NCPA - National Center for Policy Analysis

Iraq to Benefit from Flat Tax

February 10, 2004

In recent years, simplifying the tax code through a flat tax has been promulgated, albeit intermittently, by both Congressional Democrats and Republicans alike. The allure of the flat tax, supporters say, is that all income is taxed only once and at a uniform rate, thereby eliminating harmful distortions in the economy. Modern flat tax systems are typically based on the plan introduced at Stanford University in 1981, where the tax rate is set at 19 percent and permits a tax-free allowance of $25,500 for a family of four.

Such a system is the best way to promote economic growth in Iraq, says economist Daniel J. Mitchell. Among its many benefits, he argues that:

  • The flat tax will encourage productive behavior as well as unleash entrepreneurship and innovation, resulting in the creation of businesses and jobs.
  • Economic reform in Iraq will set a good example for neighboring countries.
  • It will provide yet another case study showing the benefits of a fair, simple, pro-growth tax system.

According to Mitchell, growing the economies within Iraq, and possibly encouraging reform within Israel and Egypt, will significantly lessen U.S. foreign aid to these countries.

Though the flat tax has yet to catch on in the United States it has been a long-time success story in Hong Kong. Other countries, such as Russia, Lithuania, Estonia and Latvia, have also begun to see their economies grow under the flat tax.

Source: Daniel J. Mitchell (Heritage Foundation), "Flat Tax Benefits for Iraq," Budget & Tax News, January 2004.

 

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