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thepeel
Joined: 08 Aug 2004
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 Posted: Wed Apr 18, 2007 8:36 am Post subject: Estonia�s Flat Tax Leads to Economic Boom |
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| Other countries have made their citizens� lives better by simplifying and lowering taxes. Estonians need an average 10 to 15 minutes to file their income taxes. Most do it without leaving their desk: 84 percent file online. � 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. |
http://www.cato-at-liberty.org/2007/04/18/estonias-flat-tax-leads-to-economic-boom/
I strongly favor a flat-tax. The more simple the better. |
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Matt_22
Joined: 22 Nov 2006
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| Posted: Wed Apr 18, 2007 8:52 am Post subject: |
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| correlation = causation ? |
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thepeel
Joined: 08 Aug 2004
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| Posted: Wed Apr 18, 2007 8:59 am Post subject: |
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Well, you could look at the growth rates in the area. Compare those with the flat tax and those without. You will come to the same conclusion as the OP, I trust.
But I'm not so concerned about the growth of the economy as I am the wasted week of my life trying to get my taxes together. The flat tax is easier to use, and actually often increases revenue as poeple are less able to beat the system.
Probably the most successful tax system on earth is Hong Kong. They pull in the same %/gdp/head as does the USA but use a flat tax system with lower % brackets. |
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Matt_22
Joined: 22 Nov 2006
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| Posted: Wed Apr 18, 2007 9:12 am Post subject: |
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| BJWD wrote: |
| Well, you could look at the growth rates in the area. Compare those with the flat tax and those without. You will come to the same conclusion as the OP, I trust. |
wouldn't there be numerous other variables that come into play when comparing different regional growth rates? i'm no economist, but this seems pretty obvious. but if there's anything i learned from my econ minor, it's that i know absolutely nothing about real world economics. |
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thepeel
Joined: 08 Aug 2004
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| Posted: Wed Apr 18, 2007 9:24 am Post subject: |
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Well, kinda. But tax competition is a big thing right now. If you are interested, I'm sure you will find ample, properly research studies on the web.
But it is taken as a 'given', that at worst, a flat tax would merely keep productivity and gdp growth at the same level as before.
Objections tend to be moral as a certain disposition of a person just likes the rich to pay more as a % of income. |
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JongnoGuru
Joined: 25 May 2004
Location: peeing on your doorstep
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| Posted: Wed Apr 18, 2007 9:30 am Post subject: |
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| BJWD wrote: |
| But I'm not so concerned about the growth of the economy as I am the wasted week of my life trying to get my taxes together. |
I don't know which country's taxes you pay, but I will bet you'd merrily pay a couple % MORE than what you did if you could have saved yourself that week of every year of your life. |
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thepeel
Joined: 08 Aug 2004
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| Posted: Wed Apr 18, 2007 9:50 am Post subject: |
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You mean I would want to pay a slightly higher tax for the system to be simplified? That is true, I guess. Not much though. I'd rather not hand over nearly 50% (which I believe to be a low estimate, as it doesn't take into account the dramatic price inflation that heavy taxation builds into the costs of all goods) to the government.
I think 12-15% is reasonable. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Wed Apr 18, 2007 4:18 pm Post subject: |
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| Great in theory. Indeed. There's no way the American congress would pass a flat tax. I'm assuming you can't write off investment losses, donations, and tax deferred retirement plans. If so, those are some very powerful lobby groups in congress. |
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Svetlana
Joined: 22 Jan 2007
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| Posted: Wed Apr 18, 2007 5:13 pm Post subject: |
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| All of Estonia's money comes from tourism. They are a tiny little country very close to Finland and Sweden. Also RyanAir fly there from London. I hate Tallinn these days because there are so many tourists, mostly drunk males... All of whom think they can show up and sleep with any girl for a few Euros. it used to be a wonderful place to go, but westerners ruined it. Today it is a tacky consumerist society. |
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thepeel
Joined: 08 Aug 2004
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| Posted: Wed Apr 18, 2007 5:30 pm Post subject: |
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Wow. svetlana, I'm stunned at your sig.
