I guess it’s this Laffer curve that usually used to promote a flat tax:

http://en.wikipedia.org/wiki/Laffer_curve

The wikipedia article tells of a 1974 meeting where the term “supply-side economics” was coined by Jude Wanniski. Arthur Laffer, Jude Wanniski, Dick Cheney and Grace-Marie Arnett were present in that meeting. Laffer used a napkin to demonstrate how his curve works.

I think that’s historic because many of the arguments of these people were then used in the Reagan presidential campaign and got called “voodoo economics” by Reagan’s challenger, George H.W. Bush (later Reagan’s VP).

Maybe these EVA reports are something of our equivalent of the efforts of the pioneering supply-side economists. The Baltic countries already have some experience of having a flat tax. I think the Lithuanian rate is 33% and Estonia and Latvia somewhere around 25%.

So this is spreading in Eastern Europe and as it is spreading to Greece (a country of the former Western bloc in close proximity to Eastern Europe), due to introduce a variant of the flat tax next year, Finland seems to be similarly situated on the map close to where the flat tax wave is spreading.

I guess the future of the flat tax in Estonia, the country with the longest experience, is important for Finland. If they would dump the flat tax in favor of a system more like ours and come to the conclusion that progressive taxation works better, that would make EVA look quite bizarre. Does anyone have any idea of where Estonia stands today?

Uh, Phil, you seem to have come back from Pieksämäki as a welfare-statist. I find myself agreeing with you almost completely on several posts in a row. Did the in-laws put something in your mämmi?

But any way you put it, the flat-taxers are only interested in slashing the tax rates of the likes of Jorma Ollila and putting the burden on the already exploited middle class. Thanks but no thanks.

I guess the future of the flat tax in Estonia, the country with the longest experience, is important for Finland.

Being net payers in the EU, I think it is quite pointless and dangerous to look at the example of the “New Europe” moochers like Estonia.

Franklin: Can you imagine one day Estonia being a net payer in the EU? I have no idea when this might happen but I’ve always thought Estonia is a country with a capability of getting rich. Whereas I think progressive taxation is better, my guess is Estonia will be in 2030 a far richer country than it is today. That is completely regardless of whether they keep a flat tax or choose a progressive taxation. The choice between these two systems will only decide how fairly that wealth will be distributed, not whether they will get wealthy.

Swedes used to look down on Finland because we were a poor country and people moved to Sweden to earn the money they couldn’t earn here. Now it’s different. Finnish attitudes toward Estonia will change dramatically when their standard of living reaches ours.

Franklin, are you saying that the EU countries who aren’t net payers are freeriders?

“I guess the future of the flat tax in Estonia, the country with the longest experience, is important for Finland.” Doesn’t Russia also have a flat income tax now?

Well – it makes a change from Finland copying the Swedes…

Toby: Russia had a huge problem with collecting taxes at all. Now with the low flat tax rate they at least get in some taxes. Russia is a totally different story altogether. But certainly it is a huge country that introduced the flat tax in 2001.

Franklin: Can you imagine one day Estonia being a net payer in the EU?

I can, but not the way their economy is now. It’s based on little more than cheap labour. Economic growth will put a stop to that at some point.

Franklin, are you saying that the EU countries who aren’t net payers are freeriders?

I think it’s a good idea to support them to boost their economies and level the playing field within the EU. It’s just that looking at them as an example to be emulated while they’re on the dole, so to speak, isn’t very prudent.

“It’s just that looking at them as an example to be emulated while they’re on the dole, so to speak, isn’t very prudent.”

This is the argument that was so often used about Ireland. Yet since Ireland is geographically located to the west of us, I think quite a few were early on looking at Ireland as some kind of an example, be it prudent or not.

This is the argument that was so often used about Ireland. Yet since Ireland is geographically located to the west of us, I think quite a few were early on looking at Ireland as some kind of an example, be it prudent or not.

Ireland has been able to transform its economy to not being dependent on cheap labour. I sincerely wish that new member states will be able to do the same.

