RALEIGH – What can Georgia do that North Carolina can’t seem to pull off?

No, this isn’t an NCAA reference. I’m not even talking about the state of Georgia. I’ m referring to the Republic of Georgia, the former Soviet possession now free and independent – and operating its government under a flat tax.

According to a new report in the Christian Science Monitor, there are nine Eastern European countries that have adopted flat-rate income taxes, including Romania and Georgia during the past year. But North Carolina, demonstrating once again its tendency to follow rather than lead in public-policy matters, added a fourth tax bracket (of 8.25 percent) back in 2001 and under Gov. Mike Easley’s proposed budget will retain the bracket for 2006 (at 8 percent), then revert to a bad-enough set of three brackets: 6 percent, 7 percent, and 7.75 percent.

There are many different reasons to embrace a single marginal rate of taxation. There are also many different reasons why some oppose the flat-rate tax, most of them the result of fundamental misunderstandings of the economics and finances involved.

For example, some argue that imposing a single tax rate is “regressive.” That is an abuse of the term. In tax-policy parlance, a regressive tax is one in which the average tax rate – the percentage of income actually paid to the government – goes down as one’s income goes up. For example, if a tax system requires someone at $30,000 to pay $3,000 in tax (10 percent) but someone at $60,000 to pay $5,000 (8.3 percent), that’s a regressive system.

A progressive tax tax imposes a higher average tax rate as one’s income goes up. So if the $60,000 household pays $7,000 in the example above, that’s a progressive tax in effect. Finally, a proportional tax is one in which the $60,000 household pays the same average rate as the other, or $6,000.

You might assume that a flat tax must be a proportional tax, but that’s not true. In fact, most flat-tax systems are moderately progressive. That’s because they typically exempt some initial amount of income. In the above example, assume that the first $10,000 of income is exempt and the marginal tax rate is 10 percent. That means that the poorer household pays $2,000 in tax, or 6.7 percent, while the other household pays $5,000, or 8.3 percent. Obviously, when you combine personal exemptions and deductions on the one hand with multiple tax brackets on the other, you make the system much more progressive (and this point a better term is punitive).

So, is a flat tax “fair”? Depends on your definition of the term. If you think that someone who earns twice your income ought to pay around twice the taxes, then the flat tax is for you. (Its mildly progressive nature can be brought closer to proportionality by taxing only consumed income, exempting dividends and capital gains from tax until they are actually withdrawn from savings and spent. That’s the proper tax treatment of savings, anyway.)

If, on the other hand, you think as Karl Marx did that it’s “fair” to use taxes to redistribute the wealth, don’t be surprised if those who can claim personal experience with Marxism reject your view. Even Russia, it seems, now has a flat tax. But not yet North Carolina.

Hood is president of the John Locke Foundation and publisher of Carolina Journal Online.