Like a good peasant, I have already filed an extension, so I am at least temporarily compliant with the friendly people at the IRS. But since it is tax day, perhaps a slight bit of criticism of the tax code is warranted. I have already posted on Biggovernment.com my video on the flat tax and warned about the risks of adding a value-added tax on top of the income tax in another video. I also posted a very successful video narrated by a former Cato intern about the harsh compliance costs of the internal revenue code.
So now it is time for some jealousy. There are more than 25 jurisdictions around the world that have flat tax systems and do not face the horror and anxiety of complicated tax systems. This is a remarkable change compared to 20 years ago, when there were less than five jurisdictions with simple and fair tax regimes. Some of these flat taxes, such as the ones in Hong Kong, Estonia, and Slovakia, are very close to the theoretical ideal and are great role models for other nations. Here is a video looking at this global flat tax revolution.
[youtube qBAr0MzRFU0]
A few caveats are worth mentioning. Iceland no longer has a flat tax. After the financial collapse, a leftist government was elected that has reinstated a discriminatory rate structure. This is unfortunate, but I am not too upset since I was never comfortable defending a flat tax with a punitive tax rate higher than the highest tax rate in the American tax code.
Also, a flat tax is better than a so-called progressive tax, but it is not a silver bullet for economic growth. There are many factors that determine whether a nation is prosperous. As the video explains, Ukraine has a flat tax, but it is hardly an economic powerhouse since almost all other government policies are misguided. Sustained and rapid economic growth requires that politicians implement good (or at least decent) policy in a wide range of areas.
One final point. There is one jurisdiction that has a national sales tax (technically, a value-added tax) and no income tax. Monaco certainly is an economic success story, but it is unclear whether it is a role model since much of the wealth is a result of rich people moving there to escape oppressive taxes elsewhere in Europe.
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