Short Schrift

Longer Writings

Monday, September 26, 2005

Flat Out Competitive

Almost 10 years ago a CBS reporter named Bernard Goldberg wrote a Wall Street Journal Op-Ed about liberal bias in the media which caused a minor revolution and contributed to the dethroning of famed news anchor Dan Rather this year.

Goldberg’s main thrust was the pervasiveness of a subtle but asphyxiating bias in the newsrooms of MSM (Mainstream Media) which fortunately is not shared by Orthodox media.

But the trip wire for his op-ed and later books was the network treatment of the serious presidential candidacy of Malcolm Forbes, whose campaign was based on a flat income tax, and derided by the (liberal) MSM as ‘loony’ or ‘wacky’.

Fast forward. In 2001 Russia implemented a flat tax of 13% for individuals, along with a 15% rate for most business income. The economy grew over 7% last year. Tax revenues grew as well, because it was no longer economical to be an underground business. With rates so low, the cost of being black market was now more than the cost of being ‘white’.

What result has it brought? European neighbors, competitors and trading partners of Russia are taking notice. Romania and and Republic of Georgia just adopted flat taxes. Greece is expected to introduce a 25% flat rate for both corporations and businesses next month. If Poland’s opposition parties come into power, they are likely to adopt a flat tax. Business powerhouse Hong Kong and powerhouse wannabe (and maybe will be) Ukraine are both happy with flat taxes.

Pioneer Estonia, encouraged by 5.2% average economic growth since adopting the flat tax in 1994, is lowering their tax rate by 2% per annum until 2007.

Ireland entered the EU as one of the poorest members. When it switched to a flat corporate tax, its economy boomed and now it has a higher per capital GPA than Britain, France, or Germany

And even economically stodgy Germany has a major candidate advocating a flat tax.

A year ago I wrote a 3-part series for an orthodox newspaper on free trade and parnosa. People commented to me that it was depressing, because the implication is that there is no assured parnosa and hishtadlus is a treadmill not only in terms of working, but in terms of adjusting to the never ending changes in technology and economy – a much bigger task than working. And I believe this is true.

However, if America, and the Orthodox community as a component of America’s business community, are looking to get a leg up on the rest of the world, flattening taxes is one good way.

An internal treasury study in Britain found a flat tax would:

  • Make Britain more attractive to investors
  • Eliminate economic distortions
  • Create a “mini economic boom”

Clint Eastwood, a media figure and former mayor postulates: “(flat tax means) a little old lady on a home computer could do the work of all these thousands of bureaucrats and accountants”.

Starting to salivate?

Freeing our economy of perhaps a trillion dollars of tax compliance costs, and a similar amount of inefficient tax shelter investments will also be a good shot in the arm.

And then there’s the amount of personal time, usually right before Passover, which goes into tax preparation.

My apologies to H & R Block, and the tax attorneys and accountants in our community. I’m sure that retraining for more economically beneficial endeavors for these talented professionals would be cheaper than what we have now.

And the loss of business in our community might well be matched by the additional business from some establishments which find it possible to go ‘white’ and have audited statements. Of course, this is also better for families, l’halacha, and for chinucn habonim. And it removes the burden to large families of a 40% cumulative rate. Forbes and others calculate a 17% rate would be enough to maintain services at current levels.

A senior fellow at Stanford’s Hoover Institution predicts it’s only a matter of time before an emerging economic superpower like India or China implements a flat tax. His book has just been published in Chinese with a forward from the Chinese vice minister of finance.

In the words of the Wall Street Journal: “If China adopted of flat tax, more than a quarter of the world’s population would be filling out tax returns on the back of a postcard. That would leave them a lot of time and money to eat our economic lunch.”

Lunch, anyone?


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