|
|
May 24, 2013
|
|
|
|
 Flat Taxes Are Big in the Former USSR. Have They Worked?Posted on Nov 12, 2011
By Braden Goyette This article was produced by ProPublica. GOP presidential candidates Herman Cain, Rick Perry and Newt Gingrich have all introduced proposals for flat taxes, which aim to tax everyone at the same rate. The idea is to simplify the tax code, getting rid of loopholes and reducing entitlements and deductions. Gingrich and Perry have both promised that Americans would be able to file their taxes on a postcard. Flat income taxes have been criticized for putting a greater burden on middle-income people while cutting taxes for the rich. Critics say a flat tax would bring in less revenue for the government to fund social programs (though, as Rachel Weiner of The Washington Post puts it, “of course, for many conservatives, a drastically smaller government is a feature, not a bug”). The United States briefly tried a flat 3 percent income tax between 1861 and 1872; a flat income tax was reintroduced in 1894 but was struck down by the Supreme Court. Instead, the U.S. has had a graduated income tax since World War I. We haven’t really gotten to see how a flat tax would play out here, and it’s a good time to take a look at other countries that have adopted flat taxes, and how it worked out for them. Flat-tax success stories? Advertisement Estonia adopted a 26 percent tax on personal and corporate income in 1994. The country had gross domestic product growth of 11.7 percent in 1997, and continuously grew between 7 and 10 percent throughout the early 2000s, although many factors, of course, contributed to that. (U.S. GDP growth was 2 to 4 percent over that period.) In 2001, Russia switched from a system of 12, 20 and 30 percent tax rates to a 13 percent flat income tax. Adjusted for inflation, revenue from Russia’s personal income tax increased by 26 percent [PDF] in the year after a flat tax was implemented, and by nearly one-fifth as a percentage of GDP. Russia also saw strong GDP growth throughout the 2000s, ranging from 6 to 8 percent from 2003-07. Apparent success stories like these had American supporters of a flat tax crowing. A 2005 Wall Street Journal editorial declared that “the world is flat;” the Cato Institute, a libertarian think tank, proclaimed a “global flat tax revolution.” But economists caution that you can’t necessarily translate these experiences into an American context. Why flat taxes gained traction in the former Soviet Union For one thing, those reforms came at a time of massive economic change as former Soviet republics transitioned from command economies to the free market, and Eastern European countries made other systemic changes. Estonia, which introduced a flat tax in 1994, had just started transitioning to a capitalist system three years earlier. “One of the fastest-growing countries in Eastern Europe has been Slovakia. They introduced flat taxes in 2004, but they also then liberalized the labor market,” said Anders Åslund, a senior fellow at the Peterson Institute for International Economics. “Countries with flat income taxes have had high growth, but you can’t isolate the causality.” For one thing, adopting flat taxes was also a way for politicians to mark a new era and separate themselves from the former regime. “It was a way of signaling a commitment to the free market,” said Michael Keen, an International Monetary Fund senior researcher who contributed to a 2005 study of Russia’s flat-tax reform. Flat-tax reforms also caught on because a simpler tax helped to improve collection rates in countries that had large shadow economies and entrenched corruption. Indeed, among industrialized countries, Russia still ranks among the most corrupt. For those at the top of the income spectrum — whose tax rate had dropped from 30 to 13 percent — there was less of an incentive to evade taxes. The simplified system also left less room to lie on tax forms. “The more complex the tax system, the more avenues there are for discretion both by people on the revenue side of the collection system and the people paying the taxes,” said Gary Hufbauer, also a senior fellow at the Peterson Institute for International Economics, who formerly worked on tax policy at the Treasury Department.
1
2
NEXT PAGE >>>
TAGS:
|
After Oklahoma Disaster, Give Thanks to Government
 . '/' . substr('9780375708725',-6,3) . '/' . '9780375708725' . '.jpg'; ?>)
 . '/' . substr('9780520223165',-6,3) . '/' . '9780520223165' . '.jpg'; ?>)
Email 
Print
Share
Email to a friend
Newsletter 
Like Us
Follow Us
Get Our Feed
Tags|Bazaar|Podcast|About Us|Contact Us|User Agreement|Privacy Policy|FAQ: Comments and Moderation | Google+
© 2013 Truthdig, LLC. All rights reserved.
