Nations show flat-rate tax systems work

Russia and the nations of Eastern Europe are not the places one thinks of when considering government policy innovation, but when it comes to tax policy they are far ahead of the United States.

Since 1994, 14 countries, most of them formerly in the Soviet bloc, have adopted a version of a flat-rate tax, something that has been proposed repeatedly in our own nation and repeatedly rebuffed.

GOP presidential candidate Fred Thompson is the latest advocate of this type of tax reform, although because it has two rates - 10 percent and 25 percent - it is not a true flat-rate system. It does, however, simplify the tax code, and, beyond a basic allowance, there would be no deductions, preferences or exemptions.

Of course, Thompson isn't considered to be a serious candidate by most analysts, so his proposal is unlikely to get much attention. That's unfortunate because a flat-tax system has a lot to offer, as has been confirmed by nations that have adopted it.

They have all 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.

That nation, in fact, has actually been dropping its tax rate. 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.

There is nothing altruistic about the adoption of flat-tax systems. They work and that is why a growing number of other Eastern European nations are planning to go to flat-tax systems.

One of the main problems with most tax systems, including ours in the United States, is that they are unfair. Those who pay feel like they are chumps because they know there are other taxpayers who have been able to finagle special breaks that keep them for paying as much.

In fact, tax breaks are one of the main commodities that politicians can use to court favor with special interests and to pay off various constituencies. Our current tax code is filled with thousands of tax breaks. It makes the tax code complicated and difficult to administer. It also makes it inherently unfair to taxpayers.

A true flat-tax system requires that all taxpayers pay the same proportion of their income in taxes and provides no special breaks. It neither punishes people who are economically successful or those who are not - they are treated the same. It also prevents politicians from providing favoritism to those with special access to the halls of power.

As a result, there is more voluntary compliance. People pay because they are being treated fairly. They can easily see how it works because it is very simple, unlike our current tax code.

Of course, a flat-rate system does nothing to address government overspending. That is a different issue. However, it is at least provides a fair way to collect the money.