Former communist nations of Eastern Europe are also enacting pro-growth, pro-market policies and watching their economies set the pace for world economic growth. Knowing that simple, non-intrusive tax code encourage people to work and expand economic activity, reformers in Lithuania, Estonia, and Latvia have all enacted flat taxes and seen growth rates consistently in the six to eight percent range in the past few years. In total, according to Flat Tax draftsman and evangelist Alvin Rabushka, nine countries have adopted some form of his proposal, including Estonia, Russia, Ukraine and Romania.
The U.S. Congress, conversely, consumes it days – fiddling, one might suggest – debating flag burning and “windfall profits” taxes on energy. Big issues like retirement security and scrapping the tax code are relegated to commissions with no authority to legislate, and no vision regardless.
While America is still a world leader in ideas, we are not a leader in tax competition. The U.S. federal tax code in 2006 weighed in at 66,498 pages, with compliance costs of $265 billion.
With the U.S. government facing unfunded liabilities in retirement systems like Social Security and Medicare totaling an unfathomable $80 trillion, and a work force facing a future of shrinking benefits and higher taxes, Congress remains unwilling to consider reforms. Giving workers the right to choose a new defined contribution retirement system would reduce the massive debt in the current system, give individuals real ownership and control, and secure a better financial future for all workers.
Our paralysis on tax and entitlement reforms may instead secure a future of high debt, high taxes, and crippled growth.
Imagine another city. Angry young have-nots riot in the streets because the rising taxes on labor and capital formation have caused capital flight, economic contraction, high unemployment, and no means of assimilating into productive society through hard work. Newspapers decry crippling globalization as other nations prosper under policy regimes based on economic freedom. Is this Paris in 2006 or New York circa 2025?
Ultimately, global financial markets, not CSPAN cameras and public opinion polls, will judge U.S. economic policy. Capital and investments will flow to nations with sound economic policies, because freedom works.