Finance Choices
Greece joins the flat rate tax bandwagon
Greece is set to become the next European nation to introduce a flat rate of income tax, according to speculation in Athens triggered by the finance minister, Giorgios Alogoskoufis.
The prime minister, Costas Karamanlis could announce the proposal at next month's Thessaloniki International Fair. A flat rate of income tax, which abolishes all bands and exemptions and replaces them with a single rate and a high personal allowance, is all the rage among free-market thinkers and the idea is sweeping across eastern Europe.
The Greek government's precarious finances were thrown into a massive deficit of nearly 7pc of GDP last year by the Olympics, and Mr Alogoskoufis has promised to bring the deficit down to 3pc of GDP. The fiscal crisis helped propel the New Democracy government into power.
Mr Alogoskoufis believes a flat tax rate, by discouraging evasion and corruption and also boosting incentives for high earners, would help narrow the deficit. Currently, the first ?11,000 (£7,300) of income is tax exempt in Greece and there are then three bands: 15pc, 30pc and 40pc.
The finance minister has said that, from 2007, he would like to replace this system with a single ?13,000 personal allowance and a single 25pc band for both corporate and personal income. He has already started to cut corporation tax from 35pc.
The flat tax idea was first proposed in America, notably by former presidential candidate Steve Forbes. But it was Russia which first introduced one at 13pc, resulting in higher tax revenues as evasion was cut and economic growth improved. So far, it has been introduced successfully in Poland, Slovakia, Latvia, Lithuania and Estonia.
But the idea has yet to catch on in Britain. Last week the Treasury released internal documents showing officials are sceptical of the idea as they believe there is not as much evasion in a mature economy like Britain as there is in Eastern Europe.
Flat taxes are being discussed behind the scenes in Conservative circles and shadow chancellor George Osborne has visited Estonia to see the system in operation. He said he was "impressed", and believes the UK should develop "flatter and simpler taxes".
Andrew Haldenby, director of the think tank Reform, believes Britain should introduce a flat tax. He said yesterday: "The flat tax movement is no longer confined to the less-developed economies of eastern Europe. Senior finance officials in both Spain and Germany have recently proposed 30pc flat taxes on personal and corporate income. The potential gains from flat taxes - significant boosts to enterprise and investment - apply just as much in sophisticated economies including the UK's."
The prime minister, Costas Karamanlis could announce the proposal at next month's Thessaloniki International Fair. A flat rate of income tax, which abolishes all bands and exemptions and replaces them with a single rate and a high personal allowance, is all the rage among free-market thinkers and the idea is sweeping across eastern Europe.
The Greek government's precarious finances were thrown into a massive deficit of nearly 7pc of GDP last year by the Olympics, and Mr Alogoskoufis has promised to bring the deficit down to 3pc of GDP. The fiscal crisis helped propel the New Democracy government into power.
Mr Alogoskoufis believes a flat tax rate, by discouraging evasion and corruption and also boosting incentives for high earners, would help narrow the deficit. Currently, the first ?11,000 (£7,300) of income is tax exempt in Greece and there are then three bands: 15pc, 30pc and 40pc.
The finance minister has said that, from 2007, he would like to replace this system with a single ?13,000 personal allowance and a single 25pc band for both corporate and personal income. He has already started to cut corporation tax from 35pc.
The flat tax idea was first proposed in America, notably by former presidential candidate Steve Forbes. But it was Russia which first introduced one at 13pc, resulting in higher tax revenues as evasion was cut and economic growth improved. So far, it has been introduced successfully in Poland, Slovakia, Latvia, Lithuania and Estonia.
But the idea has yet to catch on in Britain. Last week the Treasury released internal documents showing officials are sceptical of the idea as they believe there is not as much evasion in a mature economy like Britain as there is in Eastern Europe.
Flat taxes are being discussed behind the scenes in Conservative circles and shadow chancellor George Osborne has visited Estonia to see the system in operation. He said he was "impressed", and believes the UK should develop "flatter and simpler taxes".
Andrew Haldenby, director of the think tank Reform, believes Britain should introduce a flat tax. He said yesterday: "The flat tax movement is no longer confined to the less-developed economies of eastern Europe. Senior finance officials in both Spain and Germany have recently proposed 30pc flat taxes on personal and corporate income. The potential gains from flat taxes - significant boosts to enterprise and investment - apply just as much in sophisticated economies including the UK's."
posted by Bruce Wayne at 8:14 AM
Greece joins the flat rate tax bandwagon
7 Comments:
Doesn't Russia have a flat tax that has been in place for several years now? I thought I heard it is working quite well for them.
Disclaimer: In light of the fact that Russia has a host of issues far larger then tax rates I understand my above comments might be meaningless.
