Flat Tax

[Bruce Monkhouse]

BACK ON TOPIC FOLKS.

 

[Bruce Monkhouse]

..and actually I do care about the poor, thats why I like the flat tax.

Right now if someone wants to work two jobs to try and get ahead he/she is taxed like one of your "rich people" because of it..................is working 80 hours a week "rich"?

Under the flat tax there is encentive for someone to work extra as it will not bite them come tax time.

 

[aesop081]

I wasn't asking you

I dont give a rat's rear end if you were asking me or not.

I work very hard and for very long hours for my money. I dont like being burdened by a complicated tax system that says "becuase you make more than tho other guy you will pay more taxes". Even under a flat tax system i will still pay more than the "poor" but it would be proportional, which is immensly more fair than the system we have now.

At 19 years old, i too thought i had it all figured out. One day you will see your paycheck disapear in taxes every month.........

 

[RangerRay]

Its hard to take you seriously when your response is "oh, your just envious of the rich or hate them".

Hey, just going by what you posted, and you haven't posted anything to convince me otherwise.

 

[Reccesoldier]

Theres no need to act condenscending and smug, and using all the right wing jargon stereotypes to characterize your opponenents. You can also expect a response with sake to the flat tax tomorrow

I'm not acting. 

Nice doesn't get peoples attention most of the time.  The ideal you espoused leads directly to the failed experiment that is communism.  Was I supposed to let you continue to spout that crap like some Che hat wearing liberal Arts student just because your ideas were poorly formed and you couldn't possibly have meant what you said?

I look forward to your response to the flat tax.  Please try to consider the real meaning and implications of the words fair and equitable.  The meanings are fairly straightforward, but their implications are much more broad.

 

[a_majoor]

The best way to examine the "left wing jargon" arguments against the flat tax might be to start here.

Since New Brunswick seems set to move to a flat tax, it will be interesting to see how the experiment works out and compare the results to non flat tax provinces in the Maritimes. (Special attention needs to be paid to what sorts of exceptions/exemptions are introduced to the tax system, as these distortions will affect the general case).

Prediction: even with a less than ideal flat tax, New Brunswick will experience significant economic growth and rapidly outpace its competitors in the Maritimes and Atlantic region. This includes Newfoundland and Labrador, which will attempt to build its growth on resource extraction, and the US Eastern seaboard's "Boston States", which are generally "Blue" states with high taxes and regulatory structures. (An Obama administration with even higher Federal taxes wil certainly not help).

 

[Proud_Newfoundlander]

Argument against Flat Tax


Fairness and Equality

To proponents it is said since everyone has to pay the same , that is equal, and therefore fair. But is it ?
For example, is it fair that someone making  $12 million a year to give 10% of their income, and for someone making $32 Thousand to give the same proportion ? Well, no, it isn't. This 10% to the rich individual is less meaningful than it is to the person making less income. Seeing the strain of taxes these days, and other costs associated with kids and their schooling, mortgage, etc, this 10% tax is rather significant to him.. Now, the reason i want the progressive tax here is that the person of riches has to give what is significant to him, as does  the lower middle class individual. Now, to the individual, the definition of "fair" varies. To me, someone making  12 million and having to give up 10%, while a middle class family with various essential expenses giving up the same isnt fair at all. The rich person still has oddles of money, probably cant find enough things to spend it on. This is hardly picking on the rich and taking all his money, because theres probably a good chance a rather sizeable minority, even majority that this rich person barely works, or at all. Lets reverse that, should a hard working middle class individual pay the same amount proportionally as the rich, despite the giant gap between incomes ? One says it is picking on the rich, but the same tax is picking on the middle class  of sorts, as the tax takes away a rather significant amount of the middle class persons, while, again, the rich is barely effected.  Therefore, the amount of tax should be proportioned to what i make.

[Practicality/u]

To start, the flat tax isn't border adjustable. So, all the taxs and codes you have on a product domestically do not get removed when you ship overseas. This in turn makes it difficult to compete ona  foreign market. The United states, for example, is at a 15-20% disadvantage.