Franklin is on the money here. Estonia is not thriving exclusively because of its flat tax. It has low business taxes. It’s easy to hire and fire. It has labour one third the cost of that in Finland.

Ireland has been very successful but it is in a unique position. It’s a small country which still has much cheaper labour and less red tape than the US. It has thus become effectively a part of the US. This is not an option for countries where English is not the mother-tongue. Furthermore, despite being the third richest country on the planet, Ireland’s poor are still much poorer than ours – which is not acceptable just so the GDP numbers look good on paper.

One last point – no think-tank should be “free-market” or “socialist” or anthing else. If you’re going to do research and expect to be read you need to be competent, balanced and honest. That’s not EVA.

Here is a few tax calculations (Helsinki, not church member) in euros:

Gross total / Taxes / Nett total / Tax percentage.
20000 / 3364 / 16636 / 17 %
30000 / 7036 / 22964 / 23,5 %
40000 / 11071 / 28929 / 28 %
50000 / 15400 / 34600 / 33 %
60000 / 19740 / 40260 / 31 %
80000 / 29600 / 50400 / 37 %
100000/ 39590 / 60410 / 40 %

In addition to these taxes, all Finnish income taxpayers pay 4,3 percent of gross salary to retirement fund (tax deductible) and 0,7 percent for unemployment insurance fee. Union members pay about one percent of montly gross salary or something like 40-70 EUR per month.

There is no mandatory private health insurance, all citizens are taken care by the Finnish Social Insurance Institution (KELA) and by employer’s health insurance for employees. You can of course go to private doctor, part of the bill is usually covered by KELA.

I think flat tax means same amount of euros from everyone. I am for tax of 25% of everything. I mean wages, capital income and VAT could be 25% too. First 10.000 euros p.a. tax free for everybody.

No pensions or unemployment benefits. 1.000 euros euros per month “kansalaispalkka” for everyone. This could be done and would be win-win situation for the whole society, but not bureaucrats.

Wasn’t it that Ireland transformed itself by being pumped full of EU money that perhaps wasn’t all needed

“…I’ve always thought Estonia is a country with a capability of getting rich. Whereas I think progressive taxation is better, my guess is Estonia will be in 2030 a far richer country than it is today.”

My understanding is that before WWII Estonia was richer than Finland.

Tim,

Thanks for the Progressive table. It’s great:

Gross total / Taxes / Nett total / Tax percentage.
20000 / 3364 / 16636 / 17 %
30000 / 7036 / 22964 / 23,5 %
- The important thing here is that the additional 10000 is taxed at 36,7% (7036-3364)/10000. So your paying more tax for the last 10000 than for the first 20000. There is lots more effort require for much less return.

Gross total / Taxes / Nett total / Tax percentage.
60000 / 19740 / 40260 / 31 %
80000 / 29600 / 50400 / 37 %

– 29600 in Taxes. Add 5%, another 4000 totaling 34600. That’s 43.25% The question is, are you getting value out of your Government contributution? Funny, that is almost THREE TIMES what I just paid in US taxes.

If Ollila says so it has to be true. Make it so.

If Ollila says so it has to be true. Make it so.

Amen!

So your paying more tax for the last 10000 than for the first 20000. There is lots more effort require for much less return.

I’m making twice as much as I was 5 years ago, pretty much for the same work. I don’t feel that my effort has substantially increased, I’d say on the contrary. My current job is pretty cosy compared to the craziness back then.

But yeah, income tax progression wouldn’t need to be so steep.

Fred Fry:
- 29600 in Taxes. Add 5%, another 4000 totaling 34600. That’s 43.25% The question is, are you getting value out of your Government contributution?

Well, I got an education that teaches, among other things, addition.

But for the nth time, taxation is not about getting every cent’s worth in services. It’s also about income redistribution, something you are obviously ideologically so much against that you refuse to understand.

“But yeah, income tax progression wouldn’t need to be so steep.”

I too am making twice as much as before, partly because I moved back from Finland. The odd thing is while earning twice as mcuh, I am still paying less in taxes now, than I was five years ago in Finland.

