The flat tax is making a comeback

The flat tax is making a comeback. After being banished to the political wilderness after Steve Forbes made it the central issue of his losing campaign for the Republican presidential nomination in 1996, interest is perking up again. One of the Democrats running for president could do himself (or herself) a lot of good by picking it up, says Bruce Bartlett.

The immediate cause for renewed interest in the flat tax is an order by Paul Bremer, Administrator of the Iraqi Provisional Authority, establishing a 15 percent flat rate tax in that country. The order was signed on Sept. 19 and takes effect on Jan. 1.

While advocates of the flat tax are pleased with the Iraqi initiative, they are actually much more excited by what is going on in many former Soviet bloc countries.

  • Estonia established a flat tax in 1994, Latvia in 1995, and Russia in 2001.

  • Earlier this year, Ukraine adopted a flat tax beginning next year, and on Oct. 28 Slovakia became the latest country to do so.

  • China is said to be interested as well.

    A key factor driving all of these countries to adopt radical tax simplification and a lowering of rates is tax evasion, says Bartlett. They were simply unable to collect sufficient revenue under the previous complex, high-rate tax systems. In every case, implementation of a flat tax caused collections to rise, as the benefit of evasion was reduced.

    According to Hoover Institution economist Alvin Rabushka, inflation-adjusted personal income tax revenues in Russia rose 28 percent the first year the flat tax was in effect, and 21 percent the following year. So far this year, real revenues are up about 17 percent. Revenues were flat or falling before the flat tax was imposed.

    Source: Bruce Bartlett, The Flat Tax is Making a Comeback, National Center for Policy Analysis, November 11, 2003.

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    FMF Policy Bulletin\11 November 2003
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