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Depardieu’s Exit and Russia’s Flat Tax: What RP’s Central Planners and Academics Might Learn

January 3, 2013

The French millionaire and eccentric actor who publicly shamed France’s socialistic tax increase targeting million-euro earners has just recently moved to a former socialist empire and received his brand new Russian

Russian Prime Minister Vladimir Putin, right, and French actor Gerard Depardieu, left.

Russian Prime Minister Vladimir Putin, right, and French actor Gerard Depardieu, left.

citizenship.

In his viral goodbye letter to socialist French President Francois Hollande, who plans to raise the tax on earned income above €1 million ($1.3 million) to 75 percent, disgusted Gerard Depardieu said he was “leaving because you consider that success, creativity, talent, actually and anything different must be punished.”

Depardieu further wrote:

“I leave after paying, in 2012, 85% tax on my income. But I keep in mind that France was beautiful and I hope it will remain so…

“I paid 145 million (190 million US dollars) tax in forty-five years, I have 80 people working in companies that were created for them and which are managed by them.

“I do not wish to complain or to brag, but I refuse the word “pathetic”.”

You may tax the man to death, just don’t call him “pathetic” (*sarcasm*).

In the Philippines, the Aquino regime started its tax campaign against tobacco and alcohol companies to fund the president’s the universal health care program that will serve millions of Filipinos who “will benefit from new public clinics and hospitals that will be built, and who will be discouraged from smoking and drinking.” The President’s tax collector at the Bureau of Internal Revenue has also started its tax crackdown on online sellers and tax evaders.

The expanded sin tax law was projected to generate P33.96 billion in revenue in the first year of implementation.

Really? I doubt it.

Now back to Depardieu’s latest surprising role as a new Russian citizen.

You must be wondering about the connection between Depardieu’s story and Aquino’s tax efforts. I urge you to read further…

A lot of people were actually asking: why did he choose a former socialist republic?

The answer is of course tax. He left socialist France because of its punitive, anti-success tax rate; now he migrated to Russia due to its free market tax rate.

Russia currently imposes a flat 13-percent income tax rate.

“Wait! A former Communist country has a flat tax of 13%? Why isn’t there a story about THAT?” asked this surprised online commenter.

“It’s ironic that the socialist french voted out the conservative President Sarkhozy, for the liberal french President Hollande who promised to raise taxes on the rich to 75%, which only amounted to 140 French citizens. Sound familiar? But even the french courts threw out the 75% tax rate as excessive,” said another.

Yes, fortunately (or unfortunately for the pro-class warfare socialists), France’s Constitutional Council has struck down the proposed 75% income tax rate to be implemented this year.

Russia’s 13% flat tax was implemented by President Vladimir Putin, former chief of the Soviet KGB, in 2001. That was the year U.S. President George W. Bush also adopted tax cuts to American families.

Putin and Bush must have been insane they reduced taxes. That would mean reduced revenue for their governments, right?

Wrong!

Putin’s very radical tax cut didn’t push his government to a near economic collapse or fiscal crisis. Instead it provided the Russian government with more revenue collection.

The Yellowtards in the Philippines must be asking: How is that possible?

Well, there’s this thing called the ‘Laffer Curve’.

According to free market economist Daniel Mitchell, a Facebook friend, there is this revenue-maximizing rate of tax in that “if you set rates too high, you raise less because people work less, find ways of avoiding tax or quit the country.”

The world isn’t static, it is dynamic; people respond to tax rates, just as they respond to other prices. Laffer told a gathering at the Institute of Economic Affairs that this is definitely true in the UK today – and the struggling tax take revealed in the official numbers suggest that he is right. Tax rates and levels are so high as to be counterproductive: slashing capital gains tax would undoubtedly increase its yield, for example. Many self-employed workers are delaying incomes as much as possible until the new, lower top rate of tax kicks in.

