Flat Rate Tax

[Niccolo]

More that 20 years ago Norman Lowell published a letter in a Maltese newspaper where he proposed we adopt a 10% Flat Rate Taxation system. He argued that this would promote economic growth, thus increasing tax revenue.

Nobody took any notice.

In 2001 a country decided to adopt this system, and guess what, it was a huge success, and Mr Lowell has been proven correct on all counts!





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Russia's Flat-Tax Miracle

It’s never fun to admit failure. But Russia’s 13 percent flat tax forces me to confess a certain degree of incompetence. For 10 years, I’ve been working in Washington to replace our convoluted tax code with a simple and fair flat tax. But as every taxpayer can attest, my efforts have not borne fruit.

Yet in Russia, President Vladimir Putin -- the former head of the Soviet KGB -- implemented a flat tax in 2001. Not only a flat tax, but a flat tax with a 13 percent rate, four percentage points lower than the supposedly “radical” plan espoused by Steve Forbes and former House Majority Leader Dick Armey. And it’s been a big success.

Imagine how this makes me feel. I’ve tried to help reform the tax system in the United States, a nation the rest of the world considers the home of unfettered capitalism and free-market principles. Yet every year, our tax code gets bigger and more complicated. In Russia, by contrast, the flat tax has been in place for more than two years now. And this reform took place in a nation still trying to overcome the legacy of more than 70 years of communist dictatorship.

Remember the saying: “To the victors go the spoils”? It must not be true. We won the Cold War, but Russia gets a flat tax while America is stuck with a Byzantine tax system based on class-warfare ideology.

But perhaps our luck will change. The Russian flat tax has been so successful that even American politicians might learn the right lessons. Let’s look at the evidence: Russia’s economy has expanded by about 10 percent since it adopted a flat tax. That may not be spectacular, but it’s better than the United States, and it’s very impressive compared to the anemic growth rates we see elsewhere in Europe.

It also appears, conventional wisdom aside, that a low tax rate doesn’t mean less money for government. Over the last two years, inflation-adjusted income tax revenue in Russia has grown 50 percent. Why? Because people are willing to produce more and pay their taxes when the system is fair and tax rates are low -- exactly what Ronald Reagan predicted when he triggered America’s economic boom with lower tax rates 20 years ago. Ironically, the former communists in Moscow now understand supply-side economics, yet liberals in Congress are still relying on the politics of hate-and-envy.

Interestingly, the flat tax is just one of several positive reforms enacted by President Putin. Russia also has reduced the corporate rate of tax from 35 percent to 24 percent. (U.S.-based companies still pay 35 percent, the second-highest corporate tax among industrialized nations). Small businesses also get better treatment. The old system with high tax rates has been replaced by a new system where companies can choose either a 6 percent tax on gross revenue or a 15 percent tax on profits.

Of course, President Putin can do more. Russia still needs to privatize inefficient state-run industries. It also would be nice if he supported President Bush in the Middle East; after all, Bush has supported Putin’s flat tax. During a state visit in 2001, President Bush said, “I am impressed by the fact that [Putin] has instituted tax reform -- a flat tax. And as he pointed out to me, it is one of the lowest tax rates in Europe. He and I share something in common: We both proudly stand here as tax reformers.”

The success of Russia’s flat tax shouldn’t surprise anyone. Hong Kong has had a flat tax for a long time, and it’s been the world’s fastest-growing economy over some 50 years. Indeed, there are growing signs that China may implement a flat tax in the near future. Talk about a man-bites-dog story! One of the few remaining communist nations may get a flat tax before America. At this rate, the United States may wind up in the same category as France, Cuba and North Korea.

To be fair, President Bush is moving America in the right direction. He already has pushed one tax cut through Congress (though most of it has yet to take effect). Now he is urging lawmakers to end the double taxation of dividends and expand IRAs. All of these policies shift us -- slowly but surely -- in the direction of a flat tax.

It would be nice, however, if we got to a flat tax during my lifetime. And even if we implemented the flat tax because we didn’t want to fall behind the rest of the world, at least I’ll be able to tell myself that my efforts weren’t wasted.

[Source (http://www.heritage.org/Press/Commentary/ed032403.cfm)]

[Niccolo]

Other countries have adopted a Flat Rate Taxation system with good results, but it seems that if the rate is exceptionally low, like Norman Lowell proposed, or like Russia implemented, the success is even greater!



East Europeans opt for flat-rate tax
By Gabriel Partos
BBC South-East Europe analyst

Romania's uniform income tax rate is the flagship economic policy measure of the country's new centrist government.

Set at 16%, its implementation at the beginning of the year follows similar moves in a number of ex-communist countries in the region.

The renaissance of the flat-rate income tax was pioneered by Estonia, which has been in the vanguard of free-market reforms since it regained its independence from the Soviet Union in 1991.