In addition to this, the flat tax denies flexability. Say, for example you needed to raise taxes. You would have to increase the flat rate, taking up an even harder amount of the middle class income, while the rich remain rather unphased, putting the burden of government services on the middle class. Also, say that other countries became more competitive and you needed to attract more people of alluence for the country, you would then need to lower your taxes as an incentive, with a flat tax it will be evenly cut throughout. This can severly weaken government revenue, and in turn public servives (but I assume most people arguing in favour here want services strongly curtailed anyways, from what Ive seen). What if a country also has items of value ? Allthough I'm in favour of more decentralization, I think the government should have some significant central control for various reasons. It allows flexability to adapt to coming issues, and the government can use tax cuts to, say, stimulate growth in green energy, or use tax deducations to stimulate the arts industry, so on, so forth. Plus, if you guys wanted to suddenly change the tax code from progressive to flat it would be awfully ahrd to balance the budget, wouldnt it ? You would have to increase the flat tax, leading to bad economic effects.

Not to mention the loopholes with regards to a consumption flat tax

 

[RangerRay]

This is hardly picking on the rich and taking all his money, because theres probably a good chance a rather sizeable minority, even majority that this rich person barely works, or at all.

That's a huge generalisation that "a rather sizeable minority, even majority that this rich person barely works, or at all".  I hope you have some evidence of this.

Are you also suggesting that government determine who works harder for their money and tax accordingly?  Why should it matter if someone who make $300,000/annum lounging at the pool be treated different than someone making the same amount working 80 hour weeks?  In either case, they acquired their property legally.

Still sounds like the politics of envy to me.

 

[Bruce Monkhouse]

Ok, I was wrong ....you're right.......we should tax the poop of the guy making 12 million so that he takes his company to Mexico and  can make 24 million and all those middle class people he employs can now pa.... wait, whats the tax on a pogie cheque again?

Oh boy.....

 

[GAP]

If I am smart enough/lucky enough/ambitious enough/work enough long hours/etc to earn $XXXX.XX why should I have to pay more tax percentage wise, than the guy/gal earning $35,000.00.

It's my money, I earned it, I should not be penalized for all of the above reasons...

 

[GunfighterSB]

Argument against Flat Tax


Fairness and Equality

To proponents it is said since everyone has to pay the same , that is equal, and therefore fair. But is it ?
For example, is it fair that someone making  $12 million a year to give 10% of their income, and for someone making $32 Thousand to give the same proportion ? Well, no, it isn't. This 10% to the rich individual is less meaningful than it is to the person making less income. Seeing the strain of taxes these days, and other costs associated with kids and their schooling, mortgage, etc, this 10% tax is rather significant to him.. Now, the reason i want the progressive tax here is that the person of riches has to give what is significant to him, as does  the lower middle class individual. Now, to the individual, the definition of "fair" varies. To me, someone making  12 million and having to give up 10%, while a middle class family with various essential expenses giving up the same isnt fair at all. The rich person still has oddles of money, probably cant find enough things to spend it on. This is hardly picking on the rich and taking all his money, because theres probably a good chance a rather sizeable minority, even majority that this rich person barely works, or at all. Lets reverse that, should a hard working middle class individual pay the same amount proportionally as the rich, despite the giant gap between incomes ? Therefore, the amount of tax should be proportioned to what i make.

I have known several millionaires, most of whom have worked harder, smarter and longer than alot of people making 32K. (The ones that don't work harder and smarter anymore are the ones who hired the others who worked harder and smarter). Using your logic and values "To me, someone making  12 million and having to give up 10%, while a middle class family with various essential expenses giving up the same isnt fair at all", that 10% to the rich individual is even more precious since that Rich Individual has allocated a battery of assets (lawyers, accountants, charities - alot of whom hire the persons making 32K) to preserve and promote as much of his/her wealth as possible while still paying for "various essential expenses". So we should have a Progressive Tax Scheme for the benefit of the RICH!!

[Practicality/u]

To start, the flat tax isn't border adjustable. So, all the taxs and codes you have on a product domestically do not get removed when you ship overseas. This in turn makes it difficult to compete ona  foreign market. The United states, for example, is at a 15-20% disadvantage.

