Fortieth Anniversary Of The Flat Tax Movement

March 25, 2021, is the fortieth anniversary of the beginning of the flat tax movement. I include an op-ed that was published on March 25, 1981, in the Wall Street Journal. I wrote it four months after Ronald Reagan’s Tax Policy Task Force submitted its report upon his election. My motivation for the op-ed was that while the Task Force’s recommendations, which were largely adopted, improved the then current federal income tax code, they did not go nearly far enough to simplify and fix other flaws in the tax code.

My WSJ article can be read on my website: alvinrabushka.com.  Click on the toolbar button for Articles and Essays.  It is the first entry under the heading Wall Street Journal.

After its publication, Bob Hall and I collaborated during summer 1981 to write a flat tax plan. On December 10, 1981, we published it in the Wall Street Journal. (Second entry under WSJ heading on my website.). That article presented the Hall-Rabushka “flax tax on a postcard.”

Hall-Rabushka is a fully-integrated, progressive, single-rate consumption tax. Progressivity occurs in the wages and salaries component by way of personal allowances.

The Flat Tax At Work In Central And Eastern Europe, 1994-2011

Brian Wheaton, Harvard Ph.D. Candidate in Economics, has written a superb paper documenting that the adoption of a flat tax increased economic growth in 20 Central and Eastern European countries during 1994-2011.  A must read.

An abstract of the paper can be read here.

The full paper can be read here.

Three Antarctic Jurisdictions With A Flat Tax

Jurisdiction                                                              Tax Rate (%)

British Antarctic Territory                                               7%

South Georgia And The South Sandwich Islands                7

French Southern And Antarctic Lands.                             9

Countries And Jurisdictions With A Flat Tax On July 2, 2020

Jurisdiction                         Tax Rate (%)

Abhkazia                                   10%

Andorra                                     10

Artsakh                                      21

Belarus                                      12

Belize                                        25

Bolivia                                       12

Bosnia & Herzegovinia                10

Bulgaria                                     10

Estonia                                       21

Georgia                                      20

Greenland                                  42

Guernsey                                    20

Hungary                                     15

Jersey                                        20

Kazakhstan                                 10

Kyrgyzstan                                  10  

Madagascar                                 10

Mongolia                                     10

North Macedonia                         10

Pridnestrovie                              10

Romania                                     10

Seychelles                                  15

South Ossetia                              12

Timor-Leste                                10

Turkmenistan                              10

Ukraine                                       18

Yemen                                        15

At the peak of the flat tax movement, 44 countries and jurisdictions had a flat tax.  The number  has declined to 27, with Russia the most recent to add a second top rate.  Politicians in both dictatorships and democracies find that imposing a second top rate on a small percentage of high-income earners is popular, especially when twinned with increased social benefits for lower- and middle-class taxpayers.  The same holds for a second lower rate.

Of the 27 jurisdictions listed above, 10 have populations under 100,000; 3 between 100,000-1 million; 3 between 1-10 million; 6 between 10-20 million; and 3 over 20 million (Ukraine is the largest at 42 million).

Four are disputed territories of other countries lacking international recognition (Abkhazia, Artsakh, Pridnestrovie [aka Transnistria], South Ossetia).  Two are British Overseas Territories (Jersey, Guernsey).  One is a Danish Autonomous Dependent Territory (Greenland).  Yemen has two claimants to the government, Houthis and forces loyal to Hadi based in Aden.

The Flat Tax In Retreat: Russia Adds A Second Top Rate Of 15% On Its Personal Income Tax.

In 2001 Russia implemented a 13% flat tax on personal income.  Russia was the first large country to adopt a flat tax,

In a speech to the nation on June 23, 2020, Russian President Vladimir Putin announced that the government would impose a second rate of 15% on persons earning more than 5 million rubles ($72,675) a year, effective January 1, 2021.  

The higher 15% rate is projected to raise an additional 60 billion rubles ($872 million), which will be used to offset some of the government's spending on the economic costs of the coronavirus.

