Iraq to Receive Flat Tax in 2004

Published January 1, 2004

The citizens of Iraq will receive a tax reform gift in 2004, compliments of the U.S. government.

“That’s because the Iraqis will enjoy something we don’t–a simple and fair tax system,” said Daniel J. Mitchell, the McKenna Fellow in political economy at The Heritage Foundation. “Beginning in January, all Iraqis will pay a flat tax of 15 percent.”

President George W. Bush’s administrator in Baghdad, L. Paul Bremer, recently authorized the flat tax measure, which will replace Saddam Hussein’s tax regime, with tax rates as high as 45 percent. The order was signed on September 19 and took effect January 1.

“The highest individual and corporate tax rates for 2004 and subsequent years (in Iraq) shall not exceed 15 percent,” says Bremer’s order. That could mean either a flat 15 percent tax, or a maximum marginal tax rate in Iraq of 15 percent.

“An Iraqi flat tax is good news for the United States on several counts,” said Mitchell. “Perhaps most importantly, it will advance our national security interests by boosting the Iraqi economy. A prosperous and growing Iraq will be less susceptible to radical politics–and less fertile territory for terrorist groups seeking new recruits. And the sooner Iraq is stable and free, the sooner our troops can come home,” he noted.

New Life in U.S.?

A November 2 report in the Washington Post said Bremer’s action was sparking a new drive to revive domestic flat tax proposals.

Economist Bruce Bartlett, a senior fellow with the National Center for Policy Analysis, points out that Iraq is not the only country welcoming flat tax reforms.

“While advocates of the flat tax are … pleased with the Iraqi initiative,” notes Bartlett, “they are actually much more excited by what is going on in many former Soviet bloc countries.

“Estonia established a flat tax in 1994, Latvia in 1995, and Russia in 2001,” Bartlett continues. “Earlier this year [2003], Ukraine adopted a flat tax beginning in 2004, and on October 28 Slovakia became the latest country to do so. China is said to be interested as well.”

Bartlett believes success in Iraq will put flat tax reform front and center in the upcoming U.S. Presidential elections, even among Democratic candidates. “It is worth remembering that former California Governor Jerry Brown ran on a flat tax in the Democratic Presidential primaries in 1992, giving his campaign a big boost.”

Brown’s support rose steadily as he campaigned on the flat tax, according to Bartlett’s analysis of Gallup Poll data, rising from the low single digits to about 25 percent of the Democratic electorate, second only to Bill Clinton. Brown defeated Clinton in primaries in Colorado, Connecticut, Maine, Nevada, Utah, and Vermont. He was the only candidate able to challenge Clinton all the way to the Democratic convention.

According to Bartlett, “I would suggest that Dick Gephardt is probably best positioned to duplicate Brown’s success. He has already staked out a rightward position on Iraq and was a prime mover of tax reform in the 1980s as coauthor of the Bradley-Gephardt tax plan. I think he would generate a lot of excitement by endorsing a flat tax–something his campaign desperately needs to challenge Howard Dean and give him a better shot at the Democratic Presidential nomination. It has the added virtue of being good policy.

“Unfortunately, I don’t see Democrats getting their act together next year to regain either the White House or Congress. As a Republican, I am sorry to see that because my party needs them in order to avoid corrupting itself,” notes Bartlett.

California Governor Arnold Schwarzenegger is said to be looking at some sort of flat tax there, according to an October 30 report in the Los Angeles Times.

Importance of Prosperity

“The Bush administration deserves considerable praise for the Iraqi flat tax,” said The Heritage Foundation’s Mitchell. “Officials could have left Saddam’s bad tax system in place or turned the Iraqi economy over to the United Nations, who probably would have increased tax rates even higher! But the President and his team know that peace and stability in the Middle East are impossible without prosperity.”

The next step, said Mitchell, is to “find some country to liberate us and replace our terrible tax code with a 15 percent flat tax. Any takers?”

John Skorburg is managing editor of Budget & Tax News. His email address is [email protected].