Wednesday, November 16, 2005

Flat Taxers

The Cato Institute has been flogging the concept that the world is rapidly moving toward a flat tax. See Catching Up to Global Tax Reforms. They point to such advanced economies as those of Estonia, Latvia, Lithuania, and Romania. And Ireland, which really is an advanced economy. (The study also notes the flat tax regime of Hong Kong. But because of Hong Kong's relationship with China, its tax system cannot reasonably be held up as an example for any other country.)

One of the source studies upon which the Cato paper relies is Structures of the Taxation Systems in the European Union. The 394 page report makes for fairly heavy reading, but one thing stands out: The tax systems of the so-called "New Member States" (such as Estonia, Latvia, Lithuania, and Romania) are strikingly different than those of the "Old Member States." Ireland, an "Old Member State," for some reason has a tax system that is closer to those found in New Member States.

As best as I can determine (and I have not read the entire report: I do have a life), the movement to a flat tax in the New Member States is not as pronounced as the Cato Institute report would lead one to conclude. More importantly, the economies of these states, however, are not nearly as advanced as those of the Old Member States. (That's why the percentage economic growth rates in these states tend to be higher: the same amount of increase in GDP represents a higher percentage of GDP than in more developed economies.) Thus, their tax systems are designed to encourage more rapid capital accretion.

One thing that was noticeable was that, generally, the Europeans rely to a greater extent than we do on regressive sorts of taxes. In making my, admittedly not too precise, evaluation, I tried to account for the fact that, in the main, Europeans have national health care systems. Thus, while their tax rates might be nominally higher than in the US, the benefits citizens receive from their governments are higher as well. If one takes into account the portion that we pay out of our pockets (either directly or in the form of medical insurance after discount for the tax benefits) for health care, I think that, for the most part, our taxes may actually be higher than those in Europe.

1 comment:

Anonymous said...

"The 394 page report makes for fairly heavy reading"

Obviously, you did not read the appendex, Nataha Federoyvich, the double jointed actuary, "How to stimulate the New State's members."


"As best as I can determine (and I have not read the entire report: I do have a life)"

No devoted reader could believe that, you have a life. HA