To stimulate the growth of Information Technology companies, the new tax law would reduce the social security contributions on technology firms for its employees from 14% to 7.6% and cut the profits tax on IT firms from 20% to 3%.

Hoisted From The Archives, June 17, 2010: The Origins Of The Flat Tax

The Federal Reserve Bank of Minneapolis, in its June 2010 edition of Region magazine, published a lengthy interview with Robert E. Hall that covers a broad range of economic issues. One discusses tax policy. As most readers of this site know, Bob is my coauthor of four books (1983, 1985, 1995, 2007) and numerous articles on the flat tax.

Bob stated that “it wouldn’t be remotely practical to do it [tax reform] with a single positive tax rate now.” This is due, in his view, to the dramatic widening of the income distribution in the U.S. since 1981. “This means that the idea of the poor paying the same tax rate just seems less viable than it was when the income distribution was tighter.”

....”So I play around with systems that have, say, two brackets.”

The Tax Reform Act of 1986, signed into law by President Reagan, had two brackets of 15% and 28%. In 1991, President George H.W. Bush signed legislation that added a 31% bracket. In 1993, President Clinton followed with two higher brackets of 36% and 39.6%. Two brackets lasted just five years. Moreover, the administrative simplicity of the Hall-Rabushka flat tax quickly evaporates with the addition of a second or more rates.

I also need to restate the historical record of our joint work. Bob stated that “The origin of our initial flat tax effort was Rabushka coming to me in 1980 and saying, ‘I know what the people want. The people want a flat tax, but I don’t quite know what that is.’ And I said ‘I know what it is because I’ve been thinking about it since I was a graduate student.’”  (He restated this history at a Hoover Event on October 2, 2019.)

Bob’s account is wrong. I had been observing Hong Kong’s approximate flat tax since 1973 and had looked at other cases in the Channel Islands of Jersey and Guernsey. I was asked to serve on President Reagan’s Tax Policy Task Force, which met between his nomination in August 1980 and election in November 1980. Having been dissatisfied with our 400-plus page report, I published a brief article in the March 25, 1981, edition of the Wall Street Journal entitled “The Attractions of a Flat-Rate Tax System.” Until that point, I had no knowledge that Bob had ever thought about the subject. Bob came to me and suggested that we write a flat-tax plan to replace the then current U.S. federal personal and corporate income taxes, which we did over the summer of 1981. We went public with the plan in the December 10, 1981, edition of the Wall Street Journal, entitled “A Proposal to Simplify Our Tax System.”

One other quibble is with his comment that the flat tax has not gone very far in the rest of the world. The dozens of postings on this site indicate otherwise.

Bob has not yet formally disassociated himself from the H-R flat tax. However, he has been less outspoken in its support in recent years. As president of the American Economic Association in 2010, I worry that this may be the year he walks himself back from the flat tax, explicitly stating a preference for a multi- bracket federal income tax.

The Flat Tax In Retreat

The flat tax movement peaked at 40 countries.  Beginning in 2009, the following countries added a second (or more) higher rate(s) on upper-income households, with two adding a second lower rate.

Tuvalu, 2009:   added second lower rate of 15% to previous 30% flat rate

Iceland, 2010:  replaced 36% flat rate with progressive rate schedule up to 46.28%

Ukraine, 2011:  added second higher rate of 17% to previous 13% flat rate

Czech Republic, 2013:  added second higher rate of 22% to previous 15% flat rate

Slovakia, 2013:  added second higher rate of 25% to previous 19% flat rate

Montenegro, 2013:  added second higher rate of 15% to previous 9% rate

Albania, 2014:  replaced 10% flat rate with two rates of 13% and 23%

Grenada, 2014:  added second lower rate of 15% to previous 30% flat rate

St. Helena, 2015:  replaced 25% flat rate with two rates of 26% and 31%

Jamaica, 2016:  added second higher rate of 30% to previous 25% flat rate

Guyana, 2017:  replaced 30% flat rate with two rates of 28% and 40%

Mauritius, 2017:  replaced flat rate of 15% with two rates of 10% and 20%

Trinidad and Tobago, 2017:  added second higher rate of 30% to previous 25% flat rate

Latvia, 2018:  Replaced its 23% flat rate with three rates of 20%, 23%, and 31.4%

North Macedonia, 2019:  added second higher rate of 18% to previous 10% flat rate

The second higher rates in the Czech Republic and Slovakia are temporary 7-year measures.  They may be extended, made permanent, or allowed to lapse.

