The flat tax is alive and well and living in Hong Kong. And the benefits for taxpayer and government alike are enormous.

On nearly every score, Hong Kong's tax system eradicates or avoids distortions so common everywhere else:

• Although there are four levels of income tax -- from two percent to 20 percent -- the system is structured so that no one need pay more than 15 percent of income to the government.

• There is no tax on capital gains or interest.

• Corporate profits are taxed at a flat 16.5 percent.

• The form Hong Kong taxpayers fill out every year is four pages long -- but that's only because it's printed in both English and Chinese.

Far from hurting the middle class, as flat tax critics in the U.S. keep warning, Hong Kong's effective 15 percent flat tax does not even kick in until people's incomes put them well into the middle class.

• More than half of Hong Kong's citizens pay no tax at all.

• Almost all the rest pay only seven percent of their income to government.

• Nearly 75 percent of tax revenue comes from the wealthiest 10 percent of the population.

• Even at that, the colony consistently runs a budget surplus in the billions of dollars.

• Authorities estimate that by the time Hong Kong is handed over to China in mid-1997, the national coffers will hold more than $40 billion.

From its inception after World War II, Hong Kong's tax system was never meant to be anything other than a source of revenue. Concepts like redistribution of income are absent. There aren't any of those deductions and penalties that turn tax codes elsewhere into social engineering documents.

Source: Editorial, "An 'Untested' Flat Tax," Wall Street Journal, February 9, 1996.