Flat Taxes
Tomorrow I plan to make my tax declaration. This reminded me again of the Economist article The flat tax revolution.
Estonia (I love Estonia in general, it’s progressive culture in particular) was the first country to introduce flat taxes in Europe in 1994 at 26%. No exceptions. (In fact, the article doesn’t mention that the taxes are even being decreased gradually down to 20% in 2007).
Most people argue that this type of taxation is unsocial. However, it is an illusion, that the wealthy members of the society pay their effective share in a degenerate progressive system with many exceptions and loopholes. In fact, they have access to the (absolutely legal) means such as specialized lawyers to reduce their taxes. In addition, most flat tax systems have a higher base income threshold which is not subject to taxes. Or as the Economist puts it
Not so. A flat tax on personal incomes combines a threshold (that is, an exempt amount) with a single rate of tax on all income above it. The progressivity of such a system can be varied within wide limits using just these two variables. Under systems such as America’s, or those operating in most of western Europe, the incentives for the rich to avoid tax (legally or otherwise) are enormous; and the opportunities to do so, which arise from the very complexity of the codes, are commensurately large. So it is unsurprising to discover, as experience suggests, that the rich usually pay about as much tax under a flat-tax regime as they do under an orthodox code.
In addition there are huge savings on the simplified buerocracy aparatus to process the tax declarations.
And remember how the flat tax discussion was also led in Germany just before the elections. As an example read this interview Norbert Walter chief economist of Deutsche Bank.
Merkel (in favor of an at least simplified tax system) referred to the books you can buy with titles such as “1000 tricks to save taxes” … a good example. Unfortunately the flat tax approach did not have the slightest chance in Germany.)
Further reading here
I also just discovered the Estland Blog where one can read that the main driver of flat tax system in Estonia, Mart Laar, just received the Milton Friedman price.
I also could imagine a flat tax together with ecologic tax reform … a low flat income tax and higher taxes on oil etc. This would probably be the most progressive system.