NCPA - National Center for Policy Analysis

Flat Tax Works in Russia

April 15, 2003

In Russia, President Vladimir Putin implemented a flat tax in 2001. Not only a flat tax, but a flat tax with a 13 percent rate, 4 percentage points lower than the supposedly "radical" plan espoused by Steve Forbes and former House Majority Leader Dick Armey. And it has been a big success.

Every year, our tax code gets bigger and more complicated. In Russia, by contrast, the flat tax has been in place for more than two years now. And this reform took place in a nation still trying to overcome the legacy of more than 70 years of communist dictatorship.

The Russian flat tax has been so successful that even American politicians might learn the right lessons:

  • Russia's economy has expanded by about 10 percent since it adopted a flat tax.
  • Over the last two years, inflation-adjusted income tax revenue in Russia has grown 50 percent.

Why? Because people are willing to produce more and pay their taxes when the system if fair and tax rates are low -- exactly what Ronald Reagan predicted when he triggered America's economic boom with lower tax rates 20 years ago. Ironically, the former communists in Moscow now understand supply-side economics, yet liberals in Congress are still relying on the politics of hate-and-envy.

Interestingly, the flat tax is just one of several positive reforms enacted by President Putin:

  • Russia also has reduced the corporate tax rate from 35 percent to 24 percent (U.S.-based companies still pay 35 percent, the second-highest corporate tax among industrialized nations).
  • Small businesses also get better treatment -- the old system with high tax rates has been replaced by a new system where companies can choose either a 6 percent tax on gross revenue or a 15 percent tax on profits.

Source: Daniel J. Mitchell, "Russia -- leading the way," Washington Times, April 15, 2003.


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