Understanding Capitalism

Ever since the Soviet Union collapsed, I have never been very confident that Russia was sincere about converting to capitalism. I was always certain that the communist forces were lurking right below the surface, ready to take over again.

I may have been overly paranoid, if this story about recent changes in the Russian income tax code is true. Last year, President Vladimir Putin introduced a flat tax on income of 13 percent -- the lowest rate in Europe -- designed to draw more Russians out of the "shadow economy" and make them honest taxpayers.

This means that Putin has a better understanding of the basic supply & demand foundation of capitalism than most of the USA rulers have. The result of the Putin tax cuts has been the same as it was in the USA after the Reagan tax cuts. Tax revenues jumped dramatically.

Although the leftists in power and in the media in the US love to denigrate tax rate cuts as windfalls for the evil rich, the truth is that when tax rates are lower, people have less incentive to use tax shelters and more motivation to earn as much money as possible. It's plain common sense, which is too rare in DC. Somebody is much more willing to accept $1,000 of taxable income if he only has to fork over $130 to the government than if he had to pay out $900 and was left with the short end of the stick.

KMK
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/13/2002 12:50:00 PM Send this post: