[Rhodes22-list] Flat Tax Semi-Rant

[Bill Effros]

Brad,

Sadly, the boldface does not come through as boldface, so I have no idea 
what you are trying to prove by quoting a source that has been 
consistently wrong in its tax analysis.

So why don't you become a citizen of Estonia?  Maybe because the flat 
rate there is 23%, they have a federal VAT on top of the flat rate, you 
would have to pay 23% of your pilot's income to Estonia in addition to 
the amount you would still have to pay to the American government (there 
is no deduction for your US taxes), and you would be required to file 
complex tax documents in both countries.

Hong Kong does not have a flat rate.  They have a base rate with 
progressive marginal rates of 2%, 4%, 8% and 20%.  There are deductions 
and exclusions.  Mortgage interest is not taxed.  You still must file a 
complex tax document. 

Russia does not have a flat tax.  Individuals pay 13% on wages, 9% on 
dividends.  Non-residents pay 30%, in addition to what they must pay to 
their home governments (better not move to Russia, either).  There are 
"social engineering" exemptions.  Corporations pay 24%.

Serbia does not have a flat tax.  Individuals pay 14% of their wages, 
but only 10% if they are self-employed.  There are "social engineering" 
discounts and credits available.  Wage earners taxes are immediately 
taken from their salaries.  Self employed can pay only once at the end 
of the year provided they can document that the lump sum payment will be 
less than 2 million dinars.  The capital gains tax is 20%.  Rental 
income is taxed at 20%.  There is a tax surcharge of 10% on all incomes 
greater than 4 times the average Serbian income as determined by the 
Serbian Government.  The corporate tax is 10%, and there are a huge 
number of "social engineering" exemptions available to corporations so 
that they can wind up paying substantially less than 10%.  (I guess we 
know why the Wall Street Journal likes this idea.)

Ukraine does not have a flat tax.  They have 22 different taxes on the 
federal level, and 14 more local taxes.  In addition to the income tax, 
there is a social security tax, an environmental pollution tax, a Value 
Added Tax, an excise tax, a tax on use of the public airwaves,  a 
pension fund tax, a corporate profits tax, a land tax, a tax on the use 
of motor vehicles, a tax on bank deposits, an oil and gas tax--those are 
just some of the National taxes--on a local level there are also pension 
and social security taxes, advertising taxes, use of local symbols 
taxes...late payment fees are 120% of the prevailing interest rate...no 
more than 1 government audit is permitted per year except when certain 
conditions occur.

Lithuania does not have a flat tax.  It varies from 15% to 27%.  In 
addition there is an additional 18% Value Added Tax.

Latvia does not have a flat tax.  It varies from 15% to 27%.  In 
addition there is an additional 18% Value Added Tax.

I don't have time to do this for every country in the world.  Suffice it 
to say that the "flat tax" as you described it has not been implemented 
anywhere, and that taxation by definition is "social engineering".  
People who earn wages should be leery of tax schemes promoted by the 
Wall Street Journal for the benefit of the "Workers".

