Springtime for Taxes

http://www.realclearpolitics.com/articles/2007/04/springtime_for_taxes.html

Twelve years ago, Estonia became the first country to tax everyone -- companies and individuals -- at the same flat rate. It started at 26 percent, dropped to 22, and will go to 20 in 2009. There are a few deductions for things like mortgage interest, educational expenses, and charitable donations. Very low incomes are exempt.

Unsurprisingly, Estonia is booming. The former Soviet republic used to be poor, with an average income 65 percent below its European neighbors. Today, Estonians are almost as rich as their neighbors, and their economy is growing more than 11 percent a year.

Corporations like a tax system that is low and simple, too, and that leads them to do more business in flat-tax countries. American companies such as Microsoft, Colgate, 3M, Bristol-Meyers Squibb, and Johnson & Johnson opened businesses in Estonia after the flat tax was adopted. Twelve years ago, foreign investment in Estonia made up only 5 percent of GDP, but today, it's up to 20 percent. That means there's more money in the Estonian economy to tax. So while the tax rate dropped, government revenues actually increased.

So why can't we do that here?

Great essay from John Stossel. Not only does it make a case for a flat tax system, but it shows why our politicians are loathe to change the status quo. Our tax code may be obtuse, but it's not hard to understand why such a system gives politicians lots of leverage. If you think you're a victim, you can lobby for a special exemption for whatever unfair burden you suffer from. Nothing looks better on election day than a politician who can claim to have "relieved the burden" of the american taxpayer. How easy would it be to curry favor with voters through tax manipulation if we adopted a flat tax - and eliminated all the exceptions?

I haven't heard anyone yet make a good case for why we shouldn't adopt a flat tax that doesn't hinge upon the idea of redistribution of wealth. Everyone agrees that taxes shouldn't be so hard to file. Most people would agree (except those who depend on it for influence and power) that removing the incentive for politicians to manipulate the tax laws would be a good idea. Of course, most people would hope to pay less taxes under any proposal to change the status quo. Personally, I'm less concerned with how much I'm paying than I am with how clearly the current tax system violates principle and the consequences of such violation.

As for those who would complain about the unfair or disproportionate burden a flat tax would impose on the poor, who prefer a system where the rich would pay a greater portion, I would ask - what is your moral and rational justification for taking by force the wealth of one man to give to another, by virtue of his having less? By what criteria will you make the distinction between rich and poor? What does it do to society to reward failure, and punish success?

How long do you think such a system can sustain itself if it takes from those who have demonstrated their capacity to produce and gives to those who have demonstrated only their capacity to consume?