November 10, 2003 | Commentary on Taxes
Few Americans would want to trade places with the people of Iraq. But come tax time next April, they may begin to wonder who's better off.
That's because the Iraqis soon will enjoy something we don't -- a simple and fair tax system. Beginning in January, all Iraqis will pay a "flat tax" of 15 percent. President Bush's administrator in Baghdad, L. Paul Bremer, recently approved this pro-growth tax system, which replaces Saddam Hussein's soak-the-rich system that had tax rates as high as 45 percent.
An Iraqi flat tax is good news for the United States on several counts. 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.
But there are other benefits to Iraqi tax reform. It will:
In spite of this success, however, the Iraqi flat tax likely will prove unpopular with France and Germany. They opposed the war in Iraq, and they also happen to be leading the effort for global "tax harmonization" (meaning that all nations would have bad tax policy so that oppressed European taxpayers will have less incentive to move their money out of places like France and Germany). It would be deliciously ironic if the Iraqi flat tax begins to attract business away from Europe's welfare states and helps pressure these socialist nations to lower their tax rates. This might be a fringe benefit of Iraqi tax reform.
The Bush administration deserves considerable praise for the Iraqi flat tax. 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: Find some country to liberate us and replace our
terrible tax code with a 15 percent flat tax. Any takers?
Daniel J. Mitchell is the McKenna Fellow in political economy at The Heritage Foundation (heritage.org), a Washington-based public policy research institute.
Distributed on the Scripps Howard wire