Here’s Cato’s Daniel Mitchell writing in April 2007:
The International Herald Tribune reports that the new government in Estonia plans to lower the rate on the flat tax from 22 percent to 18 percent. Estonia already ranks as one of the world’s most laissez-faire economies. Reducing the flat tax rate – which was originally imposed at a rate of 26 percent – will further enhance Estonian competitiveness and increase the power of tax competition in Europe.
Ah, Estonia:
Estonian GDP Shrinks By An Annual 15.6% In The First Three Months Of 2009
Well, the best thing that can be said about this is that it wasn’t as bad as the 18% contraction recorded in Latvia.
Back to Daniel Mitchell, writing with his colleague Chris Edwards who observe that “Latvia became the third Baltic country to adopt a flat tax . . . Latvia has experience rapid economic growth in recent years . . . like in Estonia, Latvia has been able to cut the overall size of its government.”
Not, of course, that flat taxes breed spectacular economic meltdowns. But many of the “miracle” economies pointed to by the right as proving the virtues of tax cuts—Ireland, the Baltics, to a lesser extent other neoliberal regimes in Central Europe—in fact clearly seem to have powered their past several years worth of growth largely by tapping the credit bubble in even bigger ways than the United States did.
Meanwhile, recall that the shoe of Eastern European defaults hasn’t necessarily finished dropping yet. The impact would be felt primarily in European banks, but it still spells trouble for everyone.
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