Flat Tax: "we Did It Because We Did Not Know That It Was Impossib

[AlexL]

From http://www.brusselsjournal.com/node/202

The man who sparked the flat tax revolution is former Estonian Prime Minister Mart Laar. He governed his country from 1992 to 1995 and from 1999 to 2002. When the historian became Prime Minister in 1992 at the age of 32 he knew nothing about economy. Laar’s area of expertise were Europe’s 19th-century national movements. “It is very fortunate that I was not an economist,” he says. “I had read only one book on economics — Milton Friedman’s “Free to Choose.” I was so ignorant at the time that I thought that what Friedman wrote about the benefits of privatisation, the flat tax and the abolition of all customs rights, was the result of economic reforms that had been put into practice in the West. It seemed common sense to me and, as I thought it had already been done everywhere, I simply introduced it in Estonia, despite warnings from Estonian economists that it could not be done. They said it was as impossible as walking on water. We did it: we just walked on the water because we did not know that it was impossible.”

[reference found at http://gabriel.mihalache.name/bop/archives...08/28/18.09.03/ ]

Alex

Edited September 24, 2005 by AlexL

[Felix]

I only wished we had a flat tax in Germany.

We could have gotten it, but now that the election ended up voting for nobody, we won't.

[daniel]

A flat tax is a great idea. Hong Kong has had one for decades and we all know what an economic miracle that is. Those countries with a flat tax are growing (GDP wise) at around double to those without a flat tax.

[softwareNerd]

A related thread is the one in which the proposal for a so-called "Fair Tax" was discussed.

[Capitalism Forever]

An excellent example of the power of ideas.

[Unconquered]

A "flat tax" is still an income tax, and as such, is bad. It is anti-savings, particularly coercive, still provides some justification for an IRS, and other objections. Far better would be a national sales tax, which is not anti-savings, is easily implemented, does not require long term bookkeeping, and provides no particular justification for an IRS. It is also inherently "flat", and any incremental percentage increase is a smaller amount taken, unlike an income tax. (i.e. each percentage point of sales tax increase does not correspond to decreasing your earnings by 1% - you could have a 100% sales tax that would double the cost of something, but a 100% income tax would take everything.)

[Randrew]

I apologize for my ignorance, but could some one tell me what the definition of a flat (income) tax is? Does it mean that everyone (i.e. every taxpayer) pays the same percentage rate of their income, or does it mean that everyone pays the same amount, period?

I assume it means the former, since the latter, if taken literally, is impossible: you can't say "everyone pays $5000 a year," since then people who make only $5000 a year will have nothing.

However, I was wondering if anyone has considered a system in which everyone pays a fixed percentage up until a certain point, after which the tax amount is the same? For example, everyone pays 10% of his income as taxes unless he makes at least $10,000/yr, after which he only pays $1000/yr, no matter how much he makes.

I don't see how a sales tax is, in theory, any "less immoral" than a fixed-percentage income tax. My reason for this is simple, albeit possibly naive: the more money you make, the more money you will spend. Therefore, people with higher incomes will still end up paying more taxes anyway. Under the system I mentioned above, however, everybody pays the same.

[softwareNerd]

The way the term is usually used, it means that a fixed percentage (rather than progressively higher percentages) are a part of the scheme. Most flat-tax proposals also include tax-simplification schemes: e.g. removal of deductions for loan interest, etc. Almost all flat-tax proposals also exempt the first $ xxxxx of income.

[jrs]

I apologize for my ignorance, but could some one tell me what the definition of a flat (income) tax is? Does it mean that everyone (i.e. every taxpayer) pays the same percentage rate of their income, or does it mean that everyone pays the same amount, period?

A tax where everyone pays the same absolute amount is called a capitation tax or head tax.

I think of the flat tax as an extension of a value-added tax (VAT).

In a VAT, each business pays a certain percentage of its revenue and deducts from that the same percentage of what it pays for its raw materials and tools. So it is paying a tax on the value which it added to the materials it got from its suppliers.

The flat tax extends this idea by treating the labor supplied by workers as an intermediate good and the workers as businesses. However, the workers' costs, i.e. consumption, are not deductible.

[BurgessLau]

Here is a related issue: Should individual slaves who work hardest be given shorter lunch breaks than those who work the least? Or should all slaves be given the same length of lunch break?

Or should slavery be abolished?

Now if the issue is how should the evil of taxation be eliminated, then that is a different question.

If the statist opposition to abolition of taxation is strong enough to block outright abolition of all taxes immediately, but isn't strong enough to block progressive freedom, then the right political path is progressive freedom. For example, a proper move would be from the present system of taxation in the U. S., in which the more productive people pay higher taxes percentage-wise as well as absolutely, to a system in which everyone pays the same percentage (but no higher than the lowest present percentage), to a system in which more and more individuals receive exemptions ("tax breaks"), to a system in which there are no taxes at all.

A "flat tax" is good only if it is one provisional step down that staircase of taxation toward freedom from all taxation.

Under no circumstances should anyone's taxes be raised under tax "reform." The movement of taxation should always be down, down, down.