Worldwide Flat Taxes

[Thom Little]

In the United States, advocates of a flat tax - a single rate applied to all taxpayers regardless of income level - are generally regarded as the intellectual heirs to the flat-earthers. Arguments to replace the graduated income tax with a flat tax have won little respect in policy circles and even less among voters (witness Steve Forbes's two failed presidential bids).

Overseas, however, it is a different story. In August, it was reported that Greece was weighing the introduction of a 25 percent flat tax, joining a growing list of European countries that either have adopted the flat tax or are giving the idea strong consideration. The flat tax has proved especially popular in former Soviet bloc countries. Estonia was the first to implement one, establishing a 26 percent flat rate in 1994. Since then, Latvia, Lithuania, Ukraine, Slovakia, Romania and Georgia have all flattened their tax rates. Russia itself went to a single bracket in 2001, and Bulgaria, Croatia and Hungary are expected to follow suit in the near future.

All this has left American flat-taxers exultant. "The world is flat," crowed The Wall Street Journal in a recent editorial. The fact that an idea rooted in conservative ideology has gained its strongest following in formerly Communist Eastern Europe only adds to their sense of vindication. As they see it, the flat tax is winning converts because it is easy to administer, helps reduce tax evasion (especially if the tax rate is set relatively low) and stimulates economic activity. They point, for instance, to the impressive growth and the rise in tax revenues that Russia has enjoyed since introducing its flat tax.

But William Gale of the Brookings Institution says it is far from clear that the flat tax has been a miracle cure for the nations that have embraced it. He notes that Russia was already enjoying robust growth before it implemented a flat tax. As to the idea that Americans should give the flat tax another look in light of its popularity abroad, Gale is politely dismissive. In his view, most of the countries that have gone to a flat tax have done so not because they think it is fairer and more conducive to growth but because they have weak bureaucracies and rampant noncompliance and see the single-bracket approach as the only viable option under the circumstances. "These are acts of desperation," Gale says.



http://www.nytimes.com/2005/12/11/magazine/11ideas_section4-17.html

[Deja Q]

1. how about flat prices for goods too? And one reality detail re: flat tax:

Make it equal in all respects or fuck it all.

Why should US citizens pay shitloads of money for drugs, made in Mexico and other countries, though countries in the rest of the world pay much less for the exact same product?


One other note:

Person :A: makes $30,000/yr

Person :B: makes $300,000/yr

Let's assume that delicious flat tax is 15%. Seems benign for all, surely?

15% of $30,000 is $4500.

15% of $300,000 is $45,000.

Given today's prices, every penny counts. Especially if you've got children or even yourself to feed. That 15% doesn't seem so benign anymore, does it?

So who is going to need that extra income more? Person :A: or person :B: ?

Food for thought the next time the snake oil salesmen peddle the ludicrous idea at your front doorstep. Tell them where to put it.

[wakeme2008]

2. And the rich wil NOT allow a flat tax on "capitol gains"..

because they aready have a lower tax on that.

[oblivious]

4. Your example is misleading, isn't it?

I live under a flat tax regime and the poor pay no tax. Of 3.4 million employed people in the city, only one million pay salary tax.

The basic exemption for a family of 4 is about US$36,000. So if the family income is 36,000 or less they pay no income tax at all, and we have no sales tax. They may pay property tax, though half the population lives in government subsidised housing, so they probably don't.

After the basic exemption, they pay 2% on the next $4500, 7% on the next 4500, 12% on the next 4500 and 17% on the remainder.

The main tax burden, therefore, is on the middle class.

Edit: Here is the tax table. The city is Hong Kong. By the way, we have free education to upper secondary and heavily subsidised after that. And almost free hospital care if we want it, though that may not last much longer. We pay nothing for defense.

http://www.ird.gov.hk/eng/pdf/pam61e.pdf

[Warpy]

5. And that tax aint flat, either

The problem in the US is that we've already had great experience with a "flatter, fairer tax, so simple you can send it in on a postcard." That was Reagan's tax reform, overwhelmingly passed by a Congress full of rich men who had been hurt by a graduated tax tied to fixed dollar amounts in a time of double digit inflation.

The hugely complicated tax system is what we got from Reagan's reforms. Any tax system, no matter how "fairer, flatter, simpler" is going to be exactly the same as sweetheart exemptions for big donors are written into the code.

Thanks to Reagan, we not only have a high tax on the poorest set into stone, we also have a back door income tax in the form of OASDI premiums which were raised SIX TIMES to compensate for the treasury shortfall his "flatter, fairer, simpler" tax caused by cutting taxes on the richest. 40% of those premiums are now robbed to supplement inadequate income tax revenues.

Personally, I think we need to give our rich people that flat tax they claim to want. Remove the laughably low cap on earnings for OASDI, then have that tax apply to ALL income, not just wages. Keep it in place until social security is completely solvent and the debt is paid down. And listen to the rich scream.

[oblivious]

7. That's true; it's only a flat tax over say, $100,000.

for a single person with no dependents. Below that there's four tax brackets. And there is also a system of exemptions and deductions. Less than 10% of the population pay the standard rate of 16%.

I'm not quite sure why it's so often held up as an example of a successful flat tax system. But I suppose all flat tax systems have personal and dependent allowances.