Do you understand that non-Americans were killed too? And that those Americans who were killed were innocent? I think that your sig is disgusting. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Wed Apr 18, 2007 9:29 pm Post subject: |
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| BJWD wrote: |
Wow. svetlana, I'm stunned at your sig.
Do you understand that non-Americans were killed too? And that those Americans who were killed were innocent? I think that your sig is disgusting. |
The sock seems to have removed it. |
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huffdaddy
Joined: 25 Nov 2005
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| Posted: Thu Apr 19, 2007 2:31 am Post subject: |
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Other factors:
http://www.state.gov/r/pa/ei/bgn/5377.htm
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Estonia began to adopt free-market policies even before it declared independence in mid-1991 and has continued to pursue reform aggressively ever since. For example, the government set privatization as an early priority and has now completed the process of putting most major industries in private hands. After independence the Government of Estonia took steps to simplify the tax system. Tax evasion is now relatively low by regional standards. Income tax is levied at a flat rate, a principle supported by all the major parties except the Center Party, for which a progressive tax system remains a keystone policy. Budget performance is exceptionally strong; the IMF projected a surplus of 3.4% of GDP in 2006.
An integral part of Estonia's transition to a market economy during the early 1990s involved reorienting foreign trade to the West and attracting foreign investment to upgrade the country's industry and commerce. In 1990, only 5% of Estonia's foreign trade was with the developed West; only 21% of this trade represented exports. About 87% of Estonia's trade was with the Soviet Union, and of that, 61% was with Russia. Estonia's main foreign trading partners today are Sweden, Finland, Germany and others in the West. Russia's share of Estonia's trade is less than 10%.
The introduction of the Estonian kroon in June 1992, with only U.S.$120 million in gold reserves and no internationally backed stabilization fund, proved decisive in stabilizing foreign trade. For stability, the kroon was pegged by special agreement to the deutsche mark (DM) at EKR8 = DM1 and later to the Euro. The new Estonian currency became the foundation for rational development of the economy. Money began to have clear value; the currency supply could be controlled from Tallinn, not Moscow; and long-term investment decisions could be made with greater confidence by both the state and private enterprise. The central bank is independent of the government but subordinate to the parliament. In addition to its president, the bank is managed by a board of directors, whose chair is also appointed by parliament.
The fall of the Soviet Union and the rapid contraction of Estonia's market to the East during the early 1990s caused Estonia's economy to shrink 36% from 1990 to 1994. But economic reforms in Estonia and the ability of its economy to reorient toward the West allowed Estonia's economy to pick up in 1995 with 4.6% growth and 4.0% growth in 1996. Russia's financial crisis in 1999 led to the only year of decline in Estonia's GDP since 1994--but the 0.7% decline was relatively small.
The 1994-2004 period was mainly dominated by the Estonian EU and NATO accession processes. Estonia was the first Baltic country to start direct accession talks with the EU. Estonia applied to join the EU in November 1995 and, while participating in accession negotiations, continued its program of major economic and social reforms. This gave Estonia a good opportunity to take into account EU objectives and to exploit the experience of existing EU member states when carrying out reforms. Examples of reform in the social area included the launch of unemployment insurance in 2002 and the 1999 implementation of the Occupational Safety and Health Act, which regulates safety and health requirements in the work place as well as the organizational aspects of the occupational health system.
In 1999, Estonia joined the World Trade Organization, adding to its previous membership of the IMF, World Bank and the European Bank for Reconstruction and Development.
In November 2002, Estonia was one of seven Central and East European countries to be invited to join NATO; it officially became a member of NATO on March 29, 2004. In just fifteen years since re-establishing independence, Estonia has proven itself to be an excellent Ally, having built a military capable of participating in ever more complex and distant military operations.