In addition to this, the flat tax denies flexability. Say, for example you needed to raise taxes. You would have to increase the flat rate, taking up an even harder amount of the middle class income, while the rich remain rather unphased, putting the burden of government services on the middle class. Also, say that other countries became more competitive and you needed to attract more people of alluence for the country, you would then need to lower your taxes as an incentive, with a flat tax it will be evenly cut throughout. This can severly weaken government revenue, and in turn public servives (but I assume most people arguing in favour here want services strongly curtailed anyways, from what Ive seen). What if a country also has items of value ? Allthough I'm in favour of more decentralization, I think the government should have some significant central control for various reasons. It allows flexability to adapt to coming issues, and the government can use tax cuts to, say, stimulate growth in green energy, or use tax deducations to stimulate the arts industry, so on, so forth. Plus, if you guys wanted to suddenly change the tax code from progressive to flat it would be awfully ahrd to balance the budget, wouldnt it ? You would have to increase the flat tax, leading to bad economic effects.

Not to mention the loopholes with regards to a consumption flat tax

Are you talking about Income Tax or Consumption Tax.

If its income tax, then I do prefer a Flat Tax Rate. Its easier to program my excel spread sheet to allocate the tax. I do not have to hire an accountant. (unless that accountant can devise legal ways to include deductions that I have overlooked). I am already paying more than my share in proportional taxes and gross tax amount. I would like to make $12 million and still pay as much as the guy making $32K. (I'll also pay for my own health care just to be more than fair!!)

If it is flexibility for capricious politicians, never under estimate Human Ingenuity. They will find "User Fees", "Temporary Measures", "Emergency Funding Allocations" and all other synonyms of TAXES.

By the way, we should encourage people to get RICH!

 

[a_majoor]

Since the notion of "fair" is pretty situational, that should never be part of the equation. A Flat tax with no exemptions that taxes everyone equally is "just", and hence the best possible solution.

Real Flat Tax/Single Tax schemes always have high cut off limits, so low income individuals do not get taxed at all, and most allow/provide for exemptions like RRSP's or their foreign equivalents, so there will still be wriggle room for both politicians to curry favour and the clever and industrious to shelter more of their income than the lazy and stupid. frankly, that is about as much as we should expect, and since it is still closer to a "just" tax than any other proposal, I will go with it.

Just as a BTW, I suggest Proud_Newfoundlander do a little research on what proportion of total tax revenues is collected from each income group, and especially look for changes over time (particularly after major changes to the tax rate. In the United States look at the Administrations of Calvin Coolidge, John F Kennedy and Ronald Reagan). You will be very surprised at what you find....

 

[Reccesoldier]

P_N your argument is based on emotion, your assertion that 10% of a wealthy man's income is worth less to him than 10% of a poor mans, or any other mans is nothing more than a feeling. 

In your scenario the poor guy making $32,000/year would pay $3,200.  That is what, three mortgage payments? 1/3 of a years tuition for a child in university?

The filthy rich making $12,000,000 pays $1,200,000. That's not a couple of mortgage payments it's a house, or two or three. It's not 1/3 of a years education for his kids it's the entire University debt (at an easy $60,000 for a 4 year program) for 20 University students. Or more importantly it's enough to employ 37 other guys earning $35,000 a year, or even better yet it could be used to start up a new business venture that ends up employing thousands of $35,000/year people.

You blithely skip over inconvenient facts and inject your arbitrary assumptions and feelings of what is and is not of value to others.  This is the reek of socialism that I talked about earlier.  The arrogance that since you feel that it is unfair for the millionaire to make so much more money than Mr. Bluecollar, that the rich man's wealth, (however earned) somehow belongs to you and others who did not lift a single greasy finger to earn some of it for yourself is disgusting.

P_N, how about this... 

The next time you are on a career course in the Military and achieve an outstanding mark (98%) on a PO check that the military gives any percentage of your mark over, say 70% to the guy sitting beside you that failed. 

That would be fair wouldn't it? 

I mean there is no reason for you to be sitting there with an embarrassingly high mark of 98% and him to fail off a career course (think of the implications on his future employment!!!) with a 55%.

Surely those marks would be worth much, much more to him than you.  I mean you've already passed so why be greedy?  Oh, don't worry, we know that you worked really hard for those marks and that the other guy spent his nights out at the local bar getting wasted but he needs the marks and you don't.