Bill Effros





Brad Haslett wrote:
> Bill,
>
> Here's your sign! I can provide more all day long. The bold print in the
> article was my idea and highlights David's main point.
>
> Brad
>
> ------------------------
>
> WSJ
>
> *High Taxes Wither Away
> *Former communist countries lead the way in abandoning progressivity.
>
> *Monday, February 28, 2005 12:01 a.m.*
>
> President Bush went out of his way last week in Europe to praise the 
> growing
> number of countries that have junked their complicated tax codes and 
> adopted
> a flat tax.
>
> Mr. Bush speaks for a growing number of Americans who are embracing the
> idea--among them Clint Eastwood, who said few years back that the 
> adoption
> of a flat tax would mean "a little old lady on a home computer [could do]
> the work of all these thousands of bureaucrats and accountants. 
> Passing that
> would be amazing, wouldn't it?"
>
> The bipartisan tax-reform commission Mr. Bush has appointed will no doubt
> look carefully at the global spread of the flat tax, a concept its
> supporters hail because it is simple to calculate, is harder to cheat on,
> encourages investment and fosters growth economic growth. Little 
> wonder it's
> catching on in Eastern Europe.
>
> In 1994, newly independent Estonia borrowed the idea of the flat tax from
> highly prosperous Hong Kong, which 45 years before had introduced a dual
> income tax system, allowing taxpayers to pay a flat rate on their gross
> income. (In practice, almost everyone in Hong Kong pays the flat tax.)
> Lithuania and Latvia quickly followed Estonia's lead. Today, all three
> Baltic states are booming, and, along with Slovakia, a recent convert 
> to the
> flat tax, they are the least-taxed countries in the European Union.
>
> The success of the Baltics attracted the attention of Andrei Illarionov,
> Russian president Vladimir Putin's economic adviser. At his 
> suggestion, Mr.
> Putin implemented a 13% flat tax for individuals, along with a 15% 
> rate for
> most business income. The results have been astonishing as Russia's
> black-marketers decided the tax was low enough and transparent enough 
> that
> it wasn't worth evading.
>
> After struggling for a decade, Russia's economy grew 5% a year after
> inflation in 2002 and 2003 and 7.3% last year. The flat tax has been a 
> key
> reason that revenue from the country's personal income tax has grown 
> by 150%
> since 2001. "This constant expansion of the government tax revenue is the
> result of less tax evasion and increased incentive to work, save, and
> invest," noted the Adam Smith Institute in London in a report on the flat
> tax's success.
>
> Russia's experience set off a wave of imitators. In 2003, Serbia 
> introduced
> a 14% tax on income and corporate profits along with plans to cut it
> further. Russia's neighbor, Ukraine then set a 13% rate, with 
> dividends and
> bank interest taxed at only 5%.
>
> Last year Slovakia junked an old tax system that included 66 
> exemptions, 19
> sources of untaxed income and 27 items with their own specific tax rates.
> Instead it put in place a 19% flat tax on income and profits. In December
> Jan Oravec, president of Slovakia's Hayek Foundation, told me that the
> country's flat tax has helped sustain an economic growth rate of 4.9%,
> lowered unemployment and led to a surge in surge in tax revenues as 
> people
> take advantage of the new opportunities to work and invest. Last year, 
> the
> World Bank named Slovakia the world's top economic reformer in 2004 for
> improving its investment climate.
>
> It was in Slovakia last week that Mr. Bush privately told Mr. Putin 
> how much
> he admired Russia's success in implementing the flat tax. Later, in 
> public
> comments, he praised his Slovakian hosts for their flat tax, which "has
> helped to attract capital and create economic vitality and growth."
>
> Alvin Rabushka, a senior fellow at Stanford's Hoover Institution who
> consults with countries all over the world on how to design a flat 
> tax, can
> barely keep up with all the new adherents. Within two weeks after taking
> office in December, Romania's new prime minister, Calin Popescu 
> Tariceanu,
> issued an emergency edict to take effect only three days later: Companies
> and individuals now pay a single flat rate of 16%. Georgia also 
> adopted the
> flat tax as of Jan 1.
>
> Europe is becoming so crowded with flat-tax nations that the original
> proponents of the idea are having to play catch-up. Estonia has just 
> cut its
> rate to 24%, and has promised to slash it to 20% over the next two years.
> Mr. Rabushka's book "The Flat Tax" has just been published in Chinese, 
> with
> a preface by Lou Jiwei, the vice minister of finance. If China were to 
> climb
> on board the flat-tax train, more than a quarter of the world's 
> population
> would be filling out their taxes on the back of a postcard.
>
> In the U.S., interest in the flat tax languished after Steve Forbes, who
> championed a 17% flat rate during his 1996 presidential campaign, 
> failed to
> win the GOP nomination. Former House majority leader Dick Armey, a 
> pioneer
> in promoting the flat tax, privately admits that Congress is unlikely to
> abolish tax deductions for mortgage interest and charitable 
> contributions,
> but there is lots of room for President Bush's tax reform commission to
> propose a dramatic flattening of the income tax code.
>
> Liberal Americans often deride the flat tax on the ground that its lower
> rates would starve public services and allow the rich to escape the 
> higher
> taxes. But as former California governor Jerry Brown pointed out 
> during his
> 1992 presidential campaign, the rich will always be able to hire 
> experts to
> lobby for tax loopholes and avoid the higher rate traps set for them. 
> "It is
> in everyone's interest to make sure everyone pays and that both tax
> loopholes and the underground economy are reduced," he told me at the 
> time,
> citing studies that nearly 10% of the U.S. economy could be off of the
> books.
>
> Indeed, under existing flat-tax systems the wealthy end up paying a
> *larger*share of total tax revenues. In flat-tax countries, taxpayers
> in the highest
> brackets move from consumption or tax-sheltered investments to more
> productive, taxable investments. Many higher earners work harder or take
> additional risks, rewarded by higher after-tax returns.
