|
 leven
years ago, the Soviet Union was a communist dictatorship, an "evil
empire," in the words of President Reagan. But today, the Cold
War is a fading memory, and the nation that used to represent international
socialism has junked its "progressive" income tax for
a simple and fair 13 percent flat tax.
What's more
— in a plot twist even novelist Tom Clancy might have scoffed
at — the idea came from President Vladimir Putin, a former
head of the KGB.
Who would have
thought it — that America would beat the Soviets to the moon,
but Russia would become the first to adopt the ideal free-market
tax system? (What's next — France becomes a military superpower?
The Congo wins the Winter Olympics?)
Moreover, the
Russian flat tax has proven a smashing success since it took effect
in January 2001. Russia's economy grew by more than 5% last year
while most other nations were mired in recession. Even the Organization
for Economic Cooperation and Development called Russia's flat tax
system a "key accomplishment," a stunning admission since
the Paris-based bureaucracy is infamous for complaining about the
"unfairness" of nations using low tax rates to lure jobs
and capital from high-tax nations.
It also is
interesting to note that Russian tax revenues are skyrocketing even
though the tax rate now is now far below the 30% top rate of the
old system. According to preliminary figures, inflation-adjusted
tax revenues climbed by 28% last year. This proves the class-warfare
artists in Washington completely wrong when they argue that tax
revenues would fall and the rich would get a big tax cut if America
adopted such a system. The Russian experience confirms — again
— that tax revenues rise under a flat tax.
In addition
to one low rate, Russia's flat tax is much less biased against savings
and investment. Unlike our Internal Revenue Code, which taxes income
once when you earn it and a second time when you invest it, the
Russian flat tax does not double-tax corporate income or impose
a capital-gains tax on stocks, bonds, and home sales. And with few
exceptions, there is no double-tax on bank deposit interest. A few
warts remain, but Russia's flat tax already beats America's punitive
redistribution-oriented tax code hands down.
Fortunately,
it appears that some U.S. politicians have noticed. President Bush
said last June that he "was so impressed that [Putin] was able
to simplify his tax code in Russia with a flat tax." Later
that year, the president reiterated his support, stating at a press
conference with Putin that "I am impressed by the fact that
he has instituted tax reform — a flat tax. And as he pointed
out to me, it is one of the lowest tax rates in Europe. He and I
share something in common: We both proudly stand here as tax reformers."
The difference
between President Bush and President Putin, of course, is that while
Russia enjoys its flat tax, Americans still have to navigate the
hundreds of forms required by all 45,000 pages of our mind-numbing
tax code. But don't blame President Bush. He's boxed in by tax-cut
opponents such as Sens. Tom Daschle and Edward Kennedy. If they're
willing to filibuster against a tiny tax cut in a stimulus bill,
it's not hard to imagine what they would do to stop a flat tax.
In the past,
politicians in Congress have said a flat tax is impractical —
even though jurisdictions such as Hong Kong and Bermuda enjoyed
rapid growth in part because of their flat-tax systems. When nations
such as Estonia, Latvia, and Lithuania enacted flat-tax systems,
the special interests claimed these nations were too small to teach
us anything. Now that Russia has a successful flat tax, what excuse
will they use now?
A flat tax
will create jobs and boost growth — improving America's competitive
advantage in the world economy. But tax reform is not just about
a bigger economy. A simple and fair flat tax also would reduce political
corruption and fulfill our Constitution's promise that all people
should be treated equally. If former communists can make this reform,
is it too much to hope that Congress can do the same thing?
—
Mr. Mitchell is the McKenna senior fellow in political economy at
The Heritage Foundation,
a Washington-based public policy research institute.
|