By C.Curtis.Dillon, November 15, 2011 at 2:33 am Link to this comment
Lafayette:
Actually, he started with nothing 12 years ago and built up a very successful business. He’s not an oligarch by any means but just paid cash to build a very expensive house in town. Obviously, the business is doing very well.
We do have a VAT tax but it is applied only to imports. That doesn’t sound too bad until you realize that almost all consumer merchandise is imported. We have very little industry in this country beyond the coal and steel groups plus a few high tech firms that remain from the former USSR. The problem with VAT is that it impacts the poor and middle class mostly. The wealthy can buy their big ticket items outside the country and, like the US, bring them in as ‘used’ thus avoiding the tax. Also, if you have the money, you can easily bribe a custom’s official to overlook the charge or lower the assessed value to some obscenely small value. You can also register the item in a foreign country where taxes are lower and bypass taxes that way too. If you have money, there’s always a way to get around the system which is run for and by the wealthy. In this country, the politicians are the wealthy so there isn’t any need to bribe politicos to do your bidding. The oligarchs all have places in the legislature (which they buy) so that’s not a problem either.
Report thisBy Lafayette, November 14, 2011 at 4:45 am Link to this comment
SMIRK, SMIRK
Yes, well, of course he does. He’s probably one of the Ukrainian oligarchs who made out like a bandit (sic!) when the Iron Curtain came crashing down.
What did he get his hands on - its steel industry, its coal mining?
Besides, if the Ukraine has a flat tax it is because it is dead easy to collect. None of the ex-Soviet Union satellites have the will to learn how to install and run a sophisticated tax system. For instance, one in which that flat tax applied to Consumption - as in a Value Added Tax.
A VAT along with a real Income Tax with progressive taxes on incomes above four times the national average would change that oligarch smirk on your friend’s face.
Report thisBy fort worth accounting firms, November 14, 2011 at 12:22 am Link to this comment
(Unregistered commenter)
I’ll be learning about some of the features as I go along. I hope that it eventually proves easier for you the reader to follow the postings and comments.
Report thisBy John, a swimmer, November 13, 2011 at 9:03 pm Link to this comment
(Unregistered commenter)
Today’s truthdig, nothing of use, value or whatever. Not going to waste my time anymore with truthdig until they start giving real solutions to the world’s major problem of the 1%‘ers controlling the governments.
1. Gingrich helped plan the bombing and invasion of Iraq. Another puppet politician that knew Iraq had no weapons of mass destruction and nothing to do with 9/11.
Voting for a Republican or Democrat is voting for the status quo, rule by the Dictators and their puppets.
Solution: Only chance of survival is to change election laws and processes: multiple parties and candidates to break the strangle hold on election, especially 2012.
2. Bush-era tax cuts, see:
http://www.cbpp.org/cms/?fa=view&id=3490
The Center on Budget and Policy Priorities, very reputable non-profit organization, used figures, actual and estimated from the US Congressional Budget Office to calculate actual and future costs to taxpayers for the Bush-era Tax Cuts, about 300 to 700 billion a year. Tired of all the lies.
3. All other problems could be worked on by a new Congress with politicians that represent the 99%‘ers. Vote out the Republicans and Democrats.
4. The rigged debates are for idiots, nothing but quiz shows with time limits.
5. End US imperialism/war which is a must for the Dictators and their puppets obsessed with money and power.
enough
Report thisBy felicity, November 13, 2011 at 11:49 am Link to this comment
Unfortunately, there isn’t a system in existence that
can be applied to any country, in any time frame that
will produce the same outcome as it produced before.
A point - the Depression years saw the GDP growing at
13%/year. During ‘our’ recession, the GDP has been
growing at 2-3%/year. So, applying the same cure-alls
to each Recession makes sense?