Estonia's introduction of a single rate of income tax in 1994 was quickly followed by its Baltic neighbours, Latvia and Lithuania.

Historic irony
What looked initially like a scheme espoused exclusively by small transition economies moved onto the centre stage of economic policy when Russia's President Vladimir Putin introduced it in 2001, at an exceptionally low rate of 13%.

Since then the flat-rate tax has been adopted in Serbia, Ukraine, Slovakia, Georgia, and now in Romania.

http://newsimg.bbc.co.uk/shared/img/o.gifhttp://newsimg.bbc.co.uk/nol/shared/img/v3/start_quote_rb.gif Because it offers a lower rate of taxation, the flat tax reduces the incentive for tax evasion http://newsimg.bbc.co.uk/nol/shared/img/v3/end_quote_rb.gif
Andrei Grecu, economist

There is a certain irony to the growing popularity of the uniform rate of income tax in countries that were previously run by communist parties.

It was Karl Marx who, in his Communist Manifesto of 1848, was among the first to call for "a heavy progressive or graduated income tax," at a time when across the early industrialising countries the flat rate was the norm.

Subsequently, as capitalist societies became more prosperous, they adopted Marx's demand and introduced higher rates of tax on higher bands of income to finance improved social welfare measures.

Since then it has become the orthodoxy - though one that has been challenged over the past quarter of a century.

Fewer tax dodgers
That challenge began in the US under President Ronald Reagan and in Britain under Prime Minister Margaret Thatcher in the early 1980s. It involved both reducing the number of tax bands and the rates at which tax was being levied.

http://newsimg.bbc.co.uk/media/images/40700000/jpg/_40700949_bratisap203body.jpg
Slovakia adopted radical economic reforms and growth has soared

However, to date no Western country has introduced a flat-rate income tax.

Romanian economist Andrei Grecu, who recently published a paper for the London-based think-tank the Adam Smith Institute, advocates a flat-rate tax for Britain.

"Because it offers a lower rate of taxation, the flat tax reduces the incentive for tax evasion. People are more willing to pay the correct tax burden when the tax is lower," he says.

"In Spain about one-fifth of the economy is the black economy, and they are thinking of implementing the flat tax to bring this part out in the open and tax it."

'Little effect'
Apart from reducing tax evasion, advocates of the flat-rate tax argue that it both encourages the unemployed back into work and those already in employment to work harder.

But research conducted in Russia by the Institute of Fiscal Policy has come up with different findings. One of those involved in that research was German economist Alexander Klemm.

"There was some improvement in tax compliance and absolutely no effect on labour supply or work effort," he says.

"Overall the tax reform was certainly not paying for itself, in the sense that cutting tax rates has not led to higher tax revenues."

In any case, a single tax rate set at a relatively high level - in Estonia it was initially fixed at 26% - may not be enough of an incentive. So its success seems inherently linked to lowering the tax rate.

Radical vision
"The idea of a flat tax is to bring the rate a little bit lower than the highest or even the average rate and to encourage economic activity. If you increase economic activity, it brings more revenue to the government," says Mr Grecu.

The most radical versions of flat-rate taxation see a single rate not just for income tax but also for corporation tax, as is the case in the new system in Romania.

They also want to eliminate what they see as double taxation. In other words, if a company has already paid corporation tax, they believe that those who invested in it should not have to pay tax on their dividends.

But in the West, the flat-rate tax has not made much progress beyond a circle of free-market economists.

"Income tax is usually the most efficient method of redistributing income from the better-off to the less well-off, and by having a flat-rate tax you limit this very much," says Mr Klemm.

Meanwhile, the main opposition parties in both Poland and the Czech Republic favour the introduction of a flat-rate tax. If these two countries were to follow their eastern and southern neighbours in the coming years and prove a success, advocates believe it may also encourage Western governments to reconsider the arguments for flat-rate taxation.

[Source (http://news.bbc.co.uk/2/hi/business/4155907.stm)]

[Gladiator]

u il-Gonzo ghadu johlom bil tax and spend idejat ta' sixties. Fredu, miskin jbiza mill-kometizzjoni.Ghar min jghid i-mexxi Malta:eek:

[Marco Polo]

its common sense really: less tax=more money to be spent.

[malsey]

Il gonz, alla ghad jaf kemm irrid nibku id dannu kbir li qed jaghmel il pajjiz. vizjoni ta xejn ma ghandu, la ekonomika, la socjali u qas kulturali,

[Artist]

Gonzu halef li jkompli jikkastiga lil minhu onest.

[malsey]

hekk hu dan ghar mill komumisti, ghax tal anqas taht il kommunisti kien kullhad oppress u fqir hlief xi 4 ta fuq. Dan talli tahdem jikkastigak:mad:


Gonzu halef li jkompli jikkastiga lil minhu onest.