On Taxes and Why I Wish I Was Russian

March 4, 2004

I wish I was Russian.

Last weekend, I spent several hours organizing my 2003 tax records. This is always an unpleasant task - something the average American wastes 48 hours on every year. But I have tremendous incentive to waste my precious time.

As a self-employed writer, I work like the dickens this time every year to minimize my income. By fully accounting for every business expense, I can reduce my profit, which helps me pay less of the massive income taxes I otherwise must pay.

That is why I read with fascination a Wall Street Journal article by Daniel Mitchell, a senior fellow at the Heritage Foundation. He says that Russia now has an income tax that Americans can only dream about: a flat tax of 13%. Russia's strategy is to make tax compliance simple and to offer a rate low enough to spur the economy.

And so effective has the Russian strategy been that the idea is catching fire. Slovakia ditched its progressive system - with a top rate of 38% -- and replaced it with a flat 19% income tax for both individuals and companies. Slovakia is even implementing a social security system based on personal savings accounts, another innovation that is barely on the American radar screen.

But there's plenty more going on in Eastern Europe. Poland introduced a 19% flat tax for personal income. Serbia is taxing most of its personal income at 10%. Estonia, which was the first of the lot to implement a flat tax, dropped its rate to 20%. They had to in order to keep their upstart neighbors from stealing away business opportunities.

These Eastern European countries are following the lead of America, no doubt, which has proved on more than one occasion that low taxes not only boost the economy but eventually lead to more government revenue.

America implemented its first tax-cut experiment in the 1920's. After WWI, the top rate was a whopping 77%. By 1925, we cut the top rate down to 25% and the economy took off like a rocket.

In the 1980's, we tried the experiment again. The Reagan tax cuts reduced the top rate to 28% and the result was the longest peacetime expansion in American history.

Then there were the Bush tax cuts. If you don't see a correlation between Bush's tax cuts and our brightening economic future, you don't know much about economics.

But while Eastern Europe is reducing and simplifying its tax policies, America is going in the opposite direction.

The American income tax code is growing more confusing by the moment. Though Republicans succeeded in reducing some taxes, the reductions came at the expense of more complications. The tax code has ballooned to 58,846 pages, a document so confusing even the IRS can't tell you what many of the rules mean.

And some think our taxes aren't high enough. John Kerry promises to repeal some of Bush's tax cuts if elected, because it's not fair that "rich" folks get to keep more of their dough. Hey, Kerry, in 1979 the top 1% of earners paid 19.75% of all income taxes. Today they pay 36.3%.

I know firsthand how complicated and high our income taxes are. I was swimming in a pile of receipts last weekend and praying I made less than I thought I did. I make this prayer every year to avoid getting whacked by federal taxes (up to 35%), Social Security, Medicare and Medicaid (15.3%) and state (up to 5.75% in Virginia). But despite my hard work, I still hire a CPA and I still pay up to 40% of my gross revenue in income taxes.

But if my income tax was a flat 13%, not only would I pay way less in total taxes, I would have had more free time on my hands last weekend. I would have been able to drink vodka and chase after pretty Eastern European women.

That's why I wish I was Russian.

Tom Purcell

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