- The Washington Times - Monday, November 11, 2002

Last August an e-mail arrived at the Hoover Press at Stanford University from a literary agency in China for warding a client's inquiry about obtaining publishing rights to a Chinese translation of "The Flat Tax."
The authors are well-known economists at the Hoover Institution, Robert E. Hall and Alvin Rabushka. (Full disclosure: As shown below, I am a research fellow at the Hoover Institution.) Sometime this month, the book will be published in Chinese.
What makes this application an extraordinary event in the history of Communist China is that the client was the China Financial and Economic Publishing House, an official branch of the Ministry of Finance. And not only that but the Chinese language edition (3,000 copies in all for a royalty of $450) contains an introduction by the authors plus a second introduction by the finance vice-minister. What the minister's introduction will say is as yet unknown. The book is due out sometime this month.
Publication of "The Flat Tax" would seem to mean finance and tax officials of the Chinese government are interested in studying a taxing system proposed in this 152-page book, which is a system based on what would be called in Beijing capitalist ideology. It's quite possible that the decision to publish "The Flat Tax" was taken by professional Chinese economists with little if any consultation with the Chinese Communist Party (CCP).
And the reason for this action is that for more than a decade the government has been unable to quell a quiet tax revolt. It has been estimated that as much as 40 percent of Chinese households have failed to pay their taxes. Government campaigns against tax evasion and tax avoidance are going nowhere. The underground economy flourishes.
There is no question that the People's Republic of China (PRC) has been moving away for some three decades from a centrally planned economy but without loosening the dictatorship of the Communist Party, which has just opened its 16th Party Congress.
The Tiananmen Square massacre of 1989 is still remembered, and no one outside the party bosses really knows the number of political prisoners still subjected to forced labor.
Deng Xiao-ping, who engineered the economic reforms back in the late 1970s, gave the go-ahead to economic reforms with his non-Marxist adage: The color of the cat doesn't matter so long as it catches mice.
Today the PRC is a member of the World Trade Organization (WTO) with all the restrictions on what has until now been a freebooting export economy. And almost a quarter of the economy is today in the private sector and expanding.
With the dissolution of the Soviet Union in 1991, central planning was out and market economies were in for the independent countries created out of the communist empire, in central and eastern Europe, the Baltic States and the onetime Soviet republics.
They all needed a new system of taxation, one easy to administer. The flat tax has been adopted by Estonia and Latvia and, most recently, Croatia. Most importantly, the new Russian Federation adopted a 13 percent flat tax as of Jan, 1, 2001. Tax evasion has dropped significantly and tax collections have increased almost 30 percent.
The flat tax as an alternative to the counterproductive federal income tax itself was first proposed by Messrs. Rabushka and Hall in the Wall Street Journal in 1981 and has been endorsed by Steve Forbes, Jerry Brown and the New York Times, and enjoys bipartisan support in Congress. (Jimmy Carter called the income tax "a disgrace to the human race.")
The flat tax is simplicity itself. All income would be taxed once at a uniform low level of 19 percent. There would be a tax-free allowance of $25,000 for a family of four. Above that, the 19 percent tax would kick in. And that would be it: no deductions. There would be an end to double taxation, tax on corporate earnings and tax on capital gains and dividends, which represent the distribution of that already taxed corporate income.
There are two advantages of the flat tax: First, the form to be filed with the Internal Revenue Service would be the size of a postcard and it would replace 480 IRS tax forms and thousands of regulations, thus saving our forests. Since China suffers from deforestation, that may be a reason the PRC is considering the flat tax.
It would be the height of irony were China to adopt the flat tax while the American taxpayer suffers under an incomprehensible system, which requires costly legal and professional advice and which as the authors of "The Flat Tax" point out, "treats taxpayers with similar incomes in radically different ways."
Wouldn't it be great if, on the heels of his great political victory, President Bush were to adopt the flat tax before the PRC does?

LOAD COMMENTS ()

 

Click to Read More

Click to Hide