All of these measures were enacted after the financial crisis of 2008-09, some to raise additional revenue, others promoted by newly-elected leftist political parties.

Updates will be posted if and when other countries add a second or more rates to their flat tax, or if new countries adopt a flat tax.

Prosperità per L’Italia

Italy is a wonderful country.  It has spectacular monuments, museums, churches, castles, cuisine, wine, and beautiful women:  Sophia Loren, Gina Lollobrigida, Claudia Cardinale, Monica Vitti, and Virna Lisi to name a few.

Italy is among the best countries in the world to spend two weeks on holiday.  There is so much to see, do, eat, and drink.  But Italy is a dreadful place in which to live, work, and especially pay taxes.

All that could change on March 4, 2018.  Italian voters have a chance to restore prosperity for themselves and their country, and show the way forward for all of Europe.

A coalition of center-right parties (market-oriented, low-tax conservative parties in American parlance) agreed to an electoral pact on Thursday, January 18, 2018.  Silvio Berlusconi of Forza Italia, Matteo’s Salvini of Lega Nord, and Georgia Meloni of Nationalist Brothers of Italy listed ten measures in their joint platform.  Topping the list was a single-rate flat tax:  Salvini proposes 15%, Berlusconi about 20%, with Meloni concurring in the general concept.

Should the coalition form the next Italian government, the flat tax will be the first measure it submits to Parliament.  A text of the law already exists, with only the exact rate to be set.  It would be relatively easy to select, say, a rate of 18-19%, with an agreement to reduce the rate one percentage point each year to 15% if revenue materializes as projected.

Italy would likely experience the benefits shown by President Trump’s reduction in the U.S, corporate tax rate from 35% to 21%.  Money would pour into Italy all over Europe and offshore for investment.  Tax evasion would decline.  New jobs would be created.  Young Italians could move out of their parents’ apartments and buy their own place.  Those who moved abroad in to earn a better living would return home to grab new opportunities.

It’s that simple!

As one of the big three in the European Union along with France and Germany, other European countries would find it necessary to follow the Italian example and adopt similar low, flat taxes.  All of Europe would enjoy a sustained economic boom.

PS.  By way of disclosure, I carefully reviewed, and prefer, the Northern League’s 15% flat tax plan, which originated with its chief economic advisor, Armando Siri.  I also met with Berlusconi to discuss the flat tax.  I believe the narrow difference between the two plans can be easily resolved into a single flat-tax plan.

15% Flat Tax: Tax Reform Italian Style

Want to see the one of the world's best tax reform plans?  It was developed by Armando Siri, current economic advisor to Italian Prime Ministerial candidate Matteo Salvini of the Northern League.  The Nothern League will be joining two other free-market, low tax parties in a coalition to contest Italy's next national election, likely in March 2018.

If elected, and if Salvini becomes Prime Minister, one of its first actions will be to introduced its 15% flat tax plan.  This would be the beginning of Italy's resurgence, and a model for other European countries.  Here's hoping.

(Disclosure:  I advised Armando Siri on the development of his 15% flat tax.)

The 15% Flat Tax Coninues To Percolate In Italy

Armando Siri explains his 15% Flat Tax in Italian.

Go to Armando Siri's web page on the Italian Flat Tax

http://tassaunica.it/

To watch the video click on the video play button.

For the English book cover of his Flat Tax see below. An English language edition of the book is forthcoming.