“It’s also about income redistribution, something you are obviously ideologically so much against that you refuse to understand.”

I understand it fully well. It is about taking money away from people who earn it, and give it to others who don’t. (mainly in an attempt to buy their votes.)

When they are taxing you at 40%, that means that two days out of your work week, you are working to support others instead of your family. (Because if your in the 40% tax bracket, you can expect nil back.) That is two days out of five, working to support others.

Do you really feel that generous? Sure there are people that need assistance, but what about the others in the Metro giving you the good old beer bottle salute in the morning as you head off to work? And what about the others who have nothing wrong with them but decide that they will just live off of what they can get from the Government for free.

(Before I get written off as a heartless prick, I do donate a good bit of money to the Red Cross and others, as well as give to family members)

The odd thing is while earning twice as mcuh, I am still paying less in taxes now, than I was five years ago in Finland.

And the social costs of the low taxation and the inequality that stems from it are in plain sight.

In the words of George Clinton, “If you don’t like the effects, don’t produce the cause”. There’s no simpler way to put it.

FFF:
When they are taxing you at 40%, that means that two days out of your work week, you are working to support others instead of your family.

Pretty warped logic there, Mr. Freedom Fry. You’re forgetting that this 40% includes, among other things, full healthcare coverage for the family, as well as any level of education that your children are capable and willing of attaining (compare that to tuition payments at any decent university in the US) plus support for infrastructure that you will benefit from. In that income tax bracket, you will be a net payer, of course, but to say that all of it goes to “support others instead of your family” is of course complete baloney.

Do you really feel that generous?

As a matter of fact, I do. I am only taxed at 32%, but still. It helps that the welfare state provides e.g. subsidised housing which acts as a nice buffer against market failures such as the current housing bubble. I really don’t feel like paying for an overpriced apartment for the rest of my life, or even market rents, even though they’re not as crazy as selling prices.

Sure there are people that need assistance, but what about the others in the Metro giving you the good old beer bottle salute in the morning as you head off to work?

They’re a nuisance, but hey, most likely they’ll be holding beer bottles instead of crack pipes and will only make some noise instead of robbing you.

And what about the others who have nothing wrong with them but decide that they will just live off of what they can get from the Government for free.

They’re annoying, of course, but still such a small minority that they don’t really affect the big picture.

It’s not a proven fact that income redistribution through taxation results in a better standard of living for all. Moreover, social equality in Scandinavia is the product of historically unique cultural conditioning: there is not enough evidence that tax policies are directly responsible.

Finally, of course, the welfare state persists in being an exploitative entity. The cost burden is simply taken up by others who have less benefits, but more cash to spend: American worker-consumers. Cut off exports to the US consumer, and the European welfare state model would not be able to survive.

“Pretty warped logic there, Mr. Freedom Fry.”
– Thanks. I might have overemphasived things slightly, but just as well since everyone seems to think the poor are being helped more than they really are. In the middle is the Government sucking up billed just to keep the wheels turning.

“You’re forgetting that this 40% includes, among other things, full healthcare coverage for the family, as well as any level of education that your children are capable and willing of attaining (compare that to tuition payments at any decent university in the US)”
– I went to a ‘free’ Federal Academy. (Phil, I’ll give you your nickel back the next time we meet up.)
– Well if you really want to start some accurrate accounting, then we need to take into account that from the 60% I have left, the Government is going to take VAT out of every Euro spent, unles I am spending it outside Finland.
– Once again, if this ‘free’ healthcare is so great why does everyone go to a private doctor. Even my in-law who live in the forest on a small income go to private doctors.

“In that income tax bracket, you will be a net payer, of course, but to say that all of it goes to “support others instead of your family” is of course complete baloney.”

– I am a net payer in the US too. But here I have the opportunity to save unlike in Finland where at the end of the month I had nothing. (Since the system is designed to support you, savings are not really build in.)

Thanks, Great feeback.

It’s not a proven fact that income redistribution through taxation results in a better standard of living for all.

