A flat tax works. When Mart Laar became prime minister of Estonia, he was too naive to know that a flat tax wouldn’t work. The economy was transformed, growth boomed, unemployment dropped drastically. Now nine countries have followed suit, the rest of Europe is watching, and Estonia has lowered the tax rate once and is going to lower it again.
This shouldn’t be seen as an endorsement of income tax; but if we have to have it, I would prefer one which is simple, low, fair, and which doesn’t encourage cheating.
OMG! You mean punishing people for being prosperous ISN’T economic genius?!
Really great idea.
Odds of happening in the US: sub-zero.
>When Mart Laar became prime minister of Estonia
OK, I had to read this like 3 times before it stopped saying “When WALMART became prime minister of Estonia”.
Talk about there-goes-the-neighborhood…
“Attention Wal-Mart customers, we have a special today on surplus Soviet T-34 tanks in the hunting section…”
*snicker* I saw that too!
Devil’s Advocate..
1. Correlation does not equal causation–note that Russia has also adopted a flat tax rate–is Russia’s economy, which is generally not something that we hold up as a world model, thus proof that a flat tax doesn’t work?
2. Is it the flat-tax on personal income that did the job, or is it rather the fact that the corporate tax rate in Estonia is 0% that has led to the remarkable growth in investment and the simultaneous drop in unemployment?
3. Ireland, to my knowledge and according to a recent article, is now the second wealthiest nation in Europe in per capita income. They did this despite having graduated income taxes, because they did a few things–a) They lowered the corporate tax rate to %12, b)They made higher education free c)They instituted a universal health system so that businesses didn’t have to deal with spiralling health costs..
4. Tax simplification–this has a lot more to do with merely eliminating all particular tax breaks, shelters, and such things than abolishing a graduated system.. I mean, is looking at a chart with 5 different brackets and being forced to make a simple calculation really that difficult? If so, I don’t know how we manage to understand such incredibly complex things like the A-F grading system..
Re: Devil’s Advocate..
Good points all, and I don’t believe for a second that the simple tax is solely responsible for Estonia’s growth. The only thing that’s indisputable is that it hasn’t failed or hindered growth, which is better performance than a lot of people seem to believe a flat tax is capable of.
I’ll respond to #4 though. Five brackets is not hard; but it is enough to cause people to expend a great deal of effort to stay in bracket #4, or #3, or #2. Effectively it pushes the complexity into the realm of controlling the black market and of “gifts”.
Re: Devil’s Advocate..
Perhaps.. but I think that a lot of those problems fall out if you just don’t have any way of making deductions other than patently underdeclaring your income… I.e. I don’t believe that there will be significantly more cheating or–perhaps more accurately–that the effects of this cheating on the government’s income will be more substantial when you have people trying to avoid the $100,000+ bracket–where they move from 23% to 25%–than people who wholesale decide to underreport their income by just not mentioning the $100,000 they got from foreign investments etc etc…
perhaps I’m wrong here.. i do think that to make the system work, the brackets could not be huge jumps.. couple of percentage points in between max.. so maybe a 15% spread in between them.. and I would put the lowest bracket up to something significant.. like maybe $50-60,000… and have the highest bracket kick in by like $250,000..
Also.. I do believe if we nuked all of the “loopholes”–namely, no deductions for anything–all income is income is income–that we could actually have rates lower than we do now.. don’t really have the numbers to back this up tho…
Re: Devil’s Advocate..
1. Correlation does not equal causation–note that Russia has also adopted a flat tax rate–is Russia’s economy, which is generally not something that we hold up as a world model, thus proof that a flat tax doesn’t work?
[ I had heard much mention of the improvement of the Russian economy and much credit given to the flat tax. Not saying their economy is equivalent to Germany. But as I understand it’s been on the upswing.
This article shows the Russian economy growing.
http://www.russianeconomy.org/comments/040501.html
Just a simple Google of Russia & Flat Tax returns numerous articles stating “miracle” “great improvement” and mention western leaders looking on in surprise at the growth.
So I actually question your use of Russia as a negative. When it appears that since implementation Russia has benefitted from a strong upswing. Sure, they were near the bottom of the bucket and even moving 3-4 rungs up the ladder leaves them just above the basement. But that’s POSITIVE GROWTH. And that’s a good thing.
]
Re: Devil’s Advocate..
They instituted a universal health system so that businesses didn’t have to deal with spiralling health costs..
I disagree with that statement, after all… the spiralling cost of healthcare is still paid for by businesses – just indirectly.