1994-2000 witnessed solid increases in real output, low inflation rates, and a drop in unemployment to below 5 percent. The year 2001 saw the end of boom psychology and performance, with output increasing only 0.3 percent and unemployment and business failures rising substantially. That said, the response to the terrorist attacks of 2001 showed the remarkable resilience of the economy. Moderate recovery took place in 2002 with the GDP growth rate rising to 2.4 percent. A major short-term problem in first half 2002 was a sharp decline in the stock market, fueled in part by the exposure of dubious accounting practices in some major corporations. The war in March/April 2003 between a U.S.-led coalition and Iraq shifted resources to the military. In 2003, growth in output and productivity and the recovery of the stock market to above 10,000 for the Dow Jones Industrial Average were promising signs. Unemployment stayed at the 6% level, however, and began to decline only at the end of the year.

Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical and pension costs of an aging population, sizable trade and budget deficits, and stagnation of family income in the lower economic groups.
 
 
Foreign Investment Assessment

With a strong legacy of democracy, free market policies, political stability, and economic fortitude, the United States (U.S.) is considered to be a desirable site for foreign investment, both by individual and corporate entities. Most industries are open to foreign investors, and the overall foreign investment climate of the U.S. is progressive, with a liberal trade regime and a transparent regulatory framework. Moreover, at an operational level, the U.S. has a singular currency, no internal trade barriers, advanced communications and telecommunications networks, highly modernized infrastructure, in addition to an efficacious marketing and distribution system.  With no unitary foreign investment code in existence, almost all proposals for inward investment in the U.S. are permitted, generally without review. Regardless of the type of sector or industry a foreign entity wishes to enter, however, proposals for foreign direct investment must be registered in accordance with the International Investment and Trade in Services Survey Act (ITSSA), which operates under the jurisdiction of the Commerce Department.   Some areas of investment are more subject to review that others.  For example, the Exon-Floria Amendment  -- a modification of law within the Defense Production Act --  compels the review of any foreign acquisitions of domestic companies engaged in defense related enterprises.

For foreign investment statistics, see:  United States Bureau of Economic Analysis, Survey of Current Business, U.S. International Transactions, at URL: <http://www.bea.doc.gov/bea>

 
Labor Force

Labor force:    147.4 million (includes unemployed)
Labor force - by occupation:   managerial, professional, and technical 34.9%, sales and office 25.5%, manufacturing, extraction, transportation, and crafts 22.7%, other services 16.3%, farming, forestry, and fishing 0.7%  (figures exclude the unemployed)

Note: The history of American labor involves a tension between these two sets of values -- flexibility and long-term commitment. Since the mid-1980s, employers have put more emphasis on flexibility and as a result, the ties between employers and employees have become weaker. Still, a wide range of state and federal laws protect the rights of workers.


Agriculture and Industry

Agriculture - products:   wheat, corn, other grains, fruits, vegetables, cotton; beef, pork, poultry, dairy products; forest products; fish 
Industries:   leading industrial power in the world, highly diversified and technologically advanced; petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, mining 


Import Commodities and Import Partners

Imports - commodities:   crude oil and refined petroleum products, machinery, automobiles, consumer goods, industrial raw materials, food and beverages 
Imports - partners:   Canada 17.4%, China 12.5%, Mexico 10.7%, Japan 9.3%, Germany 5.3%


Export Commodities and Export Partners

Exports - commodities:   capital goods, automobiles, industrial supplies and raw materials, consumer goods, agricultural products 
Exports - partners:   Canada 23.4%, Mexico 13.5%, Japan 7.2%, UK 4.7%, Germany 4%


Telephone System

Telephones - main lines in use:    181,599,900
Telephones - mobile cellular:    158.722 million  

general assessment: a large, technologically advanced, multipurpose communications system

domestic: a large system of fiber-optic cable, microwave radio relay, coaxial cable, and domestic satellites carries every form of telephone traffic; a rapidly growing cellular system carries mobile telephone traffic throughout the country

international: country code - 1
satellite earth stations - 61 Intelsat (45 Atlantic Ocean and 16 Pacific Ocean), 5 Intersputnik (Atlantic Ocean region), and 4 Inmarsat (Pacific and Atlantic Ocean regions)


Internet Users

Internet hosts:    115,311,958 
Internet users:    159 million  -- extensive and on the rise


Roads, Airports, Ports and Harbors

Railways:    total: 228,464 km
Highways:    total: 6,406,296 km
Ports and harbors:   Anchorage, Baltimore, Boston, Charleston, Chicago, Duluth, Hampton Roads, Honolulu, Houston, Jacksonville, Los Angeles, New Orleans, New York, Philadelphia, Port Canaveral, Portland (Oregon), Prudhoe Bay, San Francisco, Savannah, Seattle, Tampa, Toledo 
Airports:   14,807; with paved runways:   total: 5,128 


Legal System and Considerations

The legal system is based on English common law with judicial review of legislative acts.  In the realm of business, the United States has a long history of transparent legal process within its judicial system. The U.S. legal system includes commercial and bankruptcy laws and provides for sufficient protection of secured interests in property.  In terms of dispute settlement, the U.S. is a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The U.S. government is a signatory of the International Center for the Settlement of Investment Disputes (ICSID). The U.S. accepts binding international arbitration between foreign investors and the state.


Corruption Perception Ranking

As reported by Transparency International, from least to most corrupt (scale of 1 - 163), the United States ranks 20.
 

Cultural Considerations

Western norms dominate with Americanized elements.  The standard American conversation starter is "What do you do?" which means "What kind of work do you do, and for whom?" This is not considered rude or boring as it may be in other cultures. Indeed, work is an important aspect of the American lifestyle, making discussions of work fairly standard fare.  Another American feature is the fact that compliments are exchanged very often and are sometimes used as conversation starters.

For further information see:

The U.S. Business Advisor, the U.S. State Department, the U.S. Import Administration, the U.S. Treasury, the U.S. Department of Commerce,  the World Bank

General Information

Taxation in the US is regulated and assessed in accordance with the Internal Revenue Code of 1986, and is administered by the Internal Revenue Service (IRS). A recent passage of a bill in the legislative (lower) house of the US Congress calls for the overhaul of both the IRS and its systemic operations and procedures. The actual measures for the restructuring of the IRS are yet to be determined.

Under the existing taxation system in the US, both federal and state taxes are imposed, as well as municipal taxes in some places. Most secondary taxes (i.e. state and municipal taxes) are deductible at the federal level. At the federal level, there are income taxes (on individuals and corporations). Other taxes include property taxes, capital gains, and state sales taxes on goods and services.

The corporate income tax rate is 35 percent. Corporate tax rates are effective at graduated rates as stipulated following:

Taxable income up to $50,000 is subject to taxation at a rate of 15 percent.
Taxable income exceeding $50,000 but not exceeding $75,000 is subject to taxation at a rate of 25 percent.
Taxable income exceeding $75,000 but not exceeding $10 million is subject to taxation at a rate of 34 percent.
Taxable income exceeding $15 million but not exceeding $18,333,333 is subject to taxation at a rate of 35 percent.

When a company has a taxable income of over $100,000, the benefit of the 15 percent and 25 percent tax brackets is displaced by the imposition of an additional 5 percent surtax on taxable income between $100,000 and $335,000. No such surtax, however, exceeds $11,750. In a similar manner, the benefit of the 34 percent rate is displaced by the imposition of a supplementary 3 percent surtax on excess of taxable income over $15,000,000 or an amount of $100,000 - depending upon which is evaluated as the lesser amount.

Companies with service oriented foci are taxed a flat rate of 35 percent. Capital gains are assessed at the same rate as the income tax rate of 35 percent. In the case of real estate, capital gains are reported on tax returns by US citizens, residents, and corporate entities. Non-local individuals and entities pay a percentage of the sale price of a given property to the US Treasury. The withholding tax rate of 30 percent is applicable on dividends, interests, and royalties.

Taxable Income includes:
• wages, salaries, tips;
• bonuses, commissions;
• partnership income;
• S-corporation income.
• vacation pay, sick pay, severance pay;
• interest
• dividends;
• "interest free" loans;
• bond premiums;
• profit gains from the sale of property;
• endowments and annuities;
• rental, farm, and business income;
• royalties;
• income from trusts and estates;
Non-taxable Income includes:
• Gifts
• Inheritances
• Welfare payments
• Physical injury or illness compensation
• Worker's compensation
While foreign corporations are taxed only on business transactions and investments that occur within the US, US corporations are subject to taxes on worldwide income, including income from foreign branches. Consequently, the legal differentiation between foreign and domestic entities can potentially result in a quandary for multinational corporations on the matter of where to incorporate.

In the case of sole proprietorships and joint ventures (and unlike partnerships), tax liabilities are conveyed to owners. Corporations of this sort are, therefore, subject to a kind of double taxation where profits are taxed both at the corporate level, and dividends are taxed at the level of shareholders' income. The US, however, adheres to double taxation agreements with several countries.

On June 7, 2001, the Bush Administration passed The Economic Growth and Tax Relief Reconciliation Act of 2001 which legislates taxation changes that will take place over the following 10 years. A summary of the provisions of the Act was prepared by the Staff of the Joint Committee on Taxation. Some of the provisions are such as follows:

Marginal Tax Rate Reductions

Individual Income Tax Rate Structure

The conference agreement creates a new 10-percent regular income tax bracket for a portion of taxable income that is currently taxed at 15 percent, effective for taxable years beginning after December 31, 2000. The 10-percent rate bracket applies to the first $6,000 of taxable income for single individuals ($7,000 for 2008 and thereafter), $10,000 of taxable income for heads of households, and $12,000 for married couples filing joint returns ($14,000 for 2008 and thereafter).

The conference agreement also reduces the other regular income tax rates, effective July 1, 2001. The present-law regular income tax rates of 28 percent, 31 percent, 36 percent, and 39.6 percent are phased-down over six years to 25 percent, 28 percent, 33 percent, and 35 percent, effective after June 30, 2001.

The conference agreement includes a rate reduction credit for 2001 to deliver the benefit of the new 10-percent income tax rate bracket during calendar year 2001. Under the conference agreement, taxpayers would be entitled to a credit in tax year 2001 of 5 percent (the difference between the 15-percent rate and the 10-percent rate) of the amount of income that would otherwise be eligible for the new 10-percent rate. Thus, the maximum credit will be $300 in the case of a single individual, $500 in the case of a head of household, and $600 in the case of a married couple filing a joint return. This credit is in lieu of the 10 percent rate bracket for 2001.

Most taxpayers will receive this credit in the form of a check issued by the Department of the Treasury. It is anticipated that the Department of the Treasury will make every effort to issue all checks before October 1, 2001, to taxpayers who timely filed their 2000 tax returns. Taxpayers who filed late or pursuant to extensions will receive their checks later in the fall.

Phase-Out of Itemized Deductions

The conference agreement eliminates the overall limitation on itemized deductions for all taxpayers. The otherwise applicable overall limitation on itemized deductions is reduced by one-third in taxable years beginning in 2006 and 2007, and by two-thirds in taxable years beginning in 2008 and 2009. The overall limitation is eliminated for taxable years beginning after December 31, 2009.

Phase-Out of Restrictions on Personal Exemptions

The conference agreement phases out the restrictions on personal exemptions. Under the conference agreement, the otherwise applicable personal exemption phase-out is reduced by one-third in taxable years beginning in 2006 and 2007, and is reduced by two-thirds in taxable years beginning in 2008 and 2009. The provision is fully effective for taxable years beginning after December 31, 2009.

Tax Benefits Relating to Children

Increase and Expand the Child Tax Credit

The conference agreement increases the child tax credit to $1,000, phased-in over ten years, effective for taxable years beginning after December 31, 2000.

The conference agreement makes the child credit refundable to the extent of 10 percent of the taxpayer's earned income in excess of $10,000 for calendar years 2001-2004. The percentage is increased to 15 percent for calendar years 2005 and thereafter. The $10,000 amount is indexed for inflation beginning in 2002. Families with three or more children are allowed a refundable credit for the amount by which the taxpayer's social security taxes exceed the taxpayer's earned income credit (the present-law rule), if that amount is greater than the refundable credit based on the taxpayer's earned income in excess of $10,000. The conference agreement provides that the refundable portion of the child credit does not constitute income and shall not be treated as resources for purposes of determining eligibility or the amount or nature of benefits or assistance under any Federal program or any State or local program financed with Federal funds.

The conference agreement provides that the refundable child tax credit will no longer be reduced by the amount of the alternative minimum tax. In addition, the conference agreement allows the child tax credit to the extent of the full amount of the individual's regular income tax and alternative minimum tax.

The provision generally is effective for taxable years beginning after December 31, 2000. The provision relating to allowing the child tax credit against alternative minimum tax is effective for taxable years beginning after December 31, 2001.

Marriage Penalty Relief Provisions

Standard Deduction Marriage Penalty Relief

The conference agreement increases the basic standard deduction for a married couple filing a joint return to twice the basic standard deduction for an unmarried individual filing a single return. This increase is phased-in over five years beginning in 2005 and would be fully phased-in for 2009 and thereafter.

Estate, Gift, and Generation-Skipping Transfer Tax Provisions

Phase-out and Repeal of Estate and Generation-Skipping Transfer Taxes; Increase in Gift Tax Unified Credit Effective Exemption

Under the conference agreement, in 2002, the 5-percent surtax (which phases out the benefit of the graduated rates) and the rates in excess of 50 percent are repealed. In addition, in 2002, the unified credit effective exemption amount (for both estate and gift tax purposes) is increased to $1 million. In 2003, the estate and gift tax rates in excess of 49 percent are repealed. In 2004, the estate and gift tax rates in excess of 48 percent are repealed, and the unified credit effective exemption amount for estate tax purposes is increased to $1.5 million. (The unified credit effective exemption amount for gift tax purposes remains at $1 million as increased in 2002.) In addition, in 2004, the family-owned business deduction is repealed. In 2005, the estate and gift tax rates in excess of 47 percent are repealed. In 2006, the estate and gift tax rates in excess of 46 percent are repealed, and the unified credit effective exemption amount for estate tax purposes is increased to $2 million. In 2007, the estate and gift tax rates in excess of 45 percent are repealed. In 2009, the unified credit effective exemption amount is increased to $3.5 million. In 2010, the estate and generation-skipping transfer taxes are repealed.

In 2010, the estate and generation-skipping transfer taxes are repealed. Also beginning in 2010, the top gift tax rate will be the top individual income tax rate as provided under the bill, and, except as provided in regulations, a transfer to trust will be treated as a taxable gift, unless the trust is treated as wholly owned by the donor or the donor's spouse under the grantor trust provisions of the Code.

After repeal of the estate and generation-skipping transfer taxes, the present-law rules providing for a fair market value (i.e., stepped-up) basis for property acquired from a decedent are repealed. A modified carryover basis regime generally takes effect, which provides that recipients of property transferred at the decedent's death will receive a basis equal to the lesser of the adjusted basis of the decedent or the fair market value of the property on the date of the decedent's death.

Under the conference agreement, from 2002 through 2004, the State death tax credit allowable under present law is reduced as follows: in 2002, the State death tax credit is reduced by 25 percent (from present law amounts); in 2003, the State death tax credit is reduced by 50 percent (from present law amounts); and in 2004, the State death tax credit is reduced by 75 percent (from present law amounts). In 2005, the State death tax credit is repealed, after which there will be a deduction for death taxes (e.g., any estate, inheritance, legacy, or succession taxes) actually paid to any State or the District of Columbia, in respect of property included in the gross estate of the decedent. Such State taxes must have been paid and claimed before the later of: (1) four years after the filing of the estate tax return; or (2) (a) 60 days after a decision of the U.S. Tax Court determining the estate tax liability becomes final, (b) the expiration of the period of extension to pay estate taxes over time under section 6166, or (c) the expiration of the period of limitations in which to file a claim for refund or 60 days after a decision of a court in which such refund suit has become final.

The estate and gift rate reductions, increases in the estate tax unified credit exemption equivalent amounts and generation-skipping transfer tax exemption amount, and reductions in and repeal of the state death tax credit are phased-in over time, beginning with estates of decedents dying and gifts and generation-skipping transfers after December 31, 2001.

Expand Estate Tax Rule for Conservation Easements

The conference agreement expands availability of qualified conservation easements by liminating the requirement that the land be located within a certain distance from a metropolitan area, national park, wilderness area, or Urban National Forest. Thus, under the conference agreement, a qualified conservation easement may be claimed with respect to any land that is located in the United States or its possessions. The provisions are effective for estates of decedents dying after December 31, 2000.

Modify Generation-Skipping Transfer Tax Rules

The conference agreement makes the following modifications to the generation-skipping
transfer tax provisions:

• Deemed allocation of the generation-skipping transfer tax exemption to lifetime transfers to trusts that are not direct skips;
• Retroactive allocation of the generation-skipping tax exemption;
• Severing of trusts holding property having an inclusion ratio of greater than zero;
• Modification of certain valuation rules;
• Relief from late elections; and
• Substantial compliance.

The provisions are generally effective after December 31, 2000.

Availability of Installment Payment Relief

The conference agreement expands the availability of installment payment rules to qualified lending and finance business interests and certain holding company stock. In addition, the conference agreement increases from 15 to 45 the number of partners of a partnership or shareholders in a corporation eligible for installment payments of estate tax. The provisions are effective for decedents dying after December 31, 2001.

Estate Tax Recapture from Cash Rents of Specially-Valued Property

The conference agreement provides that, if on the date of enactment or at any time within one year after the date of enactment, a claim for refund or credit of any overpayment of tax resulting from the application of net cash lease provisions for spouses and lineal descendants (sec. 2032A(c)(7)(E)) is barred by operation of law or rule of law, then the refund or credit of such overpayment shall, nonetheless, be allowed if a claim therefore is filed before the date that is one year after the date of enactment. This provision is effective for refund claims filed prior to the date that is one year after the date of enactment.


Source: United States House of Representatives

Stock Market

The United States stock market is composed of various stock exchanges, in addition to the "over-the counter" market. The New York Stock Exchange and the American Stock Exchange figure as two of the most significant stock exchanges. The NASDAQ is one of the most important specialty stock exchanges, with a concentration on high technology enterprises. There are also several smaller, regional exchanges spread across the United States.

United States's market had 7,651 listed companies at the end of the last decade.

For more information on the stock exchanges in the United States, see URLs:

• New York Stock Exchange:
http://www.nyse.com/

• American Stock Exchange;
http://www.amex.com/

• NASDAQ:
http://www.nasdaq.com/