RALEIGH – I must have been asked half a dozen times in the past month whether I was reading the latest book from New York Times columnist Thomas Friedman, The World Is Flat. Although I am always glad to see books read and talked about, the question remains depressing.
I have read passages from the book (while browsing at the bookstore, I admit) and some three or four lengthy reviews. I know enough about The World is Flat to know that it has little to say about globalization, trade, and international relations that hasn’t already been said earlier and better – which is for Friedman, I’m afraid to say, entirely in character. As economist journalist Henry Hazlitt once wrote of John Maynard Keynes colossal mess of a book, The General Theory, what is true in the book isn’t new, and what is new in the book isn’t true.
There is a far more interesting “flattening” trend going on around the world: the substitution of flat-rate income taxes for complex, job-destroying tax codes based on multiple rates and convoluted bases. The former Soviet Union led the way during the 1990s, starting with Estonia’s passage of a flat-rate tax in 1994 and including seven other Eastern European countries over the ensuing decade, including Russia itself (a flat 13 percent federal rate) in 2001. The Conservative Party in the United Kingdom is set to announce its support for a flat-rate tax to supplant the current three-bracket system, reports Business Week, while even Jacques Chirac’s government in France is considering a plan to simplify its tax brackets and deductions.
In Germany, the flat tax was a major campaign issue in parliamentary elections held over the weekend. But the political implications are unclear. The Christian Democrats, led by Angela Merkel, appear to have won a plurality of the vote, but underperformed their pre-election expectations by several points. At around 36 percent, the CDU may not have enough clout to combine with their coalition partner, the free-market Free Democrats, to control the German government outright (though the pro-American, pro-market Merkel will almost certainly be the prime minister).
One of Merkel closest advisors had endorsed a flat tax, after which the CDU appeared to back off the idea a bit in the face of media criticism. Did the flat tax cost the party some votes – many Germans are still enthralled, after all, with the redistributionist welfare state – or did confusion about the issue hurt Merkel’s reputation for resolve? It’s too early to tell. I’m still hopeful that flatter, fairer tax rates may be in Deutchland’s future.
Some day, I suppose, we may even see movement towards flatter, fairer rates in North Carolina. Politicians of both parties have talked a lot lately about reforming the tax code, all the while junking it up with additional credits, exclusions, and exactions. My colleagues at the John Locke Foundation have consistently argued for an approach that mixes the gradual adoption of a flat-rate tax on consumed income (which is reported income minus net savings) while also whittling down the retail sales tax as far as it will go. Eventually, I’d like to see the state’s portion of the sales tax disappear entirely (a consumed-income tax is the same thing, economically, only efficiently and fairly applied to the purchase of goods and services). The sales tax can be retained as part of the local tax mix, perhaps.
If the world is getting flatter, in this sense, then as usual North Carolina will poke along behind, looking backwards and thinking it is in the lead.
Hood is president of the John Locke Foundation.