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Europe And The Flat Tax

TaxProf Blog links to a WSJ column (subscrip req.) that points out 9 out of the 11 European countries who’ve recently moved to a flat tax are seeing a GDP growth greater than the worldwide average. Here are the countries (bolded fell below the GDP average): Estonia, Georgia, Greece, Hong Kong, Latvia, Lithuania, Romania, Russia, Serbia, Slovakia, & Ukraine.

My first response to this is that while a flat tax is intriguing, most of the countries listed here are former Eastern bloc countries. It seems to me that Communism created a pretty even standard of living across the board, so a flat tax makes a lot of sense for a country where most of the people are on a even keel. Does that mean it would work here?

My second response to this is “More data please!”

My third response to this is “More Ovaltine please!”

(HT: Andrew Sullivan)

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  • william

    LOL on the Ovaltine.

    I think your point about the eastern bloc economies benefiting from a flat tax are valid. I assume this is a flat tax on INCOME. Ex: 20% of your income to federal taxes.

    As opposed to a flat tax of 20% on consumption, which would be ideal in the US but almost categorically unenforceable.

    Some say a flat tax on income in the US would be unfair to the poor and a break for the rich. The rich can funnel money more easily into tax advantage funds, while the poor would have 100% of their income subject to tax because they don’t have that luxury.

    To that I say: besides being simpler, how’s that different from now?

  • http://www.kozoru.com Justin Gardner

    Well, if they do a flat tax, all of those tax advantage funds go out the window. The law is “You pay 20% of your income to the federal government.” period.

    Problems? The poor gets shafted because of an elevated tax, Social Security seems to still be underfunded and the incentive to give to private charities is eliminated, which again shafts the poor.

    I don’t know how to solve the tax problem, but I don’t think it’s the flat tax. Too many unanswered questions, and this European example is far from convincing.

  • http://www.iris.org.il/blog/ Barak Moore

    Unfortunately, the numbers you link to appear to be inaccurate. Fortunately, they are highly understated. The actual numbers can be found here:

    http://www.iris.org.il/blog/archives/422-IRIS-Exclusive-All-Flat-Tax-Countries-Experiencing-Explosive-Growth-Rates.html

    2004 GDP growth rates there averaged a staggering 8%, well over twice the industrialized nations’ average of 3.4%. Of course these flat-tax rates vary widely, from 12-33%. Among the six lowest-taxed countries, growth rates are the highest: 8.6%. The lowest-taxed three have 9.5% growth.

    The TaxProf link has the additional problem of including growth results from Greece, which has not yet adopted the flat-tax. Andrew Sullivan has already updated his link (http://www.andrewsullivan.com/index.php?dish_inc=archives/2005_10_09_dish_archive.html#112897203904640342).

  • http://www.mightymiddle.com michael reynolds

    European countries? Did they move Hong Kong?

    Growth rates are always a dubious stat. If you have a buck and find a quarter your growth rate is 25%. If you have a billion bucks and find a million you’re practically in a recession.

    Almost all of the world’s most successful economies have progressive taxation. That may change somewhere down the road once Latvia and Slovakia displace the U.K. and Germany, but so far progressive taxation does not seem to be a particular cause of economic despair. I’d still rather be in France than Romania.

  • http://www.iris.org.il/blog/ Barak Moore

    I received a great deal of skepticism from the blogosphere about my post. I tested one of the arguments against the data and it was indeed compelling. I therefore withdraw my original claims because they are based on inconclusive data.

    The entire post is here:

    http://iris.org.il/blog/archives/422-IRIS-Exclusive-All-Flat-Tax-Countries-Experiencing-Explosive-Growth-Rates.html

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