Argument: The Flat Tax is proving successful in many countries
Neil Reynolds. "The spreading hegemony of the flat tax". The Globe and Mail (Canada). 19 Dec. 2007 - We begin this progress report on the global flat tax revolution with the curious case of the Pridnestrovie Moldavian Republic [...] it has adopted a flat tax - at a rate of 10 per cent - on all personal and corporate income. In doing so, it becomes the eighth jurisdiction from the old USSR to opt for a flat-tax regime. (The others: Georgia, Estonia, Latvia, Lithuania, Ukraine, Romania and Russia itself.)[...]More importantly, Poland will be the next European country to adopt flat taxes.
[...]The Czech Republic, also next door to Germany, introduces its own flat tax reforms on Jan. 1 at an initial rate of 15 per cent but dropping to 12.5 per cent one year later. It will cut its corporate income tax rate (to 19 per cent from 25 per cent) on Jan. 1, 2010. The country's precariously balanced 200-member lower house of parliament approved these flat tax reforms by 101 votes; Czech President Vaclav Klaus, a free-market economist, will have no problem getting them through the upper house, where the government has a large majority.
Bulgaria also introduces flat taxes in the new year, becoming the seventh EU country to choose a flat tax regime for personal income taxes. The rate will be 10 per cent. Bulgaria's parliament adopted the reforms by overwhelming majority - 152 votes to 36 votes.
Elsewhere, Mauritius, the island nation in the Indian Ocean, decided two years ago to introduce flat taxes, deciding to implement them in 2009. For one reason or another, it couldn't wait. It introduced the new system this past summer instead, using the same rate - 15 per cent - for personal and corporate income. And Hong Kong, where citizens can choose to file either a progressive tax return or a flat tax return, has reduced its flat tax personal rate to 15 per cent from 16 per cent and its corporate rate to 16 per cent from 17 per cent.
In response, Taiwan has announced that it will cut its corporate rate to 16.5 per cent from 25 per cent.
The Flat Tax of the Year Award, however, goes to Georgia, the former Soviet republic that adopted flat taxes in 2005 (personal rate: 12 per cent; corporate rate: 20 per cent). Tax revenues have shot up dramatically, rising from 14.5 per cent of GDP in 2003 to 22 per cent in 2006 and headed for 24 per cent of GDP this year - indicating (according to U.S. supply-side economist Alvin Rabushka) it's now time for Georgia to cut its rates yet again.
Earlier this year, incidentally, Minnesota-based 3M Co. announced that it will close down some of its operations in North America, Western Europe and Japan, and relocate these operations to lower tax rate countries. The company now pays taxes at an average rate of 33 per cent. By reducing this rate a mere 2.5 percentage points, 3M says, it will save $200-million (U.S.) a year - though the company says it will reduce its average rate by more than 2.5 percentage points.
With annual sales of more than $1-billion (Canadian) a year, 3M Canada operates in six communities - Montreal, Calgary, Toronto, as well as in London, Perth and Brockville, Ont. - all of which should make a Post-It note: Canada's corporate rate is 32 per cent. Some of these 3M operations could soon take flight to more hospitable tax territory somewhere in the old Soviet Union.
Neil Reynolds. "No stopping flat-tax juggernaut". The Globe and Mail (Canada). 2 May 2007 - In one of its first acts last year as an independent country, Macedonia (population: two million) legislated radical tax reforms. On Jan. 1, 2007, the country introduced a flat-rate tax of 12 per cent on both personal and corporate income, matching the rate introduced two years ago by Georgia (population: 5.6 million). On Jan. 1, 2008, Macedonia will cut its rate to 10 per cent - and achieve one of the lowest tax rates in the world.
Macedonia's tax revenues will almost certainly rise. The country's new, young (age: 36 years) free-market Prime Minister, Nikola Gruevski, cites the phenomenon of voluntary compliance that accompanies flat-tax regimes. "This reform will decrease tax evasion," he says, "and encourage people to meet their obligations to the state." As Russia (population: 144 million) vividly demonstrated when it adopted a flat tax (replacing a 40-per-cent rate on personal income with a 13-per-cent rate) in 2000, low rates are persuasive tax collectors. Russia's revenues rose 25 per cent in the first year, 25 per cent in the second year, 15 per cent in the third year. People who violently resist getting scalped will submit voluntarily for a trim.
With a 10-per-cent flat-tax rate, Macedonia will join two other improbable countries with "the lowest tax rates on Earth" - Kyrgyzstan (population: five million) and neighbouring Kazakhstan (population: 15 million). Uzbekistan (population: 26 million) has a 10-per-cent rate for corporate income but retains an 18-per-cent rate for personal income.
A number of other countries are credible contenders for the low-tax world title in coming rounds - Georgia and Russia, of course, at 12 and 13 per cent respectively, Ukraine (population: 47 million) at 13 per cent. Montenegro (population: 630,000), another country that gained independence last year, has enacted a flat-rate corporate tax of 9 per cent. Bulgaria (population: 7.5 million) is close behind with a flat-rate corporate tax of 10 per cent. Montenegro and Bulgaria, however, retain progressive rates for personal income. On the other hand, Mongolia (population: 2.7 million) adopted a 10-per-cent flat rate for personal income but kept its corporate rates progressive - though significantly reduced.
"REVIEW & OUTLOOK -- THE CZECHS ARE FLAT". Wall Street Journal Abstracts. 17 Apr. 2007 - "Editorial notes Czechs as latest converts to flat tax rate, though simplicity and transparency of flat rate is somewhat undermined by imposing it on 'super-gross income', including social security and health-care contributions; flat taxes can help produce rapid growth in output and revenues, as nine other Eastern European countries have discovered."
"The East is Flat". Wall Street Journal. 24 Jul. 2007 - "Editorial applauds trend toward flat tax that is fueling growth in former Communist bloc in Eastern Europe as governments find increased revenue in first year; sees opportunity and lesson for Western Europeans in their neighbors' low, flat taxes"