September 30, 2011

ONE RATE, BUT PLACE IT ON CONSUMPTION, NOT INCOME:

Flat Is the New Fair: Is President Obama paving the way for GOP tax reform? (STEPHEN MOORE, 9/30/11, WSJ)

'Suddenly, liberal Democrats are making the same argument about the tax code that I've been making for 20 years," laughs former Republican House Majority Leader Dick Armey. "Welcome to the party." Mr. Armey, who along with Steve Forbes has been the torch bearer for the flat tax since the early 1990s, believes that the latest applause line from President Obama that "billionaires should pay the same tax rate as janitors" may be the political gateway to sweeping tax reform.

Mr. Forbes sees an opening here too and says: "The flat tax is the perfect issue for these times. It fixes the economy and doesn't cost a dime." He's right. It's the teed-up GOP response to a jobless recovery and the near-universal sentiment among voters that the tax code is corrupt beyond repair.

MORE:
The Rise Of The Flat Tax Gives Us Morning In Albania (Nathan Lewis, 9/29/11, Forbes)

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.


Posted by at September 30, 2011 7:16 AM
  

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