Personal Income Flat Tax Retreat: Summary And Update In Chronological Order

Iceland

2007:  36% flat rate combined national and municipal
2010:  24.1%, 27%, 33% national plus additional municipal tax rates
           of 11.24-13.28%

Czech Republic

2008:  15% flat rate
2013:  15%, 22%

Slovakia

2004:  19% flat rate
2013:  19%, 25%

Albania

2008:  10% flat rate
2014:  13%, 23%

St. Helena

2012:  25% flat rate
2015:  26%, 31%

Ukraine

2004:  13% flat rate
2007:  15% flat rate
2011:  15%, 17%
2015:  15%, 20%
2016:  18%, 20%

The IMF, other global organizations, and a large majority of economists and tax specialists around the world oppose the flat tax on ideological grounds.  They have been working relentlessly for several decades to replace the flat tax with multiple, graduated rates.

Promoting The Flat Tax In Italy

Promoting The 15% Flat Tax In Italy

Morning Cup Of Joe

New Parties in Poland and Ireland Propose Flat Taxes

Poland

A new party, .Nowoczesna (.Modern Party) was formed in May 2015.  Its leader is Ryszard Petru. Its tax policy is an across-the-board 16% flat tax (16% personal income tax, 16% corporate income tax, and 16% value added tax).

The party received 7.6% of the vote in the October 25, 2015, parliamentary elections, coming in fourth place.  At the end of 2015, its favorability rating in the polls stood at 13%.

Ireland

A new party, Renua, was formed on March 13, 2015.  It proposes a 23% flat rate of income tax.

Countries or Jurisdictions With a Flat Tax as of March 2015 (Includes Personal Exemption or Allowance. Effective Zero Rate on First Tranche of Earnings or Self-Employed Business Profits)

Jurisdiction	Tax Rate (%)
Abkhazia	10%
Andorra	10
Anguilla	3
Belarus	12
Belize	25
Bolivia	13
Boznia and Herzegovina	10
Bulgaria	10
Czech Republic	15
Estonia	21
Georgia	20
Greenland	37
Grenada	30
Guernsey	20
Guyana	33.3
Hong Kong	15
Hungary	16
Jamaica	24
Jersey	20
Kazakhstan	10
Kyrgyzstan	10
Latvia	24
Lithuania	20
Macedonia	10
Madagascar	20
Mauritius	15
Mongolia	10
Montenegro	9
Nagorno-Karabakh	5
Pridnestrovia	10
Romania	16
Russia	13
Serbia	12
St. Helena	25
Seychelles	15
Slovakia	19
South Ossetia	12
South Sudan	10
Switzerland	11
Timor-Leste	10
Trinidad and Tobago	25
Turkmenistan	10
Tuvalu	30
Yemen	15
Notes:
Czech Republic has a Temporary 22% Upper Rate
Greenland has an Additional 5% Municipal Flat Rate
Slovakia has a Temporary 25% Upper Rate
Switzerland has an Additional 4…35% Cantonal and Municipal Flat Rate Isle of Man is Considering a 20% Flat Tax Effective April 1, 2016

2014 Wrap Up: Albania Abandons Its Flat Tax

Effective January 1, 2014, Albania replaced its 10% flat tax on personal and business income with two rates of 13% and 23% on personal income and 15% on all forms of business income.  Details are here.

Left-wing politicians have been waging continuous war against those countries that have adopted a flat tax during the past quarter century. While Thomas Piketty has won a small battle in Albania, its people will be the losers in years to come. 

The Flat Tax Is Picking Up Steam in Italy

Your friendly proprietor recently returned from a trip to Italy (December 9-13, 2014) where he met with leading Italian politicians and participated in a standing room only conference on the benefits of a 15% flat tax on personal and business income for Italy.

Armando Siri, president and founder of the New Italian Party (PIN in Italian), first introduced the 15% flat tax to the Italian public.  He contacted me by email and asked me to review his flat tax proposal in early 2014.  I endorsed it as a pro-growth measure that would help jump-start the moribund Italian economy.  He invited me to join him at a conference in Milan on April 6, 2014, to launch the plan.  About 150 enthusiastic supporters of Siri, many PIN members, attended the event.

