The Flat Tax Works

The Monitor has written an opinion piece that lays out some evidence that the flat tax (a version of which Fred has proposed) is working and effective. The piece points out that when it the flat tax proposal was first floated in the early 1990s, one knock against it was that it had not been tried anywhere. But since that time, the idea has been tried--and successfully.

Since 1994, however, 14 countries, most of them formerly in the Soviet bloc, including Russia itself, have adopted a version of a flat-rate tax, and all of them have experienced an increase in tax compliance, a stable revenue stream, economic growth and low unemployment. Estonia, which has come closest to enacting a pure flat tax, has seen the most dramatic economic improvement.

Furthermore, the tendency among countries with a flat tax is to reduce the level of taxation. Estonia started at 26 percent, reduced it to 22 percent and plans a further reduction to 18 percent. In Macedonia, a 12 percent flat tax brought in 20 percent more revenue than projected, so they're reducing the rate to 10 percent.

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Countries find the flat tax attractive because it promotes economic growth, gives countries seeking foreign investment a comparative advantage, and provides a steady revenue stream with little tax evasion. Maybe it's time for the U.S. to revisit the idea.

The conclusion can be drawn that the flat tax is encouraging to the economy so the revenues brought in increase in a similar way to what happens when we reduce marginal tax rates.