> (I haven't read the Rogoff piece.) I don't know what kind of tax
> system China has now, but if you barely have one that works to
> begin with, in a developing country with a lot of destitute people,
> a flat tax is not a bad starting point. The zero bracket could
> eliminate the need for many to owe any tax. You can always add
> brackets, and you can also have a different rate on the business
> side of the tax (assuming we're talking about the classic Hall-
> Rabushka form of a flat tax). The initial form of it could be more
> progressive than what they have now. The context for its
> introduction is crucial to evaluating it. For any social-
> democratic system, as well as for the U.S., it would be a big step
> backwards. For other places, perhaps not.
I remember a Luxembourg Income Study working paper from long ago, which I now sadly cannot unearth, that showed that countries with more progressive tax systems are often the most unequal. Western European tax structures aren't terribly progressive - a VAT soaks the midrange - but the redistributive action really happens on the spending side (health insurance, child care, income support, etc.).
[WS:] True. I think that the most important difference between EU and US is not the "mechanics" of the tax structure but the political conceptualization of taxation and social programs in general. The Europeans tend to see taxes and social programs as an 'economy of scale' - pooling resources to provide universal benefit at a lower per-unit rate. Homo Americanuses, by contrast, see taxation as burden rather than investment, and social programs as a handout to the poor at the expense of everyone else. That is why social programs are so stingy in the US, comparing to EU (16% of the GDP vs. 25-30%, respectively, which is further compounded by the higher prices of health care in the US.)
Progressive taxation is really a lame of way of income redistribution - it is more of the punishment of the better-offs than helping the worse-offs. A vestige of the Puritan mentality, I may add. A better way is the availability of universal social programs that not only take advantage of the economies of scale and deliver services more efficiently, but have a vantage point of attracting broad public support (especially in contrast to the US system).
Wojtek