Overall flat tax is a great system. BTW, the USA had Bremmer institute a 15% flat tax in Iraq.
If you do not allow exemtions for buying the neccesities it is truly a proportional system. If you do allow a certain level of income to be exempt...then you have created a two teir system but still better than a truly graduated progressive system IMO.
Also another point is whether non wage income is included in the flat tax...that is do you tax dividend income. If you do not then it favors those who have wealth invested.
I like the ideas that Yahweh had setup for Isreal...flat tax of 10%...no matter how much or how little you made. No matter who you were. No exemptions...no tricks. All increase from whatever source was considered taxable. The tithe is a great example of a great flat tax.
If your country is already using a progressive tax system, like the USA, then it will be a tax burden shift. This may be very unpopular among those who would have an increase in the tax burden, to say the least.
Hong Kong brought in a flat tax in 1947. Other flat tax adherents include Estonia, Latvia, Lithuania, and Slovakia, all EU members. They also include Russia, one of the G8 countries. Even the US is interested, with some of the Bush team looking at the possibility of a flat tax during his second term.
In Britain the flat rate might be about 20%. Estonia, which brought in a 26% flat rate a decade ago, is lowering it to 20%. At 20% few people would object to paying the tax, so out would go the exemptions and allowances, and in would come an economic boom. Out, too, would go a legion of tax inspectors; flat tax is simpler and very much less costly to collect.
A flat tax is simple, letting people understand their obligations. It is fairer, with low earners paying nothing and the rich paying their due. And it unleashes all the talent and enterprise being held back by a devious and complex system.
In search of the perfect tax plan, I've decided that we should scrap income tax altogether in favor of a federal sales tax. If we assume a federal sales tax of 20%, each household would get a monthly tax rebate equal to that paid up to the poverty line which depends on the number of dependencies. I don't like the idea of give every American (dependent or not) an equal tax rebate since that disadvantages those without children. A household shares the fix costs (rent, utilities...). They don't need a huge tax break.
No corporate income tax either. No dividend or capital gains tax. Dividends withdrawn or capital gains are going to be spent to buy things anyway. They'll be paying a sales tax at that point.
To add to my theoretical economic plan, we should scrap the minimum wage and instead peg welfare to 50% of the poverty level (which depends on the number of dependents). People who work but makes less than the poverty line, would receive at least some welfare.
So say that the poverty line is $10,000 for a person with no dependents. If he doesn't work at all, he'll receive $5000 per year. If we have a 20% sales tax, he'll also receive a $1000 rebate for a total of $6000 per year.
Say that he gets a job that pays $5000 per year. He would also receive 50% of that portion by which he falls short of the poverty line. So he would receive $2500 in welfare. His total income is $7500 and would receive a $1500 tax rebate for a total of $9000. If he gets a job making $10,000/year he would receive no welfare checks and would receive a $2000 tax rebate. For him to get off welfare completely he would need to get a job paying about $5/hour. The great thing about this, IMO, is that it's dependent on the number of dependencies. A single mother with 1 child would receive more welfare and would need to make $6/hour to get off completely. Works better than a minimum wage which isn't sufficient for those with dependents. This would work well with a flat income tax as well. In fact it would work better with a flat income tax as opposed to a sales tax. One of the benefits of a sales tax is that you don't even have to report your income, my welfare plan would require you to.
We should also scrap social security as we know it. Instead require that everyone contribute to an individual retirement plan administered by private investment companies. Say a required contribution of at least 5% of income or $500/year whichever is less.
Count me in with the flat tax crowd. Nothing more fair than the same percentage applied to all... not to mention the reduced overhead for that farce we call the IRS!
The flat tax is a good idea. Low income residents will have their deductions making it fairer to all. However, low income persons have the option of sacrificing and going to school to increase their income, work two jobs, have the SAHM work, etc. No excuses in America today as opportunity exists for all to advance, the government is even telling you they want you to advance. The national sales tax brought out the unfairness to those whose incomes have been saved and taxed as income and then the double taxation of spending. I didn't think of that, so I cannot support a national sales tax. The flat tax seems best. If you earn 10,000 pay 15% then you will pay 1500; if you earn 100,000 you will pay 15000. Both get the same services, so what is unfair?
If the adoption of a flat tax would signal the end of National Insurance (Tax), VAT, Petrol Tax, Vehicle Excise Duty (Tax), Airport Tax, Insurance Tax, Capital Gains Tax, Inheritance Tax and suchlike, I'd go for it; on the basis that I'd like to know just how much tax we actually pay. I doubt 20% would cover it though.
If flat tax costs more we have to balance that cost with the severe loss of accountants that would result from its adoption
So it could still be worth it, i.e. a price worth paying!
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