     |
The Flat TaxHong Kong has had a flat tax for tax for several decades. Other countries are jumping on the flat tax bandwagon at a rapid pace. In recent years 17 countries have introduced flat taxes, according to the World Taxpayers Associations (WTA), a coalition of 60 taxpayer including the National Taxpayers Union (NTU)-from 44 countries. A single-rate tax would create a more simplified and transparent system. How we allocate our resource has as much to do with a healthy economy as to how much we spend. Presently, this monstrously complicated tax code exists, more for the benefit of congressman to dispense favors to special interests, than it does to serve the needs of U.S. citizens. The present system is a horror in both ways. It spends far too much and allocates resources poorly. In the case of farm, dairy, sugar and other subsidies, it even takes our money redistributes much of it to rich barons in these areas which result in higher prices to consumers. Lately many countries have enacted systems with very low flat income tax rates ranging often from 10 percent to 13 percent. Macedonia, Bulgaria, , Kyrgyzstan, Kazakhstan among have introduced flat tax rates of 10 percent over the past two years. Others, Russia-13% in 2001, and 13% in 2004. When Steve Forbes ran for president in 1996, he proposed a flat tax of 17% with a standard deduction and personal exemptions that exempted the first $36,000 of income for a family of four. Virtually every one of these countries has been very pleased with yields to the government and overall performance. Features of A Flat Tax A single flat rate. Most economists agree that when tax rates are too high they have a negative affect on on productive behavior, such as work, productivity, risk taking,(investing) and entrepreneurship. Elimination of most preference which come in the form of deductions, credits, loopholes, subsidies and several other terms. It would end double taxation. There would be no tax on: Capital Gains Savings Dividends No Tax on income earned outside the U.S. A former Soviet Republic has recently declared independence. It is the nation of Moldova which either is called Pridenostrovie according to Daniel Mitchell of the Cato Institute. Bigger news than the name change seems to be the fact that this country, poor and backward as it is, is showing the good sense to adopt a flat tax, reducing its rate from 15% to 10% Actually, free market activity goes back to 1990. That was the beginning of free market thinking and action. The recent reduction in tax rates is based on results that improved incentives for investors and citizens in general. So now, add the former Moldova, to Russia, Georgia, Slovakia, Estonia, Latvia, Serbia Romania, and Ukraine, among nations who have a flat tax. ### Needed: A Flat Tax or Consumption Tax (FairTax) Presently the Internal Revenue Code (IRC) contains more than 66,000 pages. It consists of more than 9 million words. In 2005, Americans spent 6.4 billion hours complying with the IRC at a cost according to the Tax Foundation, a non partisan tax research organization, of $265 billion, an amount greater than this past year's federal deficit. Americans who do their own taxes spend an average between eight an twenty seven hours completing the task. In the early 1990's former Congressman Dick Armey Proposed a form of flat tax allowing a $13,100 standard deduction for adults and $5300 for each dependent child. A family of four would have exempted the first $36,800 of income. After that a flat rate of 17% would apply. In his 2000 presidential bid, Steve Forbes proposed a plan almost identical to Mr. Armey's except that the Forbes plan exempted the first $42,000 of income for a family of four. The Forbes plan was designed so that the return could be done on a postcard size document with between 8 and 11 lines. The exempted amount in both plans was based essentially on median family income in the U.S. In just one aspect of a flat tax (revenues to the government) the data is overwhelmingly in favor of a flat tax to increase government revenues. A properly planned CONSUMPTION TAX would almost certainly yield favorable results similar to the FLAT TAX results. We will examine the FLAT TAX further and soon thereafter the Fair Tax which also has millions of supporters. You may be asking how we could have such a mess especially when that mess is costing so much and at the same time curtailing wealth. Congressional power is the simple answer. Congress does not want to give up its right to dispense favors for reciprocal benefits. Hard to believe that 535 individuals could have such control over 200 million of voting age. Revenues have soared in some countries that have switched to a flat tax. Others have had lesser but still highly satisfactory results. Russia of all places has had one of these great success stories with the flat tax. The Russian Federation, as it is properly called, saw revenues rise by 25.2% in the first year after the Federation introduced a flat tax. The second year saw an increase of 24.6% increase, followed by a 15.2% increase in the third year. Other countries that have adopted the tax with one flat rate are Serbia, Ukraine, Estonia, Latvia, Lithuania, Slovakia, Georgia (not the Peach State, of course) Romainia, Macedonia and the Czech Republic. These are just flat tax countries in Eastern Europe. Others like Hong Kong have enjoyed astounding prosperity with highly limited resources. We will discuss Hong Kong separately within a short time.Why doesn't the U.S. have either a flat tax or a consumption tax? Congressmen/women get reelected by dispensing money for favors.They do not want to give up that power as they grow rich in congress. Estonia In 1995 Estonia initiated a plan that taxed companies and individuals at the same rate. The country exempted completely those with very low incomes. At the time Estonia was a poor country. Its income was a small fraction of most of its Eastern Bloc neighbors. Estonia has now passed some of its neighbors and has an economy that is growing at 11%. Three percent growth is normally considered healthy. It adopted a flat rate of 26%. Our highest corporate rate is 35%. Our highest individual rate is 36%. After several years Estonia dropped its rate for corporations and individuals to 22%. Revenues soared even more. The Index of Economic Freedom published by the Heritage Foundation listed Estonia’s per capita GDP at $3951 in 2001. By 2004 the Index listed per capita income at $14, 555, the last year for which that body had compiled figures. The CIA World Factbook has figures through 2006. Those figures list Estonia with GDP - per capita (PPP): of $19,600. (2006 est.) PPP stands for Purchase Power Parity. For the sake of comparison Russia has PPP of $12,100 (2006 est.). Russia has had a large rise in Per capita income since the enactment of a flat tax butwith a much larger economy than Estonia's the per person increase is less dramatic. Low, flat corporate taxes have drawn companies such as Microsoft, Johnson & Johnson, 3M, Colgate and Bristol-Meyers Squibb to Estonia. Before the low flat tax foreign investment was 5% of GDP, it is presently up to 20%. Dropping the tax rates put more money in the private sector, drew in new business including giant corporations-the kind usually vilified by big government advocates-yielded vastly increased government revenues and a huge increase in GDP, per capita income, purchasing power parity, and living standards. Estonia is now scheduled to drop its rate further yet to 20% in 2009. Yet the liberal brain is somehow able to live in denial as this the same action brings the same result over and over and over. Liberals just cannot let go of the reality that oversized government has huge negative results for the general population, especially the poor.
|