[Solo_in_MD]

3. Starting around Turkey Day thru the Ides of March

I feel a lot of sympathy for the Flat/Fair Tax movement. There simply has to be a better way to fairly generate revenue than the US tax code, though I am not sure what it would be

[China_cat]

6. Other countries that have a flat tax

also have universal health care and lots of other social programs for the poor, disabled, etc. If that were going to be the case here, it might be a decent idea but we know it won't be. The flat tax will burden the poor, partly by requiring those on the very bottom of the income scale who do not owe taxes now to start paying. Even if the flat tax were only 10%, losing $10 out of every $100 for someone who's only bringing that much home every week is going to hurt.

Let's hear them tell the OTHER side of the story for a change...what that flat tax pays for. It sure as hell isn't taking over other countries and encouraging corporate greed.

[filthyrichkleptocrat]

8. Apparently, flat taxes are great govt. revenue boosters.

From Bloomberg:

Let's take a tour of flat-tax-land. Start in tiny Estonia, which has a flat rate of tax of 26 percent for individuals. And how have government tax receipts been holding up?

According to the Bank of Estonia, government revenue for 2003 was 48 billion kroons ($4.06 billion). That compares with 42 billion kroons in 2002, and 36 billion kroons in 2001. In other words, revenue has risen steadily.

Next, head south to Slovakia. At the end of last year, the country introduced a flat tax of 19 percent for individuals and companies. The system came into effect at the start of this year.

Slovak Revenue

And how's it working out? Well, this month the government of Slovakia said tax revenue will probably exceed its forecasts for the year by 700 million koruna ($23.6 million). As a result of that, it said the budget deficit would be smaller than originally forecast.

Again, the flat tax seems to be producing higher revenue.

Now, head east to Russia.

Russian President Vladimir Putin may be an inconsistent supporter of free markets, as shown by his support for Ukraine Prime Minister Viktor Yanukovych in that country's disputed Nov. 21 presidential election. Yet in 2001, Putin introduced a flat tax of 13 percent.

So how is Russia's tax revenue doing?

Pretty well. After adjusting for inflation, personal income tax revenue increased 25.2 percent in 2001, 24.6 percent in 2002, 15.2 percent in 2003, and is predicted to total more than 16 percent in 2004,

In Germany, a panel of economic experts set up by the Finance Ministry this year put forward a plan for a flat tax.
In Spain, Miguel Sebastian, economic adviser to the ruling Socialist Party, has advocated a flat tax.

[China_cat]

9. But they still aren't showing what is going out and where it goes.

If anyone thinks any of a flat tax will get spent on the people who have to pay it in THIS country, they're fooling themselves badly.

[filthyrichkleptocrat]

10. In the USA?

About 60% of federal revenue is transfered to seniors through social security and medicare.
The other 40% pays for federal agencies, interest on the debt, and corruption.

[China_cat]

11. Source please?

[filthyrichkleptocrat]

12. WAG

Wild Ass Guess.

But I have faith it's at least as accurate as the GAO General Accounting Office's WAG.

[China_cat]

13. It's just that SS

is computed differently and collected separately from the general tax revenue. So saying that money from that general revenue is going to seniors is seriously misleading.

[filthyrichkleptocrat]

14. How about a nice pie chart?

http://www.nationalpriorities.org/index.php?option=com_content&task=view&id=37&Itemid=110

[antigone382]

16. See my post.

Your pie chart is deceptive. Social Security does not come from federal revenues, so it should not be included in any chart that documents federal spending. Most money collected from taxes goes to the military.

[antigone382]

15. Bullshit.

The vast majority of federal revenue goes to the military. Here's a nice little pie chart for you





If you have found differing official numbers, here's an explanation of the official government pie chart (below) and why it is deceptive:

"The Government Deception

The pie chart below is the government view of the budget. This is a distortion of how our income tax dollars are spent because it includes Trust Funds (e.g., Social Security), and the expenses of past military spending are not distinguished from nonmilitary spending. For a more accurate representation of how your Federal income tax dollar is really spent, see the large chart (above)."




You can read an explanation of these charts here:

http://www.warresisters.org/piechart.htm

Here's another chart that shows the President's Fiscal Year 2005 budget:



You can read an explanation of it here:

http://www.sensiblepriorities.org/budget_analysis.htm

All "righty?"

[Clara T]

17. And that's only including

the "on the books" stuff.

http://www.informationclearinghouse.info/article11495.htm

http://www.ajweberman.com/nodules/nodule0.htm

[Lydia Leftcoast]

19. You obviously misunderstand the federal budget

Social security and medicare aren't funded by income taxes; they're funded by payroll taxes.

The interest on the national debt (run up first by Reagan's spending spree and more recently by Bush's spending spree) gets the largest share of general revenues (i.e. income tax revenues), followed by the Pentagon (the biggest beneficiary of both Reagan's and Bush's spending sprees). Everything else--everything else, including national parks, the postal service, education, highways, "welfare," foreign aid--everything else--is only about 15% of general revenues.

[Lydia Leftcoast]

18. As the poster above said, it's producing higher revenue because it's

harder to cheat on.

I wonder if those flat tax countries are taxing capital gains and corporations at 26%, too. If they are, then it's a real flat tax.

If not, it's "soak the poor and middle class and leave the investor class and the corporations alone" time.