>
> *Despite all of its advantages, the flat tax faces enormous ideological
> opposition. Envy and the lust for the political control that 
> complicated tax
> regimes can provide are powerful motivations to keep progressive tax 
> systems
> in place. Karl Marx in "The Communist Manifesto" was among the first 
> to call
> for "a heavy progressive or graduated income tax" at a time when a 
> flat rate
> was the norm in advanced countries. He listed it as second in the list of
> priorities for a new society based on the class struggle. *
>
> It is therefore ironic that every country that has adopted the flat 
> tax is a
> former communist nation--except Hong Kong, the modern originator of the
> concept, which has seen its new communist rulers retain the flat tax as a
> centerpiece of its economic policies.
>
> Given all this, why should the U.S. allow itself to continue to see its
> economic potential limited by a Marxist concept that most nations that
> followed that path are now fleeing from?
>
>
>
> On 1/17/07, Bill Effros <bill at effros.com> wrote:
>>
>> Brad,
>>
>> Most of the former Eastern bloc countries have not implemented single
>> rate flat taxes--and most of those who have, have implemented flat taxes
>> higher than 17%.  Most also have national VAT (very complicated
>> progressive sales taxes) in addition to income taxes.  Is this what you
>> have in mind--a scheme to raise taxes for individuals well over the
>> amounts we currently pay?
>>
>> Bill Effros
>>
>>
>>
>> Brad Haslett wrote:
>> > Bill,
>> >
>> > Most of the former Eastern bloc countries, the former Soviet 
>> states, and
>> > Russia, have implemented a flat tax.  They've had their fill of social
>> > engineering. China is next.  We need to scrap our current tax 
>> system and
>> > start from scratch.  Unless you miss the old communist community,
>> > there's no
>> > reason not to begin this whole process over again - with a clean sheet
>> of
>> > paper.
>> >
>> > Brad
>> >
>> >
>> > On 1/16/07, Bill Effros <bill at effros.com> wrote:
>> >>
>> >> David,
>> >>
>> >> According to Brad's definition of the "flat tax" there's nothing in
>> that
>> >> proposal that prevents government at any level from enacting "social
>> >> engineering" taxes -- or any other additional taxes.
>> >>
>> >> Do you have a different definition for the "flat tax"?
>> >>
>> >> Bill Effros
>> >>
>> >>
>> >>
>> >> David A. Culp wrote:
>> >> > The flat tax is a great idea that will never see the light of day.
>> >> >
>> >> > The reason is simple... power.  Both political parties and most 
>> other
>> >> politicians will never give up the power that our present taxation
>> >> system
>> >> gives them.
>> >> >
>> >> > Anybody ever hear the term "social engineering" before?  As an
>> >> example,
>> >> if the government really wants you to quit smoking, they impose taxes
>> to
>> >> make it so financially unattractive that you quit, same for rum
>> >> drinkers.  In fact, it's best if they threaten to do so from time to
>> >> time so
>> >> that the rich tobacco and distiller's lobbies will go nuts and shower
>> >> them
>> >> with money and trips.  That's power.
>> >> >
>> >> > Just recently in Texas, we added $1.00 to the tobacco tax on 
>> January
>> >> 1st.  The tobacco lobby worked very hard behind the scenes
>> >> (read-spread a
>> >> lot of $$ around) but came up short because our legislators had made
>> too
>> >> many promises to taxpayers over the past years to lower property
>> >> taxes.  My
>> >> brother who has smoked for years and we had been trying to get him to
>> >> quit... finally did because he can no longer afford it.  So, our 
>> state
>> >> legislators got my brother to quit smoking, collected lobby money
>> >> from big
>> >> tobacco trying to buy their votes and now will have even bigger tax
>> >> revenues
>> >> to waste in the next session.  A win, win, win for government by
>> >> tinkering
>> >> with the tax system.  To top it off, they will get even more property
>> >> taxes
>> >> long term because the rate reduction is a mere pittance and
>> >> valuations have
>> >> been going up dramatically with no legal cap.  Anyway, at least my
>> >> brother
>> >> quit smoking.
>> >> >
>> >> > Another example, if the US government wants or needs us all to go
>> >> "green", they give us income tax incentives to do so.  Just think if
>> the
>> >> government wanted a wind generator in every well-to-do yard in
>> >> America; they
>> >> could do it in short order with the right tax incentives and we would
>> >> all
>> >> get into the wind energy business and sell those KW's back to the
>> >> electric
>> >> companies.  You can apply this model to just about any subject you
>> >> can think
>> >> of except sailboats.  I don't think the government will ever give me
>> >> a tax
>> >> credit for owning a sailboat, but they should because I'm saving
>> >> fossil fuel
>> >> and not polluting the air as much!  Unfortunately, the sailboat lobby
>> in
>> >> this country just doesn't have enough wealth to push this through.
>> >> But it
>> >> could be done with a large excise tax on fuel at boat docks, a huge
>> >> luxury
>> >> tax on power boats and huge tax breaks for sailboats.  I can just see
>> it
>> >> now, a chicken in every pot and a sailboat in every driveway or
>> farmer's
>> >> pond in America.
>> >> >
>> >> > And no matter what they say, no career politician will ever truly
>> >> support a flat tax.  Steve Forbes is not a career politician with an
>> >> agenda
>> >> and already has plenty of money; so he can afford to support a flat
>> >> tax.  Remember, democrats want to social engineer the whole of
>> >> society by
>> >> redistributing wealth-can't do that as quickly or easily under a
>> >> flat-tax
>> >> system.  Republicans would like to social engineer our morality but
>> >> that's
>> >> nearly impossible; so they are content to get their life-blood from
>> >> businesses and lobbies whom they protect with tax breaks ala Exxon
>> >> Mobil or
>> >> threaten to put out of business, like tobacco for instance.  Either
>> >> way, the
>> >> money just rolls in and as we know, always follow the money.
>> >> >
>> >> > David Culp
>> >> > __________________________________________________
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>> >> >
>> >> >
>> >>
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