Friday, November 28, 2008

The Flat Tax May Soon Spread to Poland

October 22, 2007

By Alvin Rabushka

On October 21, 2007, Polish voters turned out the sitting Law and Justice Party that had governed in a fractious coalition for the past two years. In its place, they gave a plurality of votes to Civic Platform, whose chairman, Donald Tusk, is set to become Poland’s next prime minister.

Civic Platform received 41.4 percent of the vote, which gives it 209 seats out of the 460 seats in the lower house. Mr. Tusk needs the support of another 22 lower house members to govern in a majority coalition. The leader of the moderate Polish Peasants Party, which received 8.9 percent of the vote and 31 seats, stated that his party was prepared to join Civic Platform in government, thereby providing a majority.

Civic Platform campaigned on economic themes of lower taxes and less spending. It promised to enact a 15 percent flat tax on both corporate and individual income. The flat tax would replace the current three-bracket system of 19, 30, and 40 percent imposed on individuals and reduce the corporate tax from its current rate of 19 percent.

Assuming that the new Polish government succeeds in enacting a flat tax, it would place Poland in line with many of its competitors in Central and Eastern Europe. Most of Poland’s neighbors—Estonia, Latvia, Lithuania, Russia, Ukraine, Slovakia, Czech Republic, Serbia, Montenegro, Macedonia, Albania, Georgia, Romania, and Bulgaria—have already adopted a flat tax. Passage in Poland would leave only a handful of countries in Central and Eastern Europe—Hungary, Slovenia, Croatia, Bosnia and Herzegovina, Belarus, and Moldova—clinging to graduated rates.

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