Flat-tax: A flat winner for tax reform

(Simplicity and reduced compliance costs must be part of the reform)

Recently, President Bush's Advisory Panel on Federal Tax Reform landed in no-man's land, but perhaps the panel could have won more hearts and minds if it had examined real-world experiences with tax reform, says the Heritage Foundation's Daniel Mitchell.

In Eastern Europe, the flat-tax revolution is extremely compelling; nine nations from the old Soviet bloc have adopted the tax – which taxes income at one rate and is designed to attract investment, fuel economic growth and treat all citizens fairly, says Mitchell.

For instance, Russia is now enjoying the benefits of the 13 per cent flat tax it adopted in 2001; revenue has poured into government coffers as tax evasion and avoidance have become much less profitable. But Russia is simply learning from its neighbours, says Mitchell:

Estonia was the first, adopting a 26 per cent flat rate in 1994 and since then, it has cut its rate; it will drop to 20 per cent before the end of the decade.

Latvia and Lithuania followed in the mid-1990s, with 25 per cent and 33 per cent rates, respectively; however, Lithuania has also decided to reduce its rate to 24 per cent.

Serbia was next; in 2003 it went with a 14 per cent rate.

Last year it was Slovakia (19 per cent) and Ukraine (13 per cent) and this year it's been Romania (16 per cent) and Georgia, which boasts the lowest rate – 12 per cent.

Other countries such as Poland and the Czech Republic are also considering a flat tax.

The flat tax is not a silver bullet, says Mitchell. However, if combined with other market reforms, it provides a significant economic boost, which generates plenty of tax revenue.

Furthermore, tax reform is a clear success and the United States can learn from what other nations have accomplished, says Mitchell.

Source: Daniel J. Mitchell, "A Flat-Out Winner for Tax Reform," Washington Post, December 22, 2005.

For text (subscription required): http://www.washingtonpost.com/wp-dyn/content/article/2005/12/21/AR2005122101572.html

For more on Taxes: http://www.ncpa.org/pi/taxes/

FMF Policy Bulletin/ 03 January 2005
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