NCPA - National Center for Policy Analysis

EASTERN EUROPEANS EYEING FLAT TAX

August 21, 2007

When Bulgaria's Institute for Market Economics (IME) began touting a flat tax system for the country in the 1990s, it was seen as a crazy free market idea that would never become reality.  But a lot has changed in the past decade, says Deutsche Welle, an international German broadcaster.

Consider:

  • Fresh from introducing a flat 10 percent tax on corporate profits, Bulgaria's socialist-led coalition government now wants to do the same for personal income.
  • Besides switching to a flat tax, the Bulgarian government also wants to cut social insurance contributions by 3 percent and increase pensions by 10 percent.

A total of nine Eastern European and former communist countries are now shunning progressive tax systems in favor of a simple, one-rate-fits-all model of taxation.  One recent example -- the Czech Republic:

  • Czech coalition leaders recently agreed to adopt a 15 percent personal income tax last week; the rate would drop further to 12.5 percent in 2009 -- the income tax currently maxes out at 32 percent.
  • The government also wants to decrease the corporate tax rate to 21 percent in 2008 and down to 19 percent by 2010; a vote on the reform package is expected soon.

Despite the flat-tax revolution in the East, Western Europeans looking to get rid of a complicated system of tax deductions and exclusions are unlikely to see a flat tax any time soon, economists say.   Most countries in Western Europe have long-standing social security systems which are funded by the redistribution that comes from progressive tax systems that get higher revenues from the rich, said Linda Yueh, a visiting professor at the London Business School.

Source: Trinity Hartman, "Eastern Europeans Eyeing Flat Tax," Deutsche Welle, August 21, 2007.

For text:

http://www.dw-world.de/dw/article/0,2144,2745513,00.html 

 

Browse more articles on Tax and Spending Issues