Not proven in the mathematical sense, or even in the strict empirical sense, mostly because it so so extremely difficult to quantify something like the standard of living. But one could say that there is ample evidence pointing in that direction. When taxation does not result in genuine income redistribution, for example when corruption is rampant, this is not the case.

Moreover, social equality in Scandinavia is the product of historically unique cultural conditioning:

I wouldn’t say that Finland was a particularly egalitarian country 100 years ago, taking into account for instance the position of tenant farmers. Here is an interesting article regarding Finnish immigrants to the US that mostly deals with the situation in the late 19th century. You might be familiar with it. It is interesting that social mobility in particular drew underprivileged people to the US from a country where aristocracy prevailed. The tables have largely been turned in this respect.

there is not enough evidence that tax policies are directly responsible.

It can be attributed to a focus on education and state support for key industries as well as various other state programs. Of course, you can and will choose to ignore this.

Finally, of course, the welfare state persists in being an exploitative entity. The cost burden is simply taken up by others who have less benefits, but more cash to spend:

This is a part of your universe that, to me, seems to contain the most “dark matter”. How in the world can it be more exploitative to spend money from exports on e.g. healthcare and education than buying shit from China for the sake of throwing it away? Sure, that helps the Communist bosses and the business elite in China in the short run, but the environmental damage from uncontrolled growth of industrial output hurts China gravely in the long run.

Come to think of it, I am really getting screwed as I am already supporting two others beside myself; my wife who is not working and my child.

Plus I have to repay the support I got while in school, and support others plus the infrastructure. Thats lots of support.

In the middle is the Government sucking up billed just to keep the wheels turning.

It is absolutely imperative to keep the system as streamlined and efficient as possible. There is great room for improvement in that in Finland, and technology can play a big part in it. Online form submissions are still pretty rare. In most cases you’ll only get a PDF you can fill and send in the mail. To think of the processing costs that could be saved if all this form-shuffling was automated and coupled with electronic identity assertion.

- Well if you really want to start some accurrate accounting, then we need to take into account that from the 60% I have left, the Government is going to take VAT out of every Euro spent

True, but isn’t there a sales transaction tax in the US as well?

- Once again, if this ‘free’ healthcare is so great why does everyone go to a private doctor.

Once again, it is more convenient to go to a private doctor, as

-The cost for a consultation is about 40-60€, so it’ll hardly break the bank
-You’re likely to get an appointment right away, whereas in the public sector you might have to wait for a day in some cases
-You can see a specialist directly, whereas in the public sector you have to be referred to a specialist by a GP.

But lo and behold, when things start actually costing (such as a hospital stay), the private doctor will refer you to the public sector.

- I am a net payer in the US too. But here I have the opportunity to save unlike in Finland where at the end of the month I had nothing.

Speak for yourself. I have an opportunity to save as well (although I haven’t quite seized that opportunity recently). But I would certainly like to work in the USA in the future, as the triple salaries (in New York, mostly) are quite tempting. Too bad that the USA is not as willing to welcome me as an immigrant as Finland was for you.

The flat tax is not necessarily such a bogey that many progressives portray it. It can actually include quite significant redistributive elements. The problem basically is that it is not worth the political hassle – and in any case those that advocate it are not really interested in improving the Nordic model but in dismantling it. It is a classic Trojan horse in other words, a handy wedge issue to be used to weaken the structures of the welfare state.

FYI: Russia has a flat tax rate of 13%

Isn’t increasing consumption what we want here Finland? Increased consumption is good for the economy.

Comparing gross total salary of, say, 30 000 euro per year and it’s tax percentage now and in the suggested flat tax system is pretty much impossible without comprehensive knowledge about all kinds of deductions etc.

I tried to simplistically take 30k – 7k and calculate the total percentage if the flat tax of the remaining 23k is 29% and then compare it to current total tax percentage for 30k yearly salary. The problem is that then you don’t take into account the municipal tax (what’s it, kunnallisvero, in english?). And taking that into account requires knowledge about how the tax is actually calculated. What deductions are taken into account and how are the deductions themselves calculated?

