At the heart of the reforms lies the classical liberal tax theory according to which lower taxes translates into increased tax revenues. Therefore, it is an interesting historic irony that Russia, a country where the socialist creed reigned strong still very recently, has now been converted into the international showcase of economic liberalism. In America President Ronald Reagan and his supporters were known for campaigning for such tax policies, but it is Putin’s Russia that has actually implemented them. Hardly could Reagan have even dreamt of such measures as Putin’s 13% flat income tax rate. Fair to say that never before has there been such a dramatic and speedy shift from socialist tax policies to classical liberalism, and hardly could the results be any more impressive.
Is this article too good to be true? I sure hope not.
Mark,
Russia’s tax reform has been a huge success. If they develop a culture (and government) that recognizes the “rule of law” they might be able to overcome the forces that threaten to tear Russia apart. Unfortunately, the ongoing risk that political forces might confiscate your property or demand bribes from your business is a meaningful hidden tax on the Russian economy – because it hinders the productive use of capital.
The biggest force that threatens Russia is almost certainly the large number of Muslims along its southern border (both in and outside of Russia). Even when I was at the Naval Academy a quarter century ago – we realized what a difficult strategic challenge this presented the then Soviet Union. We all know that “You can’t beat something with nothing”. Yet, there is no large scale Russian ideology that competes with Islam. Belief in communism as an all encompassing worldview is largely gone. Unless there is a massive Christian revival, Russia is likely to discover that secular materialism is not a particularly effective deterence to militant Islam. Of course, Western Europe is likely to discover this as well.
David
That “if” statement about the rule of law is looking more far fetched with every passing assassination.
Jay,
I agree. I’m not optimistic about Russia. The famous hedge fund manager, Jim Rogers, said that this is one of the major reasons why you shouldn’t invest in Russia. I think he’s right.
It is still worth paying attention to the fact that the “Flat Tax” has been very successful in Russia and would likely be at least as big a success in the U.S.
David
You might be interested to know that while Russia’s tax burden was lower than America’s, its inflation rate was ten times higher. What’s more, an average Russian lived 10 fewer years than an average American, and his average wage was 10 times less than that of an American. Still thinking of moving to Russia?
You might also be interested to know that the author of the piece you cite works for the company that provided the “data” about tax burden, and his job is to convince foreigners to invest in Russia.
Finally, you might want to know that the piece is full of outrageous lies, documented here:
http://russophobe.blogspot.com/2007/04/outrageous-lies-from-russia-blog-just.html
For a full expose on the abuse of Reagan perpetrated by the author of this piece, see here:
http://publiuspundit.com/articles/2007/04/treason_how_the_discovery_inst.php