NCPA - National Center for Policy Analysis


December 23, 2005

Recently, President Bush's Advisory Panel on Federal Tax Reform landed in no-man's land, but perhaps the panel could have won more hearts and minds if it had examined real-world experiences with tax reform, says the Heritage Foundation's Daniel Mitchell.

In Eastern Europe, the flat-tax revolution is extremely compelling; nine nations from the old Soviet bloc have adopted the tax -- which taxes income at one rate and is designed to attract investment, fuel economic growth and treat all citizens fairly, says Mitchell.

For instance, Russia is now enjoying the benefits of the 13 percent flat tax it adopted in 2001; revenue has poured into government coffers as tax evasion and avoidance have become much less profitable. But Russia is simply learning from its neighbors, says Mitchell:

  • Estonia was the first, adopting a 26 percent flat rate in 1994 and since then, it has cut its rate; it will drop to 20 percent before the end of the decade.
  • Latvia and Lithuania followed in the mid-1990s, with 25 percent and 33 percent rates, respectively; however, Lithuania has also decided to reduce its rate to 24 percent.
  • Serbia was next; in 2003 it went with a 14 percent rate.
  • Last year it was Slovakia (19 percent) and Ukraine (13 percent) and this year it's been Romania (16 percent) and Georgia, which boasts the lowest rate -- 12 percent.
  • Other countries such as Poland and the Czech Republic are also considering a flat tax.

The flat tax is not a silver bullet, says Mitchell. However, if combined with other market reforms, it provides a significant economic boost, which generates plenty of tax revenue.

Furthermore, tax reform is a clear success and the United States can learn from what other nations have accomplished, says Mitchell.

Source: Daniel J. Mitchell, "A Flat-Out Winner for Tax Reform," Washington Post, December 22, 2005.

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