EU accession negotiations proceeded rapidly, and Estonia joined the EU in May 2004, along with nine other countries, including its Baltic neighbors. The final decision was conditional on the outcome of a national referendum which was held in September 2003 and returned a large majority in favor of membership. |
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thepeel
Joined: 08 Aug 2004
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| Posted: Thu Apr 19, 2007 5:12 am Post subject: |
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Iceland also recently joined the "flat tax club".
Some relevant articles..
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Ansip's center-right Reform Party, the conservative IRL union and the centrist Social Democrats agreed earlier this week on a coalition platform. They plan to continue market-friendly policies in the country of 1.3 million, including reducing the flat tax from 22 percent to 18 percent by 2011. |
http://www.iht.com/articles/ap/2007/04/04/europe/EU-POL-Estonia-Government.php
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The case for flat taxes
Apr 14th 2005
From The Economist print edition
Pioneered in eastern Europe, flat tax systems seem to work because they are simple
AN ARTFUL taxman, according to Jean-Baptiste Colbert, treasurer to Louis XIV, so plucks the goose as to obtain the most feathers for the least hissing. Such arts are lost in America. As the April 15th deadline for filing tax returns falls due, the hissing is as audible as ever. But Americans are not alone. New Zealand's tax code instils �anger, frustration, confusion and alienation� in the islands' businessmen, according to a 2001 report to ministers. Adam Smith spoke for many when he bemoaned the �unnecessary trouble, vexation, and oppression� the people suffer at the hands of the tax-gatherers.
The Americans are talking about it. Meanwhile in Europe, east of Vienna and as far afield as Russia and Georgia, they are actually doing it. In 1994, Estonia became the first country in Europe to introduce a so-called �flat tax�, replacing three tax rates on personal income, and another on corporate profits, with one uniform rate of 26%. Simplicity itself. At the stroke of a pen, this tiny Baltic nation transformed itself from backwater to bellwether, emulated by its neighbours and envied by conservatives in America who long to flatten their own country's taxes.
Latvia and Lithuania, Estonia's Baltic neighbours, promptly followed its example. In 2001, Russia too moved to a flat tax on personal income. Three years later, Slovakia imposed a uniform 19% rate on personal and corporate income, and set the same rate for its value-added tax (VAT) too, for the sake of symmetry rather than economic logic, it seems. In Poland, Civic Platform, a centre-right opposition party, wants to mirror Slovakia, only at the lower rate of 15%. In all, eight countries have now followed Estonia (see table).
Fairness is the chief reason why most countries have imposed multiple rates of tax. In Canada, Australia and the European Union, for example, staple foods, but not restaurant meals, are exempted from value-added tax. This is deemed fair because the poor spend a greater share of their income on unprepared food. It can lead to nonsense, however. Jeffrey Owens and Stuart Hamilton of the OECD point out that hot roast chicken is taxed, but cold roast chicken is not. �Does anyone expect tax administrators and business owners to have thermometers on hand when they do their tax calculations?� they ask, only half in jest.
How much fairness is gained for all this extra complexity? Surprisingly little, suggest Messrs Owens and Hamilton. In New Zealand, for example, only the richest tenth of households pay much more under the country's progressive income tax than they would under a 25% flat tax (see chart). Most of the redistribution in New Zealand is carried out on the other side of the government's ledger, by spending more money on poor people.
At the time of its reform, Estonia also taxed labour and capital at the same rate. After 2000, however, it chose not to tax profits at all until they are distributed to shareholders as dividends. This gives companies an incentive to retain their earnings and reinvest them. Indeed, very little of the burden of taxation in Estonia falls on corporations directly: corporate taxes accounted for only 3.6% of total tax revenues in 2003.
