What countries use a flat tax?

Question

Anyone have any info on this? Is the paperwork easier than in the US? Any complaints?

No one in the world likes taxes. The people in the US have it worse because of the headaches the get when dealing with them.

Answer 1

The so-called Flat Tax is a ploy by the wealthy to transfer their tax burden to the shoulders of the middle class and working poor. Why do you think that folks like Steve Forbes like it so much?

For a flat tax to raise the revenue that the current graduated income tax raises would require a rate of around 25% - 27%. The wealthy pay a marginal rate of 35% so they'd see a nice fat tax cut. Steve Forbes, Bill Gates, and Warren Buffett would pocket MILLION$ on a flat tax.

Most middle-class working stiffs -- folks like you and me -- pay a total tax rate of between 10% and 20% of our total income. Pull out your tax return and compare the Total Tax line to the Total Income line -- and don't forget to add back any 401(k) contributions and your pre-tax medical insurance deductions -- and see what your total effective tax rate is. If you're like most folks, it will be a LOT less than 25%

Now, what would it do to the working poor? Let's have a look. Take a single parent supporting 2 kids on around $16k a year. They don't pay any tax at all and get about $4k in EITC payments. That makes for a little under $18.8k a year when SS and Medicare taxes are considered. They survive, but just barely. With a flat tax, the EITC would disappear and the tax bite would rocket to over $5,500 for them, including SS and Medicare. Take home pay would drop from from $18,800 to about $10,450. They'd be tossed into the streets by the millions. All so Steve, Bill, and Warren can have even more money than they could ever reasonably need.

The Flat Tax and the so-called "Fair Tax" -- a hugely expensive national sales tax -- both violate the first rule of taxation: Make sure that the taxpayer can afford to pay the tax. Our current graduated income tax does just that -- everyone pays their fair share and the poorest get an assist from those of us who are better off.

The impact of the "Fair Tax" on the working poor would be just as devastating as the Flat Tax since nearly every penny they earn goes to pay for essentials. The wealthy spend a far smaller portion of their total income and would get a major tax break.

Worse yet, the "Fair Tax" would require just as much work by the IRS to ensure that all sales were properly taxed and that the funds were rendered. Black marketing of untaxed goods would go through the roof. Look what is happening with tobacco and liquor in high-tax states right now. And we all know the type of element that black marketing attracts -- organized crime and gangs. Wouldn't THAT be nice, getting a TV or your Captain Crunch from the local gang-banger. No thanks!

Answer 2

I believe that both a flat tax (without loop holes) and a national consumption (sales) tax would be best. Such a system would raise more money for the Federal government that is receives under the current tax system. Of course there would have to be safe guards built in to prevent Congress or whatever agency is used to collect the taxes arbitrarily raising the taxes on a whim.

Answer 3

Georgia (12% tax rate, 9.5% growth-est.)
Russia (13% tax rate, 7.1% growth)
Ukraine (13% tax rate, 12% growth-est.)
Serbia (14% tax rate, 7% growth)
Hong Kong (16% tax rate, 8.1% growth)
Romania (16% tax rate, 8.1% growth-est.)
Slovakia (19% tax rate, 5.3% growth-est.)
Estonia (24% tax rate, 6% growth-est.)
Latvia (25% tax rate, 7.6% growth-est.)
Lithuania (33% tax rate, 6.6% growth-est.)

Answer 4

Here is a Wall Street Journal article from February 2005 on the tide of Eastern European countries switching to the flat tax. I don't know if ANY country has a tax form that is the size of a postcard; however, the great attraction for this type of tax is the simplicity in computing tax liability, with many fewer rules, but also fewer deductions and tax credits.

High Taxes Wither Away
Former communist countries lead the way in abandoning progressivity.

Monday, February 28, 2005 12:01 a.m. EST

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.