Tax Reform Success Stories from Eastern Europe
An informative press release from the National Taxpayers Union Foundation:
ALEXANDRIA, Va., Sept. 14 /U.S. Newswire/ — Rather than consigning America to a global game of economic catch-up, U.S. policymakers should look to the winning performance of Eastern European nations that have adopted fundamental tax reform. That’s the conclusion of the latest study from the non-partisan National Taxpayers Union Foundation (NTUF), which found that in addition to the advantages of consumption tax systems, there’s persuasive evidence that flat-rate income tax systems can place countries on a solid competitive footing.
“In the increasingly fluid global economy, money and investment move across borders more easily than ever before,” said NTUF Associate Policy Analyst and study author Ryan Kool. “In order to attract and retain these vital infusions of capital, nations must find ways to remain competitive — and, as much evidence indicates, ditching old-style “progressive” income taxes in favor of a flat tax can provide such an edge.”
Kool’s in-depth analysis of countries at the vanguard of the flat-tax reform movement as well as recent adopters, uncovered significant economic trends toward increased tax revenues, accelerated Gross Domestic Product (GDP) growth, and improved levels of Foreign Direct Investment (FDI) since those countries have enacted flat-tax reforms. Among the findings:
– During the first five years (1995 – 2000) of operating its flat tax, Lithuania’s GDP jumped an average of 22 percent annually and has trended at 7.4 percent since 2000.
– In mid-March Slovakia, which has implemented a flat tax within the past year, announced 260 negotiations underway for inward investment. The 30 projects closest to completion are expected to bring in the equivalent of $1.9 billion – three times greater than the total FDI received by Slovakia in 2003.
– Despite a large “shadow economy,” Russia has experienced a 35 percent annual increase in government revenue since enacting a flat tax in 2001 – perhaps the most convincing case thus far that the simplicity and lower rate of a flat tax encourages compliance with tax laws.
Even as this pro-growth movement spreads across Eastern Europe (with ten countries having enacted or announced plans to implement a flat-tax, including five EU-member states), Western European countries faced with stagnating economies and skyrocketing unemployment levels have also been “forced to take note,” Kool said.
“As the flat tax continues to drive the tax competition movement westward, country after country is enacting serious tax reform in attempts to keep their economies from being on the losing end,” Kool concluded. “U.S. policymakers would be wise to enact fundamental changes to our tax laws now – and either a flat tax or a national retail sales tax would be a winning formula.”
NTUF is the research and educational arm of the 350,000-member National Taxpayers Union. Note: NTUF Policy Paper 157, The Global Flat Tax Phenomenon: Proving “Flat Earthers” in America Wrong, along with more information about tax reform, is available online at http://www.ntu.org.
The trouble with a “flat tax” is that that’s where we started. Like Topsy, it grew to the monster that our tax code is today. Compare the result of the US income tax when it started with Eastern European nations today and you have a fair comparision.
The flat tax would leave use right where we are at now. We would have to file income taxes (which I hate to do) and it would leave use under the finger of the political parties. The fair tax is the only why to go.
Hi binger and Sunnye,
You guys have an alternative? Let’s hear it!
But if we do at least manage to take a step backwards are we not moving in the right direction regarding taxation at least?
re: Danny
I agree that eventually the politicians would end up adding on to the flat tax were we to implement one here in the US. But it would be naive to suggest that while they’d begin to complicate a flat tax that they’d somehow magically leave the “FairTax” alone. The same thing would happen either way.
Meanwhile, there are exactly ZERO countries in the world employing a “FairTax” system to completely fund government, while approximately two dozen are now using the flat tax successfully.
At best, the “FairTax” is a theory; the flat tax is a proven solution.
Dave,
Let me comment to your first point. The Fair Tax would be harder to undo because reinstating the income tax would require bringing back the IRS. Undoing the Flat Tax would require less effort because the infrastructure is retained.
~Jim
PS: To your second point, two of the world’s largest economies, Texas and Florida, have no personal income taxes at the state level, and they have consistently experienced higher income growth than high-income tax states.