Thursday, January 27, 2005

Moore Bull

I usually don't push stuff I write for Media Matters, but I thought this item deserved some expanding on. It's an article of faith in wingnuttia that Hong Kong has a flat tax, or something very close to it, on income, that this flat tax on income is responsible for Hong Kong's relatively high growth over the years, as well as responsible for filling the coffers of their Treasury.

Sadly, No! Stephen Moore, whose nonsense in today's WSJ I comment on at the link above, has along one dimension been slightly more honest than some of his fellow citizens of wingnuttia. He at least admits that Hong Kong doesn't actually have a flat tax, but rather a dual system in which people can, if they so desire, opt in to the simpler "flat tax" regime if they so whish. You see, in wingnuttia, what people most care about is saving an hour or two doing one's taxes, and not how much they're actually going to pay to the government. In fact, they're willing to literally sacrifice thousands of dollars in order to avoid spending a few hours filling out what is still a simple tax form. Or so Moore claims.

The truth is, Hong Kong has a surprisingly progressive tax code, with very very generous personal and dependent allowances relative to the US code. And, the much-touted "flat tax" is really what Moore (correctly) describes as an "alternative maximum tax." The maximum rate you can pay on your taxable income is 16% -- and if you're taxed at 16%, you cannot take the personal and dependent allowances, which are very generous.

Moore and his fellow travellers frequently claim that this standard rate tax is so popular that everyone uses it because it's simple. Moore claimed in the WSJ that "nearly every worker" chooses the "flat tax." This just isn't true. Most Hong Kong workers don't pay any taxes at all -- precisely because of the generous personal allowances that Moore thinks are oh so complicated to take. And, the flat taxers? The ones who are faced with the effective single rate? Less than 1.5% of workers. 1.5% only equals "nearly every" in wingnuttia.

It appears to be true that Hong Kong's income tax code is fairly simple, but not because it's "flat."

And as for Hong Kong as a tax paradise? 32% of tax revenues come from... a corporate profits tax. In the US it's about 7.5% (strictly speaking, earnings are taxed, but you get the idea).