This weekend’s German elections are increasingly being seen as a referendum on the economist’s darling of single-rate income taxes.
Angela Merkel, the right-leaning opposition candidate from the Christian Democratic Union has been described as “Germany’s Maggie Thatcher.” In an effort to revive Germany’s slumping economy and cut its dismal 10 percent unemployment rate she’s endorsed a range of economic reforms—including a single-rate income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. .
Merkel’s economic advisor, law professor Paul Kirchhof, ignited a firestorm of controversy recently when he openly endorsed a flat-rate tax system, describing it elegantly in this way: “Each person only has to pay 25 cents out of each euro earned. With the rest, he is set free in the garden of liberty.“
Since then Merkel has apparently fallen somewhat in the polls, as her political opponents have attacked her tax reform plans as a “tax for millionaires” and “the Merkel minus,” alleging that it will eliminate middle-class tax benefits and cut tax burdens for the wealthy.
This morning’s Globe and Mail has a good summary of the German flat-tax controversy, including the rapidly growing trend toward single-rate, broad-based taxes across the globe:
Until this week, it seemed like a tax revolution was sweeping across Europe, from east to west, and possibly headed straight for North America…
The [flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. ] movement began in 1994, when the government of Estonia, desperate to rebuild an economy after communism’s fall, decided to adopt an idea that had previously been the preserve of academic economists and fringe politicians. Shortly after introducing a flat tax, Estonia’s economy boomed. Fellow Baltic countries Latvia and Lithuania soon followed, succeeded by Russia in 2001 with a flat tax rate of 13 per cent. The last two years have seen a tidal wave of flat-tax conversions: Serbia, Ukraine, Georgia and Romania have outdone one another to introduce lower rates, and Greece, Hungary, Poland and the Czech Republic are in the midst of flattening their taxes.
In Britain, the opposition Conservative Party endorsed the idea this year. It has a strong backing within the U.S. Republican Party, and at least one major newspaper in Canada has used its editorials to campaign for it.