NCPA - National Center for Policy Analysis

SPREADING THE FLAT TAX

January 17, 2005

President Bush's most effective way to promote tax reform is to showcase the experiences of Eastern and Central Europe, says Alvin Rabushka of the Hoover Institution.

While the precise nature of the reforms sought by the Bush administration is still unknown, a flat tax as an alternative to the federal income tax appears to be on the table. Thus far, European experience with the flat tax has been tremendously positive:

  • In 1994, Estonia adopted a 26 percent flat tax (lowered to 24 percent this year) that has helped balance the budget and generate strong economic growth.
  • In 2000 Russia adopted a 13 percent flat tax and has enjoyed four years of sustained economic growth.
  • Latvia, Serbia, Slovakia and Ukraine have also adopted the flat tax with success, reducing underground economic activity and tax evasion.

China, of all places, is strongly considering a flat tax as well, with some suggesting a 20 percent rate. Beijing is likely to announce its tax reform agenda in March 2005. Even socialist Germany is reviewing a flat tax of 30 percent on all personal and corporate income.

Therefore, while Democrats and special interests have vigorously rejected a flat tax, Rabushka says experience has shown that it improves economic growth and is garnering support around the world. Americans would be ill-advised to dismiss it.

Source: Alvin Rabushka, "Flat and Happy?," Wall Street Journal, January 12, 2004.

For WSJ text (subscription required):

http://online.wsj.com/article/0,,SB110549261681023590-search,00.html

 

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