Thursday, August 18, 2005

Flat Tax Argument

I recently ran into a Wall Street Journal editorial advocating a flat income tax. It seemed like a pretty solid argument, even addressing my biggest issue by giving a tax exemption for the first 11,000$, thus not taxing the super-poor. And then it invoked Russia:

"Russia put in a flat tax four years ago, and revenues have more than doubled in real terms"

Before President Putin took office, Russia was in a tax crisis. Nobody payed income taxes, because it was much cheaper to bribe somebody and nobody wanted to tell anybody how much they make (and alot of the economy was, and still is, underground). This made the government, facing a shrinking tax base, raise taxes, leading to less people paying, leading to higher taxes, etc. Putin came along, said enough of this, cut the taxes to a flat rate below 20%, and the Russians decided that a fee that small wasn't worth the evasion trouble, thus started paying taxes again. A brilliant solution for a chronic problem, but entirely non-applicable to our situation (because people do pay taxes and our economy isn't underground, mafia-dominated, and incredibly corrupt).

Thus this one piece of evidence, this one phrase, throws the entire argument into doubt, because if the author (Steve Forbes, he should know his stuff) was willing to throw in an argument like that, who can tell what other pieces, with which I am not so familiar, are entirely invalid? If making a policy about something as major as this, use valid evidence.

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