Or is it the case that you don't really have to work hard at it at all, and it just comes naturally to you?  If that's the case then you will miss those marks even less, because it's just natural ability and therefore not really anything you have anything to do with at all!

Either way the CF will do it because it's only fair that Mr. RTU passes because you earned such a high score and are compelled to give him your easy marks.

Isn't socialist fairness and equality grand!

EDIT to add...

By the way, you will not receive any recognition for your outstanding marks, as a matter of fact you will be belittled and derided for your achievements. 

 

[GAP]

Isn't socialist fairness and equality grand!

Only if it doesn't effect you.....

 

[Brad Sallows]

>Uhh, there are hundreds if not thousands of people supporting progressive taxation that have university degrees in Economics, including Warren  Buffet

Hundreds if not thousands of people with university degrees in all sorts of things - some at advanced levels - believe that 9/11 was an inside job.  What's your point?  Understanding how something works is not necessarily a barrier to emotionally driven responses to questions.

The objection to flat tax, phrased in the first person, is very simple: there are a lot of things I want provided to me, and someone else needs to pay because my requirements exceed my resources.

 

[a_majoor]

Another reason for a flat tax:

Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It
by Chris Edwards and Daniel J. Mitchell (Author)

http://www.amazon.com/gp/product/1933995181?ie=UTF8&tag=wwwviolentkicom&linkCode=as2&camp=1789&creative=9325&creativeASIN=1933995181

Editorial Reviews

In the world's increasingly integrated economy, competition between governments to attract investment and skilled workers is heating up quickly. Increasingly, nations are waging this battle by overhauling their tax codes to create a more attractive business environment-a process known as tax competition. The United States used to be the best place in the world to do business, but today its income tax is a huge drag on economic growth. America needs to change course and learn from the best tax reforms abroad, such as the flat taxes that have been enacted in more than 20 countries. Policymakers also need to defend against international efforts to squelch tax competition when nations try to form cartels, which damage global prosperity and reduce incomes.

 

[a_majoor]

From a much larger article in Forbes (worth reading in its entirety):

http://www.forbes.com/home/forbes/2008/1110/018.html

Cutting tax rates is also a necessity. Political cultures have a hard time understanding that taxes don't just raise revenue, they are also a price and a burden. The tax you pay on income is the price you pay for working, just as the tax on capital gains is the price you pay for taking risks that work out and the tax on profits is the price you pay for success. If you make it more worthwhile for people to work productively and take risks, they will do so. Rebates are useless--they don't change incentives the way lower tax rates do. Ideally, we should enact a simple flat tax. Twenty-five countries have adopted some form of a flat tax, all successfully.

 

[a_majoor]

Flat tax returns to Ontario politics:

http://freedomnation.blogspot.com/2009/05/elliott-flat-tax.html

The Elliott Flat Tax

Christine Elliott announced today the ‘Elliott Flat Tax.’ The plan is basically to increase the personal amount to 18 000 then collapse the three tax brackets into a single bracket. This would massively simplify the tax system and ensure that the poorest income earners are not burdened by taxes. This is in contrast to another candidate that seeks to complicate the tax code with rebates. Any fiscal conservative worth their salt knows that a simple tax system is ‘simply better.’

Christine Elliott has touched on the perfect way for Ontario to reclaim its spot as the economic engine of Canada: “The most important feature of a flat tax is the positive impact on productivity, employment, income, living standard, and the economy in general,” said Elliott. “This has been achieved wherever flat taxes have been introduced.”

You can’t even call this a crazy right wing policy. It has been done in both New Brunswick, Alberta, and several states in the US. It is a policy promoted by the respected and often moderate Fraser Institute. This is a great policy and I sincerely hope that whoever wins will adopt it as a key election promise.

