[Rhodes22-list] Flat Tax Semi-Rant

[Brad Haslett]

Bill,

Here's your sign! I can provide more all day long. The bold print in the
article was my idea and highlights David's main point.

Brad

------------------------

WSJ

*High Taxes Wither Away
*Former communist countries lead the way in abandoning progressivity.

*Monday, February 28, 2005 12:01 a.m.*

President Bush went out of his way last week in Europe to praise the growing
number of countries that have junked their complicated tax codes and adopted
a flat tax.

Mr. Bush speaks for a growing number of Americans who are embracing the
idea--among them Clint Eastwood, who said few years back that the adoption
of a flat tax would mean "a little old lady on a home computer [could do]
the work of all these thousands of bureaucrats and accountants. Passing that
would be amazing, wouldn't it?"

The bipartisan tax-reform commission Mr. Bush has appointed will no doubt
look carefully at the global spread of the flat tax, a concept its
supporters hail because it is simple to calculate, is harder to cheat on,
encourages investment and fosters growth economic growth. Little wonder it's
catching on in Eastern Europe.

 In 1994, newly independent Estonia borrowed the idea of the flat tax from
highly prosperous Hong Kong, which 45 years before had introduced a dual
income tax system, allowing taxpayers to pay a flat rate on their gross
income. (In practice, almost everyone in Hong Kong pays the flat tax.)
Lithuania and Latvia quickly followed Estonia's lead. Today, all three
Baltic states are booming, and, along with Slovakia, a recent convert to the
flat tax, they are the least-taxed countries in the European Union.

The success of the Baltics attracted the attention of Andrei Illarionov,
Russian president Vladimir Putin's economic adviser. At his suggestion, Mr.
Putin implemented a 13% flat tax for individuals, along with a 15% rate for
most business income. The results have been astonishing as Russia's
black-marketers decided the tax was low enough and transparent enough that
it wasn't worth evading.

After struggling for a decade, Russia's economy grew 5% a year after
inflation in 2002 and 2003 and 7.3% last year. The flat tax has been a key
reason that revenue from the country's personal income tax has grown by 150%
since 2001. "This constant expansion of the government tax revenue is the
result of less tax evasion and increased incentive to work, save, and
invest," noted the Adam Smith Institute in London in a report on the flat
tax's success.

Russia's experience set off a wave of imitators. In 2003, Serbia introduced
a 14% tax on income and corporate profits along with plans to cut it
further. Russia's neighbor, Ukraine then set a 13% rate, with dividends and
bank interest taxed at only 5%.

Last year Slovakia junked an old tax system that included 66 exemptions, 19
sources of untaxed income and 27 items with their own specific tax rates.
Instead it put in place a 19% flat tax on income and profits. In December
Jan Oravec, president of Slovakia's Hayek Foundation, told me that the
country's flat tax has helped sustain an economic growth rate of 4.9%,
lowered unemployment and led to a surge in surge in tax revenues as people
take advantage of the new opportunities to work and invest. Last year, the
World Bank named Slovakia the world's top economic reformer in 2004 for
improving its investment climate.

It was in Slovakia last week that Mr. Bush privately told Mr. Putin how much
he admired Russia's success in implementing the flat tax. Later, in public
comments, he praised his Slovakian hosts for their flat tax, which "has
helped to attract capital and create economic vitality and growth."

Alvin Rabushka, a senior fellow at Stanford's Hoover Institution who
consults with countries all over the world on how to design a flat tax, can
barely keep up with all the new adherents. Within two weeks after taking
office in December, Romania's new prime minister, Calin Popescu Tariceanu,
issued an emergency edict to take effect only three days later: Companies
and individuals now pay a single flat rate of 16%. Georgia also adopted the
flat tax as of Jan 1.

Europe is becoming so crowded with flat-tax nations that the original
proponents of the idea are having to play catch-up. Estonia has just cut its
rate to 24%, and has promised to slash it to 20% over the next two years.
Mr. Rabushka's book "The Flat Tax" has just been published in Chinese, with
a preface by Lou Jiwei, the vice minister of finance. If China were to climb
on board the flat-tax train, more than a quarter of the world's population
would be filling out their taxes on the back of a postcard.

 In the U.S., interest in the flat tax languished after Steve Forbes, who
championed a 17% flat rate during his 1996 presidential campaign, failed to
win the GOP nomination. Former House majority leader Dick Armey, a pioneer
in promoting the flat tax, privately admits that Congress is unlikely to
abolish tax deductions for mortgage interest and charitable contributions,
but there is lots of room for President Bush's tax reform commission to
propose a dramatic flattening of the income tax code.

Liberal Americans often deride the flat tax on the ground that its lower
rates would starve public services and allow the rich to escape the higher
taxes. But as former California governor Jerry Brown pointed out during his
1992 presidential campaign, the rich will always be able to hire experts to
lobby for tax loopholes and avoid the higher rate traps set for them. "It is
in everyone's interest to make sure everyone pays and that both tax
loopholes and the underground economy are reduced," he told me at the time,
citing studies that nearly 10% of the U.S. economy could be off of the
books.

Indeed, under existing flat-tax systems the wealthy end up paying a
*larger*share of total tax revenues. In flat-tax countries, taxpayers
in the highest
brackets move from consumption or tax-sheltered investments to more
productive, taxable investments. Many higher earners work harder or take
additional risks, rewarded by higher after-tax returns.

