March 8, 2005

FAMOUS LAST WORDS--"WESTERN EUROPE FEELS DIFFERENTLY":

Flat-tax movement stirs Europe: In the past year, three more nations have adopted flat rates. (Andreas Tzortzis, 3/08/05, The Christian Science Monitor)

Last January, Slovakia became the sixth Eastern European country to adopt a flat tax, which means all income-earners pay the same rate. Since then, Romania and Georgia have followed suit, creating a global proving ground for the concept. In the process, flat-taxers have moved Eastern Europe from a Communist backwater to an investment spring - pressuring its higher-taxed Western neighbors to adapt to the new environment.

US conservatives, meanwhile, hope the experience of flat-tax countries like Slovakia - which the World Bank named top economic reformer last year - will persuade President Bush to implement a flat-tax of his own.

Mr. Bush praised Slovakia's tax-reform efforts during a trip there last month. "I really congratulate ... your government for making wise decisions," he said.

Western Europe feels differently. To support large governments and sizable welfare payouts, many Western European countries impose a triple-tiered tax regime of Value-Added Taxes (VAT), akin to a sales tax, high taxes on corporate revenue, and personal tax rates that can exceed 50 percent. Eastern Europe's cheaper labor market and growing reliance on flat taxes leave Western European economies struggling to compete. [...]

With such heavy budget obligations, countries such as France and Germany reject flat taxes because they wouldn't be able to afford a cut in their tax revenues, says Wolfgang Wiegard, chairman of the German Council of Economic Experts.

Last summer, Mr. Wiegard's council, dubbed the "wise ones" in Germany, recommended that the government introduce a flat tax of 30 percent to replace the country's average rate of 38 percent. Such a system would make Germany "internationally competitive," he said.

The government ignored the advice, preferring Wiegard's alternate recommendation of a system that would tax capital income and labor income differently.


Sometimes they do such a good job caricaturing themselves we don't even need to make fun of them.

Posted by Orrin Judd at March 8, 2005 10:42 AM
Comments

"reject flat taxes because they wouldn't be able to afford a cut in their tax revenues"

Isn't this a little bit like refusing to bye food because cuts too much into the cable & Nintendo budget? What do they think is going to happen when their people realize that VAT + income tax comes to 100%?

Posted by: fred at March 8, 2005 12:27 PM
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