Flat Tax Benefits for Iraq

Published January 1, 2004

The flat tax measure, predicts Daniel J. Mitchell in a November 10 commentary for The Heritage Foundation, will reap the following significant positive results for the Iraqi people:

  • Help restore the Iraqi economy. Decades of heavy-handed government control crippled Iraq’s private sector. Saddam and his henchmen treated the country as a personal piggy bank, and the Iraqi people quickly learned to use the underground economy to survive. The flat tax will “legalize” productive behavior and help unleash entrepreneurship and innovation. Businesses will be formed and jobs will be created. To be sure, the flat tax is just part of the solution, but it’s an important step on the road to economic recovery.
  • Reduce U.S. foreign aid. An Iraqi flat tax also will save American taxpayers money. Nations that experience strong economic growth generally don’t feel the need to come to Washington begging for handouts. This is a critical issue since, for better or for worse, we now bear considerable responsibility for Iraq’s future. If its economy is weak, we’ll be sending billions of dollars to Baghdad every year for the indefinite future. But the flat tax can help wean Iraq from American aid.
  • Boost economic reform in the Middle East. Creating a democracy in Iraq should stimulate political reform in other Middle East nations. The same principle applies to economic reform. The Iraqi flat tax will provide an example to other nations in the region that want to modernize their economies. It would be especially helpful if Israel and Egypt learned from Iraq, since both nations consume a lot of U.S. foreign aid–money they wouldn’t need if they replaced their punitive tax regimes with a flat tax.
  • Educate U.S. politicians. If American officials recognize that a flat tax is good for Iraq, this raises an obvious question: Why isn’t it also good for the United States? One of the indirect benefits of the Iraqi flat tax is that it will create another case study showing the benefits of a fair, simple, pro-growth tax system. Not that politicians should need more evidence: Hong Kong’s flat tax, after all, is a long-time success story, and the flat taxes in Russia, Lithuania, Estonia, and Latvia are helping their economies grow as well.

Daniel J. Mitchell is the McKenna Fellow in political economy at The Heritage Foundation. The full text of his November 10 commentary is available on the Heritage Foundation Web site at http://www.heritage.org/Press/Commentary/ed111003c.cfm.