 

[a_majoor]

Flat tax for Ontario? Soon please:

http://network.nationalpost.com/np/blogs/fullcomment/archive/2009/05/12/kevin-libin-ontario-can-overcome-its-flat-tax-phobia.aspx

Kevin Libin: Ontario can overcome its flat-tax-phobia
Posted: May 12, 2009, 7:30 AM by Kevin Libin
Kevin Libin, Conservatives, alberta, taxes, ontario, flat tax, christine elliott

There’s evidently something about a flat tax that breeds suspicion. To Canadians used to generations of soak-the-rich progressive taxation, that any government would propose such an easy to understand, bargain of a tax system, consciously abandoning the easy targeting of a minority of easily squeezed high-income earners, strikes us as impossible to comprehend. Like a politician cutting their own pay, this does too much to favour the taxpayer and offers no win for our self-interested politicians. Clearly it must be a thing of fantasy. When Christine Elliott, in her campaign to win the Ontario Progressive Conservative nomination, endorsed last week a flat tax for her province, Ontarians were mystified. Economic professor James Davies admitted he was floored, saying the idea “takes my breath away, a little bit, because I never thought it was a serious possibility.” He wasn’t saying it should be.

Being in Alberta, where we’ve had a provincial flat-tax for eight years now, I’ve received notes from incredulous Ontarians wondering what duplicitous tricks taxpayers can expect Ms. Elliott has up her sleeve: what she will someday come to take from them in this Faustian arrangement. Surely all tax deductions will come off the table. Surely some people, lured by the elegant simplicity of the flat tax, will discover only too late that they are actually paying more than they used to. Perhaps the treasury will be ruined. The whole thing sounding far too good to be true, they presume it must be.

Based on Alberta’s experience, it isn’t.

When Alberta introduced its flat tax in 2001, it came with no strings attached: 10% taxes for everyone, yet—despite the theory that flat tax should lead to an exceedingly simplified system (flat-taxers dream of postcard-sized tax returns, with just a few lines, completed in minutes)—no deductions were closed. The province continues to roll out tax credits as ways of encouraging you to do things they want you to do (among the latest additions: tax credits for health club memberships). Low income earners benefited more than anyone when the province, concurrently, raised the basic personal tax exemption from 8% to 13%, so the system retained its so-called “progressivity” (in that lower earners still pay a far smaller portion of their income in taxes than high income earners). I’m sure if you asked folks at Canadian Centre for Policy Alternatives they would probably argue that that’s not nearly progressive enough for their tastes. Then again, probably few modern tax systems are.

In 2001, Alberta was in a unique position to experiment with flat tax: those were back in the days when the province was actually making more money than it spent. Premier Ralph Klein could afford to take a short-term hit on income tax revenues, and he did: in 2000, the province collected $5.1 billion in personal income tax; the next year, after the new flat tax system began, that fell to $4.2 billion. It took spine to stick with it. By 2006, however, Alberta’s treasury was making more in income tax than it ever had, collecting close to $6 billion. Last year, income tax collected amounted to more than $8 billion. Yes, Albertans were richer last year than they were in 2001, thanks to the boom, and there were a few hundred thousand more taxpayers living here than at the turn of the century (though certainly one reason for that was our appealing tax policy); it’s nearly impossible to know how much of the additional revenues can be directly attributed to the flat tax. But for the personal income tax take to nearly double in seven years, with no increase in the rate, the province’s tax system has to be doing something right.

Other jurisdictions would seem to think so. Worldwide, there are more than 20 countries now that have flattened their tax systems (tax leveling is especially popular among former Eastern bloc countries—Lithuania, Czech Republic, Estonia, Latvia, etc.—which, at their independence, lacked the entrenched rent-seekers that generally resist radical tax reform for the damage it will do to their deduction-favoured sectors). In Canada, New Brunswick is on its way to flattening its four-bracket tax system to just two levels. If Ms. Elliott gets her way, Ontario’s flat tax will be an even better deal than Alberta’s, with an $18,000 personal exemption rate and an astonishingly low 8% tax rate for all income after that.

But the would-be PC leader may be having trouble making a properly convincing case for it, nonetheless. She’s honest enough to admit that the policy would probably cost Ontario $6 billion in the short term (as happened in Alberta). But she cannot reasonably say how much benefit might come in the long term. The “dynamic impacts” as the Fraser Institute’s Niels Veldhuis calls them—the added money that businesses would invest in a flat-tax Ontario, or the extra hours workers will put in, once their earnings are relieved of the diminishing returns imposed by the more-progressive multi-bracket system, are impossible to know. All she can say, and it is well worth saying, is that the flat tax has had success elsewhere and there is no reason to believe Ontario’s experience would be any different. Trying a new, fairly radical approach to taxation takes guts. But as Ms. Elliott told the National Post the other day: “We need to do something significant," to boost Ontario’s economy. "Incremental change is not going to be enough . . . We need to be competitive with other jurisdictions ... and this is the way we need to go to turn Ontario around.”

