January 2010: Ups and Downs with the Flat Tax

Romania held on to its 16 percent flat tax, despite enormous pressure from the International Monetary Fund as a condition of getting aid.

Latvia, too, held on to its flat tax, but was compelled to increase its rate from 23 to 26 percent to secure IMF support.

Jamaica’s response to an IMF deal included a temporary surcharge on its 25 percent flat tax of an additional 2.5 percent on earnings exceeding J$5,000,000 and an additional 10 percent above J$10,000,000. (US$1=J$89) The surcharge is to be in effect from January 10, 2010, to March 31, 2011.

A Libertarian candidate, Otto Guevara, for the presidential election in Costa Rica, which is scheduled for February 7, 2011, supports the flat tax. He dramatically improved his standing in the polls in the last few months by 18 percentage points and, if he continues to gain support, could actually win high office.

Taskforce 2025 in New Zealand called for a flat tax of 20 percent to catch up with Australia. The tax reform would also eliminate capital gains tax and cap government spending at 29 percent of GDP by 2012/13. Current top rates of tax are 38 and 30 percent on individuals and businesses.

Panama’s president, Ricardo Martinelli, plans to push hard for a flat tax in 2010.

A group in Haiti has asked for my help to develop options for a flat tax. Stay tuned.

On January 1, 2010, Qatar replaced its 35 percent top rate corporate income tax with a 10 percent flat rate.

Finally, sigh, the IMF never gives up pushing for higher tax rates on high income earners. Its advice to the Marshall Islands is to establish a tax base that adds higher brackets on personal income (rates not specified).