Flat-tax countries

A flat-tax system has actually been implemented in many Eastern European countries, including Russia. At the moment, the following countries have tax systems that most economists would call "flat" (everyone is taxed on personal income at the same, fixed rate):

• Albania
• Bulgaria
• Czech Republic
• Estonia
• Georgia
• Iraq
• Kazakhstan
• Kyrgyzstan
• Latvia
• Lithuania
• Macedonia
• Mauritius
• Mongolia
• Montenegro
• Romania
• Russia
• Serbia
• Slovakia
• Ukraine

Iceland and Hong Kong have systems that are sometimes called "flat," but involve many deductions and exceptions.

[Source: Wikipedia]

For most of the Eastern European countries, economic results under the flat-tax system have been fantastic, with high GDP growth rates of 6% to 10% per year. Tax revenues have also strongly increased in most of these countries. I'm not sure about the happiness of the "folks," but I would guess most of them like the system just fine, as long as it keeps putting food on the table and, eventually, cars in the garage. Flat-tax advocates have pointed to the economic success of these countries as an argument for using the flat tax in places like Western Europe and the United States.

However, another way of looking at it is to say that these former communist countries had nowhere to go but up anyway. The flat tax wasn't the cause of the economic boom, just a happy coincidence. The tax system and the economic good times could even be the result of the same cause — the free-market spirit that led these countries to implement a flat tax was what spurred the economic growth in the first place.

Whether or not Canada or the U.S. should change to a flat tax is a discussion that is well beyond the scope of this column, but I expect it could work — I doubt either system is vastly superior/inferior to the other. But I think it is unlikely a flat tax will be implemented in a major, developed Western country in the near future, because too many people are entrenched in the old system, and making a change that large is very difficult.