The fact that Ms. Elliott, at the same time has said she’ll scrap said she is against Ontario’s impending Harmonized Sales Tax looks funny, too [Update: a note I received late Tuesday from Ms. Elliott's press secretary clarifies that the candidate hasn't said she'll "scrap" the HST, but she says that it's the "wrong tax at the wrong time" and is "fighting hard to make sure it does not pass"]. Because like the flat tax, HST is seen as a way to increase competitiveness by lifting the burden of complicated tax compliance from corporations while making business investments more tax friendly (also, because her husband, federal finance minister Jim Flaherty, is a big fan of harmonization). It’s hard, though, to blame her: when Atlantic provinces introduced the HST, they offset the extra pain felt by consumers having to suddenly pay extra sales tax on necessities like clothes, houses and food, with a lower overall sales tax (rather than simply combining 7% GST with 9% PST and calling the HST 16%, they lowered the combined tax to 15%), and increased basic exemption levels. It took Dalton McGuinty to take what is a smart move and turn it politically revolting by refusing to either raise exemptions or lower the harmonized rate, leaving consumers to pay higher taxes to ensure a better tax regime for businesses. (Apparently that’s what passes for “Liberalism” in Ontario). With McGuinty having made the HST wildly unpopular in Ontario and synonymous with Liberal tax hikes—a mid-priced new home will cost buyers tens of thousands of dollars more—it’s easy to understand why Ms. Elliott believes her best political option is probably to promise to cancel both the baby of better business taxes with the bathwater, at least for the time being.

But with Ontarians now conditioned to see novel tax efficiencies as raids on their wallet, perhaps it’s understandable they would reflexively suspect something ominous in Ms. Elliott’s promises of turning their province into a flat tax nirvana. But we know Ontarians believe in the wisdom of tax cuts—which can ultimately boost revenue, thanks to Laffer Curve effects—so with sufficiently gentle reassurance, it’s possible someone like Ms. Elliott could coax them to understand how the same logic applies with a flat tax. Ontarians have been so mistreated by innovative new tax ideas (health care premiums, HST, etc.) it’s now wonder why they’d be wary of a flat tax. If only they could learn once again to trust tax reform, they might find Ms. Elliott’s flat-tax idea a  safe haven for their tax-abused souls.

 

[a_majoor]

Thel flat tax has now been in effect in enough nations for a long enough period to make reasoned conclusions. The economic efficiency and the extra revenues raised (without a punishing raise in marginal tax rates) make this a great addition to spending cuts when considering how to fix the debt crisis:

http://www.forbes.com/sites/nathanlewis/2011/09/29/the-rise-of-the-flat-tax-gives-us-morning-in-albania/

The Rise Of The Flat Tax Gives Us Morning In Albania

The study of economics is best done, I would say, without remuneration -- in the tradition of the gentleman economists of the past, such as David Ricardo, Adam Smith and John Stuart Mill. This is the best way to avoid bias and to be able to discuss controversial ideas of the sort that might otherwise diminish one's marketability. I was previously an economist and macro strategist for a firm that served institutional investors. Today, I run a small private investment partnership, which invests globally with a macro theme. My book Gold: the Once and Future Money was released in 2007, and is now available in German, Chinese, Korean and Russian. My opinion pieces have appeared in the Financial Times, Asian Wall Street Journal, Dow Jones Newswires, Worth, Daily Yomiuri, Asia Times, Pravda, Huffington Post, and numerous other print and online publications. I also have a personal website at newworldeconomics.com.

The author is a Forbes contributor. The opinions expressed are those of the writer.

When Robert Ernest Hall and Alvin Rabushka published the book The Flat Tax in 1985, they didn’t have much historical evidence to go on. Only Jersey, Hong Kong and Guernsey had identifiable flat tax systems, plus a few other places like Singapore with similar tax regimes. They were riding on the political wave of Reagan’s tax cuts. It was “Morning in America,” to borrow a phrase from the 1984 presidential election.

