NCPA - National Center for Policy Analysis


April 16, 2007

Still untested in the West, the flat tax has now become the norm in Eastern Europe, says the Wall Street Journal.

Czech Prime Minister Mirek Topolánek is the latest convert to the idea.  If he manages to push his plans through a divided parliament in June, it would bring the number of single-rate tax systems in the world to 14, all but four of them in Eastern Europe.  According to the Prime Minister's plan:

  • The personal income-tax rate will fall to a flat 15 percent next year, replacing progressive rates of 12 percent to 32 percent.
  • In addition, the corporate tax rate gradually drops to 19 percent in 2010 from the current 24 percent.

The Czech flat tax on personal income would actually be somewhat closer to 23 percent since the government plans to impose the 15 percent rate on an individual's "super-gross income," a total that includes the social security and health-care contributions made by the taxpayer's employer and pushes up the effective rate.  With this little gimmick Topolánek undercuts some of the flat tax's chief attributes -- simplicity and transparency.

But it's still a move in the right direction, says the Journal.  And in going flat, the Czechs are following in the footsteps of former Communist countries, from Russia to Romania, that have shown how flat taxes help produce rapid growth in output and revenues.

Source: Editorial, "Flat Czechs," Wall Street Journal, April 13, 2007.

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