NCPA - National Center for Policy Analysis


April 23, 2007

Americans spent 6.4 billion hours complying with the tax code in 2005 -- a chunk of time worth $265 billion, according to the Tax Foundation.  That's more than the 2006 federal budget deficit, says John Stossel, co-anchor of ABC News' "20/20."

This seems especially wasteful as other countries have made their citizens' lives better by simplifying and lowering taxes, says Stossel.  For example:

  • Twelve years ago, Estonia became the first country to tax everyone -- companies and individuals -- at the same flat rate; it started at 26 percent, dropped to 22 percent and will go to 20 percent in 2009.
  • There are a few deductions for things like mortgage interest, educational expenses, and charitable donations; very low incomes are exempt.
  • Estonians need an average 10 to 15 minutes to file their income taxes; most do it without leaving their desk since 84 percent file online.
  • Unsurprisingly, Estonia is booming -- the former Soviet republic used to be poor, with an average income 65 percent below its European neighbors; today, Estonians are almost as rich as their neighbors, and their economy is growing more than 11 percent a year.

Corporations like a tax system that is low and simple, too, and that leads them to do more business in flat-tax countries, says Stossel:

  • American companies such as Microsoft, Colgate, 3M, Bristol-Meyers Squibb, and Johnson & Johnson opened businesses in Estonia after the flat tax was adopted.
  • Twelve years ago, foreign investment in Estonia made up only 5 percent of gross domestic product (GDP), but today, it's up to 20 percent.
  • That means there's more money in the Estonian economy to tax; so while the tax rate dropped, government revenues actually increased.

Source: John Stossel, "John Stossel: It's time to rethink our entire tax system," New Hampshire Union Leader, "April 22, 2007.

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