Worldwide Flat Taxes [View All]

[Thom Little]

In the United States, advocates of a flat tax - a single rate applied to all taxpayers regardless of income level - are generally regarded as the intellectual heirs to the flat-earthers. Arguments to replace the graduated income tax with a flat tax have won little respect in policy circles and even less among voters (witness Steve Forbes's two failed presidential bids).

Overseas, however, it is a different story. In August, it was reported that Greece was weighing the introduction of a 25 percent flat tax, joining a growing list of European countries that either have adopted the flat tax or are giving the idea strong consideration. The flat tax has proved especially popular in former Soviet bloc countries. Estonia was the first to implement one, establishing a 26 percent flat rate in 1994. Since then, Latvia, Lithuania, Ukraine, Slovakia, Romania and Georgia have all flattened their tax rates. Russia itself went to a single bracket in 2001, and Bulgaria, Croatia and Hungary are expected to follow suit in the near future.

All this has left American flat-taxers exultant. "The world is flat," crowed The Wall Street Journal in a recent editorial. The fact that an idea rooted in conservative ideology has gained its strongest following in formerly Communist Eastern Europe only adds to their sense of vindication. As they see it, the flat tax is winning converts because it is easy to administer, helps reduce tax evasion (especially if the tax rate is set relatively low) and stimulates economic activity. They point, for instance, to the impressive growth and the rise in tax revenues that Russia has enjoyed since introducing its flat tax.

But William Gale of the Brookings Institution says it is far from clear that the flat tax has been a miracle cure for the nations that have embraced it. He notes that Russia was already enjoying robust growth before it implemented a flat tax. As to the idea that Americans should give the flat tax another look in light of its popularity abroad, Gale is politely dismissive. In his view, most of the countries that have gone to a flat tax have done so not because they think it is fairer and more conducive to growth but because they have weak bureaucracies and rampant noncompliance and see the single-bracket approach as the only viable option under the circumstances. "These are acts of desperation," Gale says.



http://www.nytimes.com/2005/12/11/magazine/11ideas_section4-17.html