From that event, interest in PIN’s 15% flat tax steadily grew.  In December 2014, PIN’s 15% flat tax was endorsed by Matteo Salvini, secretary of the Northern League Party (LN in Italian).  They jointly held a major conference in Milan on December 13, 2014.  They invited me to participate in the program.  I presented a set of slides documenting the need for comprehensive tax reform in Italy and why PIN-LN’s 15% flat tax was good for Italy.  Click here for my full 26 minute presentation.

A standing room crowd of 500, numerous television stations, and reporters from Italy’s leading media attended.  It was a feeding frenzy.  LN streamed the event live on its web site. Three television clips can be found here, here, and here. 

Matteo Salvini is currently the most popular center-right politician in Italy, closely followed by President Silvio Berlusconi’s Forza Italia (click here) which he formerly led, but in which he still remains extremely influential.  The three parties (PIN, LN, FI) constitute the core of the center-right bloc.  Were it to win the next general election, or a snap election perhaps as early as May 2015 if a no-confidence vote  brings down the current center-left government of Matteo Renzi, Salvini would be in line to become Italy’s next prime minister and introduce a 15% flat tax.

Two days earlier in Rome, Armando Siri and I met with President Berlusconi and several of his closest advisers to discuss the flat tax. On December 5, 2014, Berlusconi had announced on You Tube his support for a 20% flat tax, a higher rate than the PIN-LN plan because Berlusconi’s plan has a narrower tax base due to a larger personal allowance (click here).  The two plans differ only in respect of the scope of the personal allowance and the flat rate.  I presented him with a signed copy of the Italian edition of “The Flat Tax” (published by the European Center for Austrian Economics Foundation in Liechtenstein through the good offices of Kurt R. Leube).  For the moment, Berlusconi stands behind his 20% flat tax for the political purpose of retaining a separate identity.  The two plans rest on common ground.  Should the center-right bloc win the next election, the differences between the two plans are easily reconcilable.

I prefer PIN-LN’s 15% plan to Berlusconi’s 20% plan because the lower 15% rate will have a greater impact on incentives to take risks and reduce underground economic activity and tax evasion.

The New Year could be exciting for flat-tax enthusiasts in Western Europe’s fourth-largest economy.

Alvin Rabushka presents the Flat Tax at the Institute of Economic Affairs in London, November 19, 2014

Click here to watch a 45 minute presentation on why the Flat Tax is good for Britain.

New Italy Party Proposes 15% Flat-Rate Income Tax to Jump Start the Italian Economy

The Italian economy is in terrible shape.  Overall unemployment is 15% of the labor force; youth unemployment (15-24 years of age) stands at 42%.  University graduates cannot find jobs in their fields of study; many are forced to live at home with their parents in crowded apartments.  Manufacturing has contracted 25% since 2007.  Apartments stand empty.  Public debt exceeds 130% of GDP.  Italy’s confiscatory income tax discourages work, saving, investment, and entrepreneurship.  It breeds corruption, tax avoidance, tax evasion, and fosters export of both human and financial capital.

A relatively new, youth-oriented political party aims to bring hope and change to Italy’s economy.  On April 6, 2014, in Milan, the New Italy Party (Partito Italia Nuovo, or PIN) held an international conference to present its proposal for a 15% flat tax, which would replace Italy’s current system of steeply-graduated personal income taxes for wage earners and small business owners, and also corporate income taxes.  Before a large audience, Party President Armando Siri explained how Italy’s current income tax system impeded individuals and business enterprises, and how a 15% flat tax would restore Italy’s competitiveness.

I was privileged to attend the conference and endorse PIN’s 15% flat tax.  As co-author of “The Flat Tax,” I regard PIN’s 15% flat tax as an important step towards tax simplification and improving incentives for workers and entrepreneurs to improve their lives and businesses.

I encourage Italians from all walks of life to learn about PIN’s 15% flat tax and use social media to encourage their friends and neighbors to support this tax reform proposal as an important step to restoring Italy as a land of growth and opportunity.