Monday, March 12, 2007

In The Current National Review: "Go Flat-Now" by Kevin A. Hassett

Rats - tried to find it on National Review Online with little success.

This morning on the train ride into work I read a fantastic piece in the March 19th issue of National Review entitled "Go Flat-Now" by Kevin Hassett (print subscribers can find the article on page 8).

I've long been an advocate of the Flat Tax - or put another way, an income tax rate the doesn't increase with one's income, but rather, remains fixed regardless of income. In this issue of NR, Hassett makes a very good case for an increase in worker's wages that corresponds with the initiation of a flat income tax.

Hassett shows how Estonia, Lithuania, Latvia, the Slovak Republic, and Ukraine, all formerly under socialist economies, increased worker salaries in some cases as much as 265% in 2 to 5 years with the introduction of a flat tax. By contrast, other nations such as Armenia, Hungary, Poland and Slovenia retained their progressive tax rates and only saw very modest wage increases by comparison; 8% on average in the late 1990's.

This is further proof of the positive effects of lower tax rates on the producers in a society. Sure, the tax rates for those accustomed to paying more will decrease, but their disposable income will increase, which means more money to invest, grow their businesses and mwoooahhhhaaaahhaa get even richer. However, as one attempts to get richer, and economy grows, a job base expands and all benefit. As the job base expands, so do revenues to the Treasury over the long term. Thank you, Art Laffer.

There are options to protect any increase in financial burden to the Treasury on behalf of the lower classes - exemptions to a certain salary, for example. But the fact of the matter is, lower rates for those who pay the VAST majority of the taxes can only benefit the economy, and in the turn, the lower classes. Upward mobility, anybody?

Check the article out - very interesting case for one of my pet issues.