Alvin Rabushka has some remarkable data on the positive impact of tax reform in the former Soviet Republic of Georgia. The economy has been roaring since the enactment of a 12 percent flat tax, with growth of 10 percent per year. And in news that should make the IMF happy, there’s been a big Laffer-Curve effect, with revenues rising dramatically as a share of GDP (though this should be a reason to cut rates even further):
Effective January 1, 2005, Georgia (the country, not the U.S. State) adopted a flat tax of 12%, replacing its previous four-bracket system. The flat tax was augmented with a 20% tax on corporate profits, 20% on social insurance (reduced from 33%), and 18% (reduced from 20%) on VAT. The new, simpler system has had a dramatic effect on economic growth, averaging 10% a year for the past three years, and taxpayer compliance. Tax revenue increased from 14.5% of GDP in 2003 to 22% in 2006, and should reach 24% in 2007. Between 2003 and 2007, the reforms reduced the number of taxes from 22 to 7.