*Despite all of its advantages, the flat tax faces enormous ideological
opposition. Envy and the lust for the political control that complicated tax
regimes can provide are powerful motivations to keep progressive tax systems
in place. Karl Marx in "The Communist Manifesto" was among the first to call
for "a heavy progressive or graduated income tax" at a time when a flat rate
was the norm in advanced countries. He listed it as second in the list of
priorities for a new society based on the class struggle. *

It is therefore ironic that every country that has adopted the flat tax is a
former communist nation--except Hong Kong, the modern originator of the
concept, which has seen its new communist rulers retain the flat tax as a
centerpiece of its economic policies.

Given all this, why should the U.S. allow itself to continue to see its
economic potential limited by a Marxist concept that most nations that
followed that path are now fleeing from?



On 1/17/07, Bill Effros <bill at effros.com> wrote:
>
> Brad,
>
> Most of the former Eastern bloc countries have not implemented single
> rate flat taxes--and most of those who have, have implemented flat taxes
> higher than 17%.  Most also have national VAT (very complicated
> progressive sales taxes) in addition to income taxes.  Is this what you
> have in mind--a scheme to raise taxes for individuals well over the
> amounts we currently pay?
>
> Bill Effros
>
>
>
> Brad Haslett wrote:
> > Bill,
> >
> > Most of the former Eastern bloc countries, the former Soviet states, and
> > Russia, have implemented a flat tax.  They've had their fill of social
> > engineering. China is next.  We need to scrap our current tax system and
> > start from scratch.  Unless you miss the old communist community,
> > there's no
> > reason not to begin this whole process over again - with a clean sheet
> of
> > paper.
> >
> > Brad
> >
> >
> > On 1/16/07, Bill Effros <bill at effros.com> wrote:
> >>
> >> David,
> >>
> >> According to Brad's definition of the "flat tax" there's nothing in
> that
> >> proposal that prevents government at any level from enacting "social
> >> engineering" taxes -- or any other additional taxes.
> >>
> >> Do you have a different definition for the "flat tax"?
> >>
> >> Bill Effros
> >>
> >>
> >>
> >> David A. Culp wrote:
> >> > The flat tax is a great idea that will never see the light of day.
> >> >
> >> > The reason is simple... power.  Both political parties and most other
> >> politicians will never give up the power that our present taxation
> >> system
> >> gives them.
> >> >
> >> > Anybody ever hear the term "social engineering" before?  As an
> >> example,
> >> if the government really wants you to quit smoking, they impose taxes
> to
> >> make it so financially unattractive that you quit, same for rum
> >> drinkers.  In fact, it's best if they threaten to do so from time to
> >> time so
> >> that the rich tobacco and distiller's lobbies will go nuts and shower
> >> them
> >> with money and trips.  That's power.
> >> >
> >> > Just recently in Texas, we added $1.00 to the tobacco tax on January
> >> 1st.  The tobacco lobby worked very hard behind the scenes
> >> (read-spread a
> >> lot of $$ around) but came up short because our legislators had made
> too
> >> many promises to taxpayers over the past years to lower property
> >> taxes.  My
> >> brother who has smoked for years and we had been trying to get him to
> >> quit... finally did because he can no longer afford it.  So, our state
> >> legislators got my brother to quit smoking, collected lobby money
> >> from big
> >> tobacco trying to buy their votes and now will have even bigger tax
> >> revenues
> >> to waste in the next session.  A win, win, win for government by
> >> tinkering
> >> with the tax system.  To top it off, they will get even more property
> >> taxes
> >> long term because the rate reduction is a mere pittance and
> >> valuations have
> >> been going up dramatically with no legal cap.  Anyway, at least my
> >> brother
> >> quit smoking.
> >> >
> >> > Another example, if the US government wants or needs us all to go
> >> "green", they give us income tax incentives to do so.  Just think if
> the
> >> government wanted a wind generator in every well-to-do yard in
> >> America; they
> >> could do it in short order with the right tax incentives and we would
> >> all
> >> get into the wind energy business and sell those KW's back to the
> >> electric
> >> companies.  You can apply this model to just about any subject you
> >> can think
> >> of except sailboats.  I don't think the government will ever give me
> >> a tax
> >> credit for owning a sailboat, but they should because I'm saving
> >> fossil fuel
> >> and not polluting the air as much!  Unfortunately, the sailboat lobby
> in
> >> this country just doesn't have enough wealth to push this through.
> >> But it
> >> could be done with a large excise tax on fuel at boat docks, a huge
> >> luxury
> >> tax on power boats and huge tax breaks for sailboats.  I can just see
> it
> >> now, a chicken in every pot and a sailboat in every driveway or
> farmer's
> >> pond in America.
> >> >
> >> > And no matter what they say, no career politician will ever truly
> >> support a flat tax.  Steve Forbes is not a career politician with an
> >> agenda
> >> and already has plenty of money; so he can afford to support a flat
> >> tax.  Remember, democrats want to social engineer the whole of
> >> society by
> >> redistributing wealth-can't do that as quickly or easily under a
> >> flat-tax
> >> system.  Republicans would like to social engineer our morality but
> >> that's
> >> nearly impossible; so they are content to get their life-blood from
> >> businesses and lobbies whom they protect with tax breaks ala Exxon
> >> Mobil or
> >> threaten to put out of business, like tobacco for instance.  Either
> >> way, the
> >> money just rolls in and as we know, always follow the money.
> >> >
> >> > David Culp
> >> > __________________________________________________
> >> > Use Rhodes22-list at rhodes22.org, Help? www.rhodes22.org/list
> >> >
> >> >
> >>
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