The curve simply explains that there is a particular tax rate, which should not be punitive or arbitrary, that encourages taxpayers to pay for their mandatory contribution to the government. That means that if a government levies a lower and more reasonable tax rates, there would be more taxpayers and that would encourage more investment and economic activities.

Now what happened to Russia a few years after the implementation of Putin’s 13% flat tax?

Mitchell made the following observation:

“Over the last two years, inflation-adjusted income tax revenue in Russia has grown 50 percent. Why? Because people are willing to produce more and pay their taxes when the system if fair and tax rates are low — exactly what Ronald Reagan predicted when he triggered America’s economic boom with lower tax rates 20 years ago. Ironically, the former communists in Moscow now understand supply-side economics, yet liberals in Congress are still relying on the politics of hate-and-envy.”

However, Mitchell said that Putin should do more, like privatization of inefficient state-run industries.

He also said the “success of Russia’s flat tax shouldn’t surprise anyone”, adding:

“Hong Kong has had a flat tax for a long time, and it’s been the world’s fastest-growing economy over some 50 years. Indeed, there are growing signs that China may implement a flat tax in the near future. Talk about a man-bites-dog story! One of the few remaining communist nations may get a flat tax before America. At this rate, the United States may wind up in the same category as France, Cuba and North Korea”

Russia’s miraculous flat tax reform did not only lead to economic growth and increase in personal income tax revenues; it also reduced cases of tax evasion.

A 2008 study that looks into the effect of Russia’s flat tax reform on tax evasion made the following conclusion:

“We find that, ceteris paribus, the consumption-income gap decreased by 9 to 12% more for those households that experienced a reduction in marginal tax rates. That is, the most significant reduction in tax evasion was for taxpayers that experienced a decrease in tax rates upon introduction of the flat tax. We also find that this decline in tax evasion was likely due to changes in voluntary compliance, as opposed to greater enforcement efforts by the tax administration authorities.”

I believe these are very important, valuable things that our brown-skinned economic planners and academics should strive to understand.

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9 Comments leave one →
  1. GabbyD permalink
    January 5, 2013 3:38

    Study separates russian flat tax myth and fact

    The other implication in these data is that the flat tax seems to have done little to increase real income for taxpayers. If real income had increased substantially, one would expect consumption to increase as well. That wasn’t the case. Taxpayers whose tax rates were cut increased their consumption net of windfall gains by less than 4 percent.

    “The results of this paper have several important policy implications,” the authors write.

    “The adoption of a flat rate income tax is not expected to lead to significant increases in tax revenues because the productivity response is shown to be fairly small. However, if the economy is plagued by ubiquitous tax evasion, as was the case in Russia, the flat rate income tax reform can lead to substantial revenue gains via increases in voluntary compliance.”

    ###
    Yuriy Gorodnichenko, Jorge Martinez-Vazquez, Klara Sabirianova Peter, “Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia.” Journal of Political Economy, June 2009.

    • January 5, 2013 3:38

      “The other implication in these data is that the flat tax seems to have done little to increase real income for taxpayers.”

      *Facepalm*

      There you are again, little-brain… Then perhaps to increase real income for taxpayers the Russian government should have taxed them 75%? Oh! Perhaps Filipinos who are taxed 32% have more earnings than the Russians. Yeah right.

      • GabbyD permalink
        January 5, 2013 3:38

        thats your counterargument? raise tax rates to 75? marginal or ave? that is not the authors of the studys’ counterargument… who is the little brain here?

      • January 5, 2013 3:38

        Yes. Unless you can tell me how a 40% or 75% tax rate could increase the income of individual earners. HOW?

        If you’re concern with the statement that “the flat tax seems to have done little to increase real income for taxpayers.”

      • GabbyD permalink
        January 6, 2013 3:38

        huh? the paper i cited explains how it works.

        do u have any questions about their methodology? understanding their results? its written in plain english.

      • January 6, 2013 3:38

        So, according to you and the crappy paper you cited, people will have higher income if they’re taxed more… probably 40% to 75%. I get it.

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