Today, the flat tax idea is perhaps even more politically remote, in the United States, than it was in 1985. However, the rest of the world caught on to the idea. Today there are at least forty governments with flat tax type systems, most of which made the switch in just the last decade.

These include: Estonia (1994, 21%), Lithuania (1994,15%), Latvia (1995, 23%), Russia (2001, 13%), Serbia (2003, 12%), Bosnia and Herzegovina (2004, 10%), Slovakia (2004, 19%), Ukraine (2004, 15%), Georgia (2005, 20%), Romania (2005, 16%), Turkmenistan (2005, 10%), Kyrgyztan (2006, 10%), Albania (2007, 10%), Mongolia (2007, 10%), Kazakhstan (2007, 10%), Mauritius (2007, 15%), Tajikistan (2007, 13%), Bulgaria (2008, 10%), Czech Republic (2008, 15%), Belarus (2009, 12%), Seychelles (2010, 15%) and Hungary (2011, 16%).

A number of these countries have been having problems recently, mostly due to unstable money and the generalized effects of the recent global economic difficulties. We could take 2007 as a representative pre-crisis year. How did the flat tax countries do then? For thirteen countries for which information was available from the IMF, the average GDP growth rate was 10.0%, ranging from 6.2% (Slovakia) to 23.1% (Ukraine).
However, even this impressive number hides more dramatic gains. In my opinion, in high-growth areas, the true rate of growth tends to be hidden by inflationary adjustments. Prices rise, but it is not because of the debauchment of the currency, it is because people are getting richer. Rents, restaurants, hotels, medical services, education and so forth all become more expensive. Thus, the nominal GDP figures give perhaps a better impression of the true rate of growth. The average nominal GDP growth among these thirteen flat-tax countries was 21.8% in 2007.

We are not talking about adding a percentage point to growth. We might be adding ten percentage points. The cumulative effects are astounding. Are you getting the idea of why this policy has been so widely imitated?
Another surprising theme has been the amazing stability of tax revenue as a percentage of GDP. Among ten flat-tax countries for which data is available from the IMF, I took the revenue/GDP ratio of the last year of the former tax system and the first year of the flat-tax system. How much did the revenue/GDP ratio change? The average change was … minus 0.10%. Yes, a tenth of a percentage point. Hardly any change at all. Six countries (out of ten) had an increase in the ratio – they actually got more tax revenue, as a percentage of GDP, than with their old tax system. The largest decline was Slovakia, whose revenue/GDP ratio fell to 40.57% from 45.60%. Maybe that was a little high anyway.

However, when you combine the typically high growth in nominal GDP with these stable revenue/GDP ratios, nine out of ten countries experienced an increase in tax revenue in the first year of flat-tax implementation. The average increase in revenue was 17.7% (when excluding outlier Estonia, which had an 81% increase). Even Slovakia, with the biggest decline in revenue/GDP, had a revenue increase of 6.1%. Mongolia, with their 10% flat tax replacing a system with rates up to 40%, experienced a 33% increase in revenue! The only decliner was the Czech Republic, which had a 0.50% reduction in revenue. However, even that could be explained by the fact that the Czech Republic implemented its flat tax in 2008, a year of economic crisis worldwide.

So you see, most of the seemingly-impossible promises of the flat-taxers – higher growth, stable revenue/GDP ratio, rising government revenue – are in fact common and repeatable.

Russia, which implemented its flat tax in 2001, provides one of the best longer-term examples. Between 2000 and 2008, Russia’s GDP (in U.S. dollar terms) grew at an average compounded rate of 26% per annum. The end result was that GDP in 2008 was 546% higher than in 2000.

Russia’s tax revenue/GDP ratio was 31.4% in 2000, and 31.6% in 2008. With this ratio stable, you can see that the Russian government’s tax revenue also grew right alongside the growth in the economy as a whole, increasing to more than six times its 2000 amount in less than a decade.

The funny thing is, between 2000 and 2008, Russia’s population actually declined from 146.7 million to 141.4 million. Blaming economic stagnation on population, as is common regarding Japan today, is a waste of time.
And what about Albania? On January 1, 2008, Albania implemented a 10% flat tax on personal and corporate income, replacing a system with rates from 10-30% on personal income and 20% on corporate income. The result? Tax revenues went up 18.4%, even though 2008 was a crisis year worldwide.