During his recent trip to Europe, President Bush went out of his way to praise the growing number of countries that have done away with their complicated tax codes and adopted a flat tax.

The President speaks for a growing number of Americans who are embracing the idea, among them actor/director Clint Eastwood, who said few years back that adopting a flat tax would mean "a little old lady on a home computer [could do] the work of all these thousands of bureaucrats and accountants. Passing that would be amazing, wouldn't it?"

The bipartisan tax-reform commission appointed by President Bush will no doubt look carefully at the global spread of the flat tax, a concept hailed by its supporters because it is simple to calculate, is harder to cheat on, encourages investment and fosters economic growth. It’s no small wonder it's catching on in Eastern Europe.

In 1994, newly independent Baltic state of Estonia borrowed the idea of the flat tax from highly prosperous Hong Kong, which 45 years before had introduced a dual income tax system, which allowed taxpayers to pay a flat rate on their gross income. Soon after, Lithuania and Latvia followed Estonia's lead. Today, the economies of all three Baltic states are booming, and, along with Slovakia, a recent convert to the flat tax, they are the least-taxed countries in the European Union.

The success of the Baltic states attracted the attention of Russian president Putin’s economic advisor, Andrei Illarionov. At his suggestion, President Putin implemented a 13% flat tax for individuals, along with a 15% rate for most business income. The results have been astonishing as black-marketers in Russia decided the tax was low enough and transparent enough that it wasn't worth evading.

After struggling for over a decade, Russia's economy grew 5% a year after inflation in 2002 and 2003 and 7.3% last year. The flat tax is a key reason that revenue from the country's personal income tax has grown by 150% since 2001. In a report on the success of the flat tax’s success, the Adam Smith Institute in London noted: "This constant expansion of the government tax revenue is the result of less tax evasion and increased incentive to work, save, and invest."

Russia's experience soon set off a wave of imitators. In 2003, Serbia introduced a 14% tax on income and corporate profits, and plans to cut it further. Russia's neighbor, Ukraine set a 13% rate, with dividends and bank interest taxed at only 5%.

In 2004, Slovakia junked an old tax system that included 66 exemptions, 19 sources of untaxed income and 27 items with their own specific tax rates. It then put in place a 19% flat tax on income and profits. Jan Oravec, president of Slovakia's Hayek Foundation, recently stated that the country's flat tax helped sustain an economic growth rate of 4.9%, lowered unemployment and led to a in surge in tax revenues as people took advantage of the new opportunities to work and invest. Last year, the World Bank named Slovakia the world's top economic reformer in 2004 for improving its investment climate.
It was in Slovakia last week that President Bush privately told President Putin how much he admired Russia’s success in implementing the flat tax. Commenting in public later on, President Bush praised his Slovakian hosts for their flat tax, which "has helped to attract capital and create economic vitality and growth."

Alvin Rabushka, a senior fellow at Stanford's Hoover Institution who consults with countries all over the world on how to design a flat tax, can barely keep up with all the new adherents. Within two weeks after taking office, Romania's new prime minister, Calin Popescu Tariceanu, issued an emergency edict to take effect only three days later: Companies and individuals now pay a single flat rate of 16%. The country of Georgia also adopted the flat tax in January.

Europe has become so crowded with flat-tax nations that the original proponents of the idea are having to play catch-up. Estonia has just cut its rate to 24%, and has promised to slash it to 20% over the next two years. Mr. Rabushka's book "The Flat Tax" has been published in Chinese, with a preface by China’s vice minister of finance. Should China climb on board the flat-tax train, more than a quarter of the world's population would be filling out their taxes on the back of a postcard.

In the U.S., interest in the flat tax languished after Steve Forbes, who championed a 17% flat rate during his 1996 presidential campaign, failed to win the GOP nomination. Former House majority leader Dick Armey, a pioneer in promoting the flat tax, privately admits that Congress would be unlikely to abolish tax deductions for mortgage interest and charitable contributions, but there is lots of room for President Bush's tax reform commission to propose a dramatic flattening of the income tax code.

Liberals in America deride the flat tax on the grounds that its lower rates would starve public services and allow the rich to escape paying higher taxes. But as former California governor Jerry Brown pointed out during his 1992 presidential campaign, the rich will always be able to hire experts to lobby for tax loopholes and avoid paying higher rate traps set for them.Indeed, under existing flat-tax systems the wealthy end up paying a larger share of total tax revenues. In flat-tax countries, taxpayers in the highest brackets move from consumption or tax-sheltered investments to more productive, taxable investments. Many high earners work harder or take additional risks because they are rewarded by higher after-tax returns.

Despite all of its advantages, the flat tax faces enormous ideological opposition. Envy and the lust for the political control that complicated tax regimes can provide are powerful motivations for keeping progressive tax systems in place. In "The Communist Manifesto," Karl Marx was the first to call for "a heavy progressive or graduated income tax" at a time when a flat rate was the norm in advanced countries. The kind of taxation he advocated was listed as second in the list of priorities for a new society based on the class struggle.

Therefore, it is ironic that the countries that have adopted the flat tax are former communist nations, except for Hong Kong, the modern originator of the concept, which has seen its new communist rulers retain the flat tax as a centerpiece of its economic policies.

Given all this, why is it that the U.S. allows itself to continue to see its economic potential limited by a Marxist concept that most nations that followed that path are now fleeing from?

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