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| Europe |
| Flat Taxes Undermining EuroSocialism(tm) |
| 2005-04-29 |
| Flat taxes, once a fantasy of free-market ideologues, are sweeping across the European Union and could be introduced in more than 10 of the bloc's 25 member states. The European commissioner for taxation, Laszlo Kovacs, described flat taxes, - one rate for all income and corporate taxation - as "absolutely legitimate" and said Western European nations may be tempted to adopt them. His comments will fuel debate that low-tax, low-cost economies of the East are undercutting Europe's industrial heartland. In place in Slovakia and the three Baltic states, which joined the EU last year, flat taxes are credited with helping them grow fast and creating thousands of jobs. French politicians have led complaints about "social dumping" and the risk to their employment and social standards. Others argue that such a regressive system, under which a millionaire and a road-sweeper pay the same rate, can never be fair. Mr Kovacs, a former Hungarian foreign minister, said: "As far as the position of the EU is concerned, we consider it as absolutely legitimate because the EU does not tackle the issue of income and corporate tax rates. "Four countries have introduced it and are satisfied, and they claim that it works properly. Some six or seven are considering flat taxes - that makes 10 or 11 member states that could introduce flat tax. "But it means the majority of the member states do not apply and do not have the aspiration to introduce flat taxes." Dispensing with the need for exemptions and allowances, flat taxes rely on simplicity: all those whose earnings exceed a threshold pay the same rate. Sometimes, revenues have increased because fewer people take the risk of evading lower thresholds and there are fewer exemptions for accountants to exploit. Applying a basic - if regressive -system also saves time for citizens completing tax returns and for civil servants. Mr Kovacs argued: "The advantage is that it limits tax avoidance but also it is more simple, so it reduces the administrative burden and reduces the compliance cost. The disadvantage is the lack of progressivity in the case of personal income." The commissioner did not name the nations considering flat taxes, though Hungary, the Czech Republic and Poland are known to be among them, and the issue has been raised in Cyprus and Malta. However Mr Kovacs said that the idea is not "specific to the new member states". Greek politicians have debated the subject and Germany's opposition Christian Democrat party discussed a simplification of the tax system - though it would not be a classic flat tax but comprise three income categories. Policy advisers and political parties in the Netherlands and Spain have also given the idea a hearing. Former Communist countries were open to the experiment because they did not inherit sophisticated tax collection machinery. In 1994, Estonia pioneered the move when its prime minister, Mart Laar, took the plunge, to be followed by Latvia and Lithuania. Others jumped on to the bandwagon including Russia, Serbia, Ukraine and Georgia. Slovakia, which joined the EU last May, introduced a flat tax of 19 per cent on income, corporate tax and VAT, in 2003. Romania - to become a member of the bloc in two years - has followed suit. In Slovakia, the experiment has gone hand in hand with a boom in foreign direct investment worth €2.29bn (£1.5bn)this year. The positive impact of flat taxes is almost certainly exaggerated. Slovakia's position as a magnet for car companies, such as VW and Peugeot, is based on a cheap and skilled labour force and its geographical position, rather than its tax regime. Mihir Kotecha, CEO of Cologne-based Getrag Ford Transmissions, which has invested in Slovakia, said: "The tax rate did not swing our decision. A 19 per cent tax rate is very attractive but will it be there in five years?" Typical EuroPessimism. "Oh, sure, it looks good now, but having all that money will make everybody lazy and overweight, so they'll all get sick and die." |
| Posted by:Anonymoose |
| #12 Chemist, you wouldn't happen to be thinking along the lines of Old Europe and New Europe? Although your formulation is definitely more tactful... ;-) |
| Posted by: trailing wife 2005-04-29 7:43:24 PM |
| #11 You know for a group that calls themselves 'progressive' the LLL doesn't like to try any new fangled ideas It's progressive in the "Great Leap Forward" sense. And we know how Mao's plan turned out... |
| Posted by: Pappy 2005-04-29 7:16:44 PM |
| #10 what's all this I hear about a Fat tax. Isn't it bad enough that Little Debbie's aren't on sale anymore...what?...a ...Flat Tax...oh, ....nevermind |
| Posted by: Emily Littella 2005-04-29 7:07:55 PM |
| #9 "Progressives" don't like flat tax rates 'cos you can't social engineer with tax "incentives." |
| Posted by: Seafarious 2005-04-29 7:05:00 PM |
| #8 For once, I'd like to see the US adopt a 'European idea'. |
| Posted by: AJackson 2005-04-29 6:43:10 PM |
| #7 Barb, nice idea. I am sure we could come up with some methods how to make them more productive (more steam=more energy). ;-) |
| Posted by: Sobiesky 2005-04-29 5:16:21 PM |
| #6 I wonder if this new, enlarged EU will simply split into two EUs. On one side a group of countries with near zero percent growth called the Western EU(i.e. France, Germany, Belgium) and a groups of countries with up and coming economies with good positive growth rates called the Eastern EU(i.e. Poland, the Baltics, Czech, Slovakia). I don't see how either side can stay combined with such different visions of the future |
| Posted by: The Chemist 2005-04-29 5:00:35 PM |
| #5 France's nightmare realized. The new, enlarged EU is the end of France's dream of a statist, dirigiste EU rival to the US hyperpower. RIP :-) |
| Posted by: thibaud (aka lex) 2005-04-29 4:26:15 PM |
#4 Cyber Sarge:LLL start to vent steam from their earsMaybe we can hook them up to a generator and have an alternate energy source? :-D |
| Posted by: Barbara Skolaut 2005-04-29 1:22:14 PM |
| #3 You know for a group that calls themselves 'progressive' the LLL doesn't like to try any new fangled ideas. Mention Flat Tax, Private SS accounts, Drilling in Alaska, or Education Vouchers and any LLL start to vent steam from their ears. They would rather go with the status quo, doesn't sound progressive to me. |
| Posted by: Cyber Sarge 2005-04-29 1:15:57 PM |
| #2 Laszlo Kovacs Damn, what a fine name. |
| Posted by: Shipman 2005-04-29 12:07:43 PM |
| #1 This is both great and off-pissing. I first read about this in a book by Milton Friedman 30+ years ago. It's a very good, fair system and " Applying a basic - if regressive -system " IT IS NOT REGRESSIVE!!!!!!!!!!! The tax is slightly progressive in that the personal exemption (the only one allowed) comes off the top. Anyone making a small amount is paying a flat rate on a greatly reduced income. The rich pay the same rate on a very slightly reduced income. So, the tax paid vs. the gross amount turns out to be slightly progressive. What's so damn hard to understand there? |
| Posted by: AlanC 2005-04-29 12:03:35 PM |