Here’s a challenge for everyone: Go to vero.fi tax percentage calculator, enter some simple figures (say, 30k salary, lives in Helsinki, no church tax, no benefits or deductions), click ‘calculate’ and then try to figure out which part of your total taxes go to the city and which to the state. Here’s a hint: I already tried looking up the state income tax figures, they don’t help. Another hint: The sums should add up to the total given by the calculator

The best thing about flat tax is that it would give at least a shed of transparency to our tax labyrinth. The next great thing would be to get rid of most, if not all, deductions and such.

If a normal citizen can’t understand his taxation then there’s something seriously wrong with the system. I can’t imagine why anybody would oppose simplifying taxation radically (and I’m not just talking about flat tax, there are so many other steps to take that are much less controversial). From socialists to liberals everybody ought to be on the same side on this issue.

Captain Haddock (27): That’s the classic Keynesian fallacy. Wealth comes from increased efficiency of production, not consumption. And savings (the exact opposite of consumption) and capital formation have a central role in the process of wealth generation.

Captain Haddock (27): That’s the classic Keynesian fallacy. Wealth comes from increased efficiency of production, not consumption.

Somebody oughta tell Finnpundit that.

Really, I thought it was pretty universally accepted that increased consumption is good for the economy on a national scale because it generates income for corporations which then do well and they can pay their employees more or hire more people and expand bussiness.

Infact isn’t it very much so that when national banks regulate say interest rates it’s usually lowered to increase consumption in order to give the economy a boost, or it’s raised to stop the economy from overheating and get people to spend less-

Sure saving money is good for you the person, but what good is money if nobody ever uses it? Is it good for the national economy?

The point is, that people save for a reason. They forego current consumption for later consumption. This means that they expect there to be something more worth spending money for than there is right now. That, in turn, means companies will invest in producing more lucrative goods. They can do so, because the high savings rate has driven interests low and investing is relatively cheap. When the new goods arrive on the market the saved capital can be consumed.

Now, when the interest rates are low and companies make more investements things can get pretty ugly if the interest rates aren’t backed up by consumer savings. The new products will not be bought, because there is no demand for them. This can happen when the central bank artificially pushes interests down in order to boost current consumption. I believe the Nokia N-Gage phone model is an example of this.

Saving, as any other human action, has a purpose. And consuming is not a virtue nor a duty.

Two points:

1) Taxation of income is not taking money away from you that you have earned in some idealised utopian society. We earn money the way we do because of a system which distributes wealth according to market outcomes. We like the system because it is efficient but it’s not perfect and it leads to some stupid outcomes. Redistribution through taxation is one way of avoiding some of the problems.

So the point is that the idea alluded to above that taxation is theft misses the point.

2) Just to add the the consumption point, it is true that consumption fuels the economy. If everyone put their money under the bed it would be a pain. However, saving money by putting it in a bank is just giving the bank the right to consume on your behalf. Banks don’t let money sit there, they use the money to give to people to buy stuff.

Secondly, you can consume in many ways. The US consumes more than it produces which fuels the economy. However, when you do that you create debt which needs to be serviced by people in the future. Consuming beyond your means, therefore, is like maxing your credit card – it’s not very wise and you have to pay it off in the end. Obviously, there are times when it’s wise to consume and times when it’s wise to save and as a society there are times to do both as well. Consumption per se, however, is not always a good idea.

The credit card analogy does not hold when you discuss US debt. That would be like saying that the credit card holder writes the terms of the debt, or has the power to alter them.

The Estonian government is not infallible, so its possible decision to move to more progressive taxation does not make EVA look bizarre. In fact, EVA proposed and Estonia already has progressive taxation that is accomplished by a tax-free deduction of income. EVA proposed a tax-free amount of 7000 euros per annum.

I thought it was bizarre of mjr to claim that the flat tax model would weaken the structures of the welfare state. A flat tax would probably accelerate economic growth and thereby increase welfare state spending and also lift people out of poverty.