Flat Tax Generating Big Results in Georgia

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.