Estonia's economy has grown impressively since its 1994 reform. Growth reached double digits in 1997, and has since settled at around 6% annually, after a slump at the turn of the century. Repealing its high tax rate on the rich did not erode the country's tax base as some might have feared. In 1993, general government revenues were 39.4% of GDP; in 2002, they were 39.6%. Estonia now plans to cut its flat tax from 26% to 20% by 2007.
But how much do Estonia's robust revenues owe to its flat income tax? Perhaps less than is frequently advertised. In 1993, the year before its reform, Estonia's multiple personal income taxes raised revenues amounting to 8.2% of GDP. In 2002, its flat income tax raised revenues worth just 7.2%. Indeed, the flat income tax that generated so much excitement abroad seems to be carrying less weight than Estonia's old-fashioned VAT, which raised 9.4% of GDP in revenues in 2002.
Many advocates of the flat tax, particularly in America, argue that it sharpens the incentive to work. A progressive income tax, they claim, deters extra effort from society's best-paid (and therefore most productive) members. Russia's experience, however, suggests that the principal virtue of the flat tax is its simplicity. The government's revenues did not surge because Russians suddenly squared their shoulders and straightened their backs. Rather, Russia's tax system became easier to administer and easier to comply with.
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www.economist.com (behind a subscription wall)
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The economic results of the flat tax in Estonia were stunning as the tiny Baltic state emerged from 50 years of Soviet oppression and a Bolshevik-style planned economy to become a modern, prosperous country.
Inflation dropped from more than 1,000 per cent to just 2.5 per cent, in line with western Europe. Unemployment fell from 30 per cent to six per cent and growth has soared to six per cent, a rate that Gordon Brown would envy. Investment poured in and the initial 26 per cent tax rate has been cut to 23 per cent. Next year, it will be cut again to 20 per cent. |
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2005/09/04/nflat104.xml&sSheet=/news/2005/09/04/ixhome.html
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(12-25) 04:00 PDT Tallinn , Estonia -- Estonia, one realizes after a few days in the abiding twilight of a Baltic winter, is not like other European countries.
The first tip-off is the government's Cabinet room, outfitted less like a ceremonial chamber than a control center. Each minister has a flat-screen computer to transmit votes during debates. Then there is Estonia's idea of an intellectual hero: Steve Forbes, the American publishing scion, two-time candidate for the Republican presidential nomination and tireless evangelist for the flat tax.
Fired with a free-market fervor and hurtling into the high-tech future, Estonia feels more like a Baltic outpost of Silicon Valley than of Europe. Nineteen months after it achieved its cherished goal of joining the European Union, one might even characterize Estonia as the un-Europe.
"I must say Steve Forbes was a genius," Prime Minister Andrus Ansip declared during an interview in his hilltop office. "I'm sure he still is," he added hastily.
The subject was the flat tax, which Forbes never succeeded in selling in the United States. Here in the polar reaches of Europe it is an article of faith. Estonia became the first country to adopt it in 1994, as part of a broader strategy to transform itself from an obscure Soviet republic into a plugged-in member of the global information economy.
By all accounts, the plan is working. Estonia's economic growth was nearly 11 percent in the last quarter -- the second fastest in Europe, after Latvia, and a pace more reminiscent of China or India than Germany or France.
"Everybody dreams about a society with no inequality," Ansip said. "But the best policy is to have a strongly growing economy. With more prosperity we can increase social benefits."
Make no mistake: Estonia is grateful to be in the European fold. Membership in the European Union -- and NATO -- throws a security blanket over a land that has been subjugated repeatedly by foreign powers, most recently the Soviet Union.
With Estonia safely inside, though, Europe no longer looks like much of a draw. The euro, which once symbolized prosperity, is now viewed by many here as an invitation to higher prices. Inflation has already doubled since Estonia joined the European Union in May 2004. As a cautionary tale, people here point to Italy, where the cost of a haircut or a cup of coffee spiked after it retired the lira.