And then there are the ‘interesting’ ways GDP’s and
Report thisCPI’s etc. are computed. Enter the Rolex watch. It’s
not as expensive as it should be - according to those
who use its cost in determining the CPI. In other
words, it sells for far less that it should because
the status etc. one gains by having it on his wrist
should result in its cost being at least triple what
it is. Therefore, the Rolex is much cheaper than it
should be, thus magically reducing the overall CPI
figure.
By ardee, November 13, 2011 at 7:07 am Link to this comment
One thing seems certain, our current tax structure is unfair and places far too much of a burden on the middle and working classes. We in the middle or a bit lower pay both income and payroll taxes, factor in sales taxes and we are paying every time we turn around!
Contrast that with the Hedge Fund manager, to cite only one example of inequity, whose income exceeded triple digit millions yet pays only a 15% capital gains tax. This fortunate soul pays neither personal income tax nor payroll taxes. As for sales tax, well, they purchase large ticket items offshore, import them as “used” and wriggle out of that tax as well.
I do not open the can of worms that is corporate taxes as being far to complicated and sickening a topic. Perhaps some economist might endeavor to explain the inequities found there.
“If all the economists were laid end to end they couldn’t reach a conclusion.”
Report thisGeorge Bernard Shaw
By C.Curtis.Dillon, November 13, 2011 at 1:23 am Link to this comment
I’m not an expert on this despite 6 years living in Ukraine. I spent much of last year doing conversational English with a rich software entrepreneur here in Crimea and we often talked about taxes (especially how high the American taxes were because he had a server farm in NJ and had to pay taxes on that part of his income in the US). Ukraine has a flat tax on the first 500,000 grevna (about $62k) of 200 grevna/month. That means, no matter what your income, you pay a flat 200 grevna (about $25) every month. That is, to say the least, regressive in the extreme as it goes from basically confiscatory on the low end to barely a tickle at the top. Above 500K I don’t know what the rates are but everything in this country is biased towards the rich so I can only imagine they are equally low. Ukraine gets much of its income from VAT on imports (20% or so I’m told) plus a 10-20% import duty. This, of course, makes imports exceedingly expensive (and that tax exceedingly regressive). We get most of our clothing from China so we pay even more than in the USA. Same with imported food, furniture and electronics. My friend, the software man, loves the Ukrainian tax system.
Report thisBy Lafayette, November 13, 2011 at 12:10 am Link to this comment
Of course they work. The oligarchs are as rich as Croesus. (Even richer ...)
It is not the flat-tax that doesn’t work (anywhere) in Russia, but the whole damn system - from politics to economics and all the rest.
Russia, like all ex-Soviet Union countries and their satellites, belabored far too long under a centralized economic system - which has not changed. Those who own control of the political levers of power, own/run the country.
When the oil runs out, they wont have a friend on this planet. The smart Russian Mafia have all immigrated ... to the US.
The Russian people should revolt and start all over again. A market-economy has taken root, but only for that tiny percentage of Russians with a bit of money.
All the rest are eking out a subsistence-level existence. So, the question as put is ridiculous.
Tax what? The oligarchs? Ya gotta be crazy ... they already pay enough baksheesh to the politicians in power. Putin will never have to work another day of his life.
Report thisBy johnr, November 12, 2011 at 9:16 pm Link to this comment
(Unregistered commenter)
I haven’t read the article associated the headline of this piece; my
Report thiscomment regards the pic of Gingrich, whose face, as depicted in the photo,
seems to be waxing hypertrophic. The peripheral structures of Mr. G’s head
appear to be subsuming his features, swallowing them up, rendering them
small, doll-like (plastic doll’s features working unnaturally, always smiling,
in the middle of a too large orb). It is, undoubtedly, of no significance—-in
fact, I apologize for commenting upon it, upon failing to observe some pithy
point, some more significant observation, but there it is ... the man’s head
seems to be enveloping itself, as if it were preparing to implode.
By Anarcissie, November 12, 2011 at 8:03 pm Link to this comment
There is not much point in talking about a flat-tax system unless it includes many forms of income, such as capital gains and dividends, which the present proponents seem ready to leave out. The middle-income voters will do the math, find out they have to pay more, and the issue will be dead until the next pre-election circus.
Report this