The Flat Tax Revolution

Market Center Blog points out this Financial Times article that describes the success of the flat tax system in many Eastern European countries.

The adoption of flat tax systems in eastern Europe - following their earlier introduction in Hong Kong and the Channel Islands - has sparked growing interest in western Europe and the US.

This month, Poland's centre-left government announced that it would introduce a flat tax system by 2008. The new scheme would set taxes on all personal income and corporate profits, as well as value-added tax, at 18 per cent.

Nine eastern European countries, from Estonia in 1994 to Romania and Georgia this year, have set low, flat rates on personal income and often equally low corporate taxes. The clearest benefits are easier administration and a better understanding of tax bills. Lowering the tax rate and broadening the base discourages tax avoidance and evasion.

Charles Robertson, an economist for ING Bank, notes that Estonia has applied a flat tax for more than a decade without opposition. "Estonia has done incredibly well, and no political party is saying 'It is about time we tax the rich a little more'."