In any event, Estonia may miss its deadline of January 2007 for adopting the euro, because its inflation rate, close to 4 percent, is above the limit imposed by treaty. That would apparently not faze too many people: in a recent survey commissioned by the government, 54 percent of respondents said they did not want the euro, while 41 percent favored it.
"We have always had mixed feelings about joining the monetary union," Marje Josing, the director of the Estonian Institute of Economic Research, said. "We have some experience of being part of a union."
Feelings toward Europe soured further after Britain, which holds the rotating presidency of the European Union, proposed reducing financing to new member states by $16.8 billion between 2007 and 2013. Estonia, Ansip said, is counting on the cash. European leaders worked out a compromise Dec. 17 that lessens the cuts, which mollified Ansip.
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http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2005/12/25/MNGD3GBISK1.DTL
At the very least we can say there is *some* fiscal benefit. In addition, in my opinion, it ought to be a policy goal to have a tax system that is as easy to navigate and understand as possible. Otherwise, this becomes an additional tax on the poor as the not-poor are able to use various professionals to maximize the system in their favor.
But to the point. I believe that the way my nation does taxation is deeply unjust. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Thu Apr 19, 2007 11:58 pm Post subject: |
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Flat taxes are regressive.
In addition, I am wary of Flat taxes because they will strip away the kind of deductions and tax credits which have benefits. For example, in America we have a fine tradition of private giving. What effect will not being able to deduct your charities from taxes have on non-profits? In addition, there is the continuing education tax credit. Different from a deduction, if you pay at least $1,000 as an adult to continue your education, you may subtract $1,000 from the taxes you pay. Credits are far better than deductions.
In the US, flat taxes won't happen. #1, there is a whole industry devoted to doing your taxes for you, including software like TurboTax, etc. #2, Flat taxes may not be unjust, but they certainly are regressive. If my family makes $49,000/year, I should not only pay less in value in taxes, but also less in proportion in taxes than a family who makes $200,000/year.
At the very least, one must admit that a simplified graduated tax platform is preferable to a flat tax. I will admit that George Bush has managed to fool many into accepting large tax breaks for the rich by refunding taxes (the proportions are equal between the rich and poor, if not better for, the rich). In this way, a graduated flat tax would be a protection against regressive tax cuts fit into the guise of fiscal populism. |
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thepeel
Joined: 08 Aug 2004
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| Posted: Fri Apr 20, 2007 12:15 am Post subject: |
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| Flat taxes are regressive. |
As in, they disproportionately tax the poor? Or, unfairly tax the poor? You need to clarify this.
Under a 10% flat tax, a man earning 50k would pay 5k, and a man earning 100k would pay 10k. How is this regressive? Should people with more money be punished? We can't even call it the "rich", as the current system penalizes everyone who isn't dirt poor for not being dirt poor.
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In addition, I am wary of Flat taxes because they will strip away the kind of deductions and tax credits which have benefits. |
That is the point, actually. The many deductions and loopholes inherent in our system (Canada and the USA) is actually regressive as it is an indirect tax on those people who can not afford professional help in figuring their taxes.
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For example, in America we have a fine tradition of private giving. What effect will not being able to deduct your charities from taxes have on non-profits? |
This is a fair criticism.
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In the US, flat taxes won't happen. #1, there is a whole industry devoted to doing your taxes for you, including software like TurboTax, etc. #2,
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The class warriors, such as yourself, who mistakenly think the tax to be regressive are the primary reason it will likely never be put into place. The issue isn't proportion, but net taxation, in my mind.
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At the very least, one must admit that a simplified graduated tax platform is preferable to a flat tax. |
Uh, no, one must not. I think it a terrible idea filled with strange incentives.
The more simple, the better. In fact, a move away from taxing income in any way would be the most 'just'.
Governments ought not tax things that are good, like economically productive activities. Tax pollution, excess consumption, trash, carbon, etc etc. Taxing income implies the government owns her citizens productive abilities, which is tyrannical. |
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