The flat tax was a talisman in the East, before it became a monkey’s paw.

The Years of Magical Thinking

by Boyko Vassilev

A specter is haunting Europe.
Like any specter, the flat tax inspires hope in some, terror in others. There was a time when it was the darling of the chattering classes of post-communism. Soon thereafter, it became their beast and nemesis.
The chattering classes (the remnants of the old intelligentsia and the new elites of transition) entered the 21st century with a zeal for a new tool that would bring prosperity to the battered societies of newly democratic Central and Eastern Europe in a single stroke. Some of them found it in the flat tax, which imposes an equal, usually low, tax rate on all incomes, whether individual or corporate. It was predestined to stimulate growth: you take 10 percent of all salaries and everybody is happy.
The model was Slovakia, which introduced a 19 percent flat tax rate in 2004 at a period of rapid growth and spectacular success for the Slovak economy. Some Bulgarians, mostly the libertarian economists, hailed the flat revolution. They attributed to it the shining achievements of Slovakia, which had wooed car manufacturers and other investors. But they overlooked or discounted Slovakia’s location comfortably in the heart of Europe, its workers – skilled yet less demanding than the Czechs – and its manufacturing tradition. The flat tax was best suited for the role of miraculous savior.
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