What is with Flat Taxes? Ask the Slovaks!

Image is open source ‘liberated’ from Wikipedia

The photo above is of Richard Sulík, a Slovak politician, who is regarded as the intellectual originator of the Slovakia Tax reform of 2004, which brought in the 19% tax on income, companies and sales (VAT). Some regard him as a future prime minister. Today he is leader of the radical neo-liberal party Solidarity and Freedom (SaS) founded only in 2009. They did well in the recent Slovakian parliamentary elections of 2010-nabbing an impressive 21 seats for the parliament and then four seats around the complex and noisy four party cabinet table. This makes them the third largest party in the Slovakian parliament, and nicely makes my point about how the right in Slovakia is really quite radically right-wing. The SaS have done well for themselves then….and are likely to be important players in the stability of Slovakia…for example the party is somewhat EUSkeptical…..one could imagine them walking out of the government…over say …yet another bail out for …maybe ….Ireland?

Perish that thought!

But what of the infamous flat tax?

I mentioned in class that the Slovaks have been noticeable for the experiment with flat taxes. Poland is on the way to introducing one, but a great many former Communist states have also done so; Hungary brought in a flat rate of 16% on income tax for all this year. The Baltic republics all have something like it, but usually at a higher rate, over 20%. Bulgaria apparently has a 10% rate on corporation and income tax (please take note Mr. Sarkozy and all critics of Irish corporate taxes), while Romania has a 16% rate.

It crops up as a ‘cool idea’ usually from politicians on the right, libertarian right, or far right in American politics and some west European states as well. I would not be surprised if we see the idea emerge at some stage in Ireland as a backlash against higher taxes, especially if we ever climb out of the abyss into which our public finances have fallen….maybe in 2026 of something…?

Who knows? Maybe a refreshed and rebranded Fianna Fáil, that moves well to the right on economic issues, combined say with a return to its nationalist roots playing a more ‘EUskeptic’ line in the media, could be re-electable at some stage, if they dabble ideas like a flat tax before the Irish middle class? Probably far fetched for now, but stranger things have happened.

It may also feature as an idea in the forthcoming American presidential race, given that some Republicans are running scared of the rather obvious need for the US Federal government to raise revenue at some stage in the future (given almost Irish like levels of debt)….and that means tax rises …which they fear make them unelectable….especially if Republican/Tea Party activists run against them as ‘iffy’ on taxes. See:

http://americanbridgepac.org/blog/08082011/romney-said-he-loves-idea-flat-tax

That site also nicely quotes sources which show why the idea of a Flat Tax is probably quite a dishonest concept…given that what you see if usually not what you get…it can increase the marginal rate of income tax for most workers……

In fact there is some evidence that when one calculates the total burden of taxation on a given worker, the actual marginal rate of taxation in countries like Slovakia is not much lower, and may actually be worse that the Nordic states which are supposedly famous for their extreme high personal income taxes that rise as your income rises (i.e. their progressive not flat).

See: http://www.langlophone.com/20100526_edition/20100526_EU27_data_table_flipped.pdf

That data is taken from 2006, and things have moved on quite a bit. But it shows that Slovakians were paying 48.6% as regards their marginal rate of tax rather than the headline rate of 19%. The Irish were paying 31.9%-2006 was the height of the insane ‘fake boom’…and personal taxes had been cut heavily…………not any longer!!!!.

The alternative view is that some of the East European economies that implemented flat taxes were booming and are now doing okay since the 2008 ‘depression/recession’.. so some economists say: ‘it works’……..but the exact association with flat tax reform is far from proven and hard to prove.

Of course absence of proof rarely stopped a good old political debate in any country …much less Slovakia …or Ireland.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s