January 4, 2006
We're Number Nine!
The 2006 Heritage/Wall Street Journal Index of Economic Freedom is out. As I've mentioned, the individual rankings confuse me. I love the Republic of Ireland and cheer her lowered tax rates and European Freedom. But this country has nationalized health care and a frightening phalanx of targeted tax cuts and regulations which dictate much of a firm's hiring and trading practices.
But the macro view of prosperity's matching freedom is unassailable. Mary Anastasia O'Grady writes in the WJ Ed Page:
Take, for example, the difference between the wealth of "repressed" economies and "mostly unfree" economies. The per capita GDP of the former is $4,239 while of the latter it is a tad lower at $4,058. This suggests that reforms that move a country one step up in economic liberty, on average, produce no material benefit to the population.The jump from "mostly unfree" to "mostly free" yields a much better return but still leaves a country not particularly well-off. "Mostly free" countries have a per capita GDP of $13,530, while "free" countries have, on average, a per capita GDP of over $30,000.
O’Grady compares the Latin American countries which are her beat to the eastern European countries which have improved substantially under free-markets and flat taxes.
Did you notice a certain ex-Soviet republic ahead of us?
Posted by: AlexC at January 4, 2006 11:09 PMI have crazy thoughts. I was thinking of moving to Estonia a couple years ago, that it was going to be a Randian Atlantis, that technology was important, and that an American technology exec would be valued. I was also friends with a blogger over there.
I was looking it over when another opportunity came up. Probably crazy (I'm sure glad I stayed for our health care) but I still think they're worth watching.
Posted by: jk at January 5, 2006 12:03 PMRandian Atlantis? Not so much. Running a business might be fine, but individuals are taxed to kingdom come. 24% income tax (flat) sounds fun, but add to that the 33% payroll tax that pays for social security and public healthcare, and you're already up to 57%. On top of that, there's the lovely 18% VAT on every single thing you spend the remaining 43% of your cash, bringing the total up to a whopping 63%. That's if you don't drive a car or own property or anything.
Anyhow, I've personally left it behind and relocated to sunny Soviet Canuckistan.
Posted by: Sam at January 5, 2006 1:43 PMThat doesn't sound like Atlantis. The buzz about Estonia was pretty hot a few years back and it is still admired for the flat tax.
Thanks for the personal observation, even if it busts some cherished myths...
Posted by: jk at January 5, 2006 2:30 PMEstonia's 63% tax burden is huge, but certainly much better than the old Soviet system. And despite the massive tax rate (supposedly "fair" because it is flat) this tiny nation is STILL ranked ahead of the good ol' USA on the economic freedom index.
Hey governments, be more afraid of your people!
Oh, and good to hear from you again Sam! I looked for you some time back but had less success than JK. Maybe you were still crossing the border, you Canuckistanian.
Posted by: johngalt at January 5, 2006 3:10 PMAnd compared to most everyone else in Europe, we're a veritable anarcho-capitalist Shangri-La.
Case in point - Sweden:
Local income tax - 26-35%
National income tax - 20-25% (progressive)
Payroll tax - 32.8%
VAT - 25%
So let's say you make $60,000 a year. Your employer pays the state an additional $19,680. $9,364 of the 60K that's supposedly yours is taxable in the 25% bracket, meaning you lose $2,341. The next national bracket includes an additional $17,951 of your money, of which you lose a mere 20%, i.e. another $3,590. That's national taxes, totalling $5,931.
Next up, local taxes. To be cautious, let's just use the median number, 30%. That's 30% of the entire 60K, meaning a whopping $18,000 deducted from your paycheck. Grand total of local and state income taxes paid - $23,931. You're left with $36,069, 25 percent of which is dead weight because it's lost to VAT.
That leaves you with $27,051 out of the $79,680 your employer was willing to spend on you, barely a third. Make more money and the amount you keep is even more disproportionate.
Estonia's flat rate of 24% and 18% VAT seem lavishly generous in comparison. (out of the $79,680 you keep $37,392 - almost half of it)
Posted by: Sam Muldia at January 5, 2006 5:34 PMAnd incidentally, if I were to move two provinces over to Alberta, I'd get to keep $49,652 out of $60,000, and only 7% of it would be lost to sales taxes.
Europe is insane.
Posted by: Sam Muldia at January 5, 2006 5:49 PMWhoops, forgot about the 'no payroll tax' thing. Out of the $79,680 you'd get get to keep $58,735 in Alberta. And that includes universal health care.
Posted by: Sam Muldia at January 5, 2006 6:04 PMBut you have a better hockey team in BC...
Posted by: jk at January 6, 2006 10:44 AMDunno, the Maple Leafs got their asses handed to them by Calgary Flames last night...
Haven't decided on an NHL team yet, though.
Posted by: Sam Muldia at January 7, 2006 9:12 PM | What do you think? [10]