The U.S. Could Learn a Lesson From Former Communist States!

As we all know, the liberal’s BIG government policies are sailing our ship of state towards the Europeanization of America. More regulations, bigger deficits, more spending, and higher taxes are all weighing down the U.S. economy and stifling economic growth. The fact of the matter is that economic growth is the answer to many ills in society. Faster economic growth will allow companies to better compensate workers, the government to more rapidly balance the budget, and citizens to more easily provide for healthy families and cleaner neighborhoods. However, increased economic growth and increased prosperity for all Americans requires a change in the Washington mindset.

America’s political leadership needs to wake up and face the facts that the U.S. is way out of step with our major economic competitors. Currently, the average combined federal and state corporate tax rates in the U.S. is 39.3%, second only to Japan’s combined rate of 39.5%. When compared to other OECD member nations 24 states have a combined corporate tax rate higher than top-ranked Japan, 32 states have a combined corporate tax rate higher than third ranked Germany, 46 states have a combined corporate tax rate higher than 4th ranked Canada, and all 50 states have a combined corporate tax rate higher than fifth-ranked France. If America’s business environment is to stay competitive, both the federal and state governments must work together with the goal of lowing overall business tax burdens throughout the U.S.

As for the personal income tax, new data released by the IRS today offers interesting insights into the distributional spread of the federal income tax burden, new analysis by the Tax Foundation shows. The new data shows that the top-earning 25% of taxpayers (AGI over $62,068) earned 67.5% of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86%). The top 1% of taxpayers (AGI over $364,657) earned approximately 21.2% of the nation's income (as defined by AGI), yet paid 39.4% of all federal income taxes. That means the top 1% of tax returns paid (tax rate of 35%) about the same amount of federal individual income taxes as the bottom 95% of tax returns.

The shifting of the tax burden to a small segment of high-income taxpayers is economically dangerous. Those individuals who benefit from government services are increasingly those who share little or none of the tax burden. As they increase in number, they put more pressure on Congress for more services. All the while, those who bear the most of the burden are being squeezed even more. The result is a large Nanny-Statist model government and a growing group of government beneficiaries fighting for more of a shrinking group’s wealth.

As we slide closer and closer towards the European model Nanny State exhibited by the UK and France, other European nations are offering a glimmer of hope. And quite possibly they could teach a lesson or two to the United States.

A new wave of tax competition is sweeping through Ireland and Russia. Ireland has resisted European Union (EU) pressure and enacted a 12.5% corporate-tax rate. This dramatic reform, coupled with drastic reductions in personal income and capital gains tax burdens has turned Ireland in to the “Celtic Tiger”. Such reforms have spread like a grass-fire to other European nations. For example, Russia has scrapped its “progressive” tax system and replaced it with a 13% flat tax. This new system has boosted economic growth and tax compliance.

Now Slovakia is a supply-side role model to other Baltic nations. The government has repealed its old tax code (including its 38% top rate) and replaced it with a 19% flat tax for businesses and individuals. Slovakia also abolished the death tax and is implementing a free-market social-security system. Other former Soviet-bloc nations are not far behind. Poland lowered its income tax from 27% to 19% and enacted an option 19% flat tax for personal business income. Even Serbia, is implement a 10% flat tax for personal income.

Other former communist nations are taking drastic reductions:
• Hungary cut corporate tax rates from 18% to 16% and dropped the top personal
income tax rate from 41.5% to 38%.
• Moldova decreased corporate taxes from 25% to 20% and lowered its top personal income tax rate from 25% to 22%.
• Latvia cut its tax rate on business income to 19%
• Romania’s corporate tax rate is dropping from 25% to 20%
• Estonia has enacted legislation to lower its flat tax to 20% from 25%
• Portugal is lowered its corporate tax rate from 30% to 25% and the government as announced plans to bring the rate down to 20%

It is highly interesting that these nations, formerly characterized as command economies, are competing to keep their taxes low. These actions encourage governments to continually adopt better tax law to keep jobs and capital from migrating across national borders.

The United States is shifting towards “Old World” Europeanization. Characterized by an enormous welfare and nanny state, burdensome taxes, overbearing regulation, and poor economic performance. If the United States is to remain an economic superpower it must set a new course. A course that restores prosperity to the American economy by reducing government spending and reducing corporate taxes and abolishing the personal income tax.

Additional Reading:

Slashing Tax Rates in Europe is Progressive

Global Competitiveness and the Corporation Income Tax

The Rich Pay more Taxes: Top 20% Pay Record Share of Income Taxes


Poll: Tax Code Complex, Needs Reform; Federal Incomes Taxes “Too High”