Photo: borteschristian via Flickr
I read with interest the story about Romania’s flat tax failure earlier today. Using my boots on the ground experience with Hong Kong’s flat tax… I heartily disagree.The experience there has been a resounding success and sets a benchmark for US lawmakers to model our future tax reform around. Indeed, there are a number of reasons why Hong Kong has continuously received the first place honour from the Heritage Foundation in their Index of Economic Freedom. I believe it can be attributed to their pro growth fiscal commitment to putting more money in the hands of taxpayers via a flat tax maximum of 15% for all Hong Kong residents.
I urge every reader to go to Hong Kong’s Inland Revenue Department (IRD) website, their equivalent of the IRS, check out the interactive page entitled “Computation of Estimated Salaries Tax Liabilities” for individuals. There you can quickly calculate your income tax liability as if you were a HK resident….and it is a painless process. Hong Kong’s Tax returns are only a couple of pages long. Imagine that…a simplified tax return…what a novel idea!!!
You fill in your income at the top…claim a few deductions for charitable giving, dependent care and home loan interest etc. Then calculate marriage and dependent allowances…total it up…take 15% of what’s left and send a check to the IRD for that amount. There are no withholding or payroll taxes in Hong Kong…and as an added bonus/incentive…there aren’t any capital gains or other investment income taxes. Are you beginning to see one of the main reasons why Hong Kong is consistently ranked the Freest Economy in the world!!
Here are some examples:
A single individual making the equivalent of US$1,000,000..no deductions, no allowances….he has a 15% tax liability
A married single earner with two children making the equivalent of US$250,000…they have a 13.6% tax liability
A married single earner with one child earning the equivalent of US$125,000….they have a 10% tax liability
A married couple with one child earning the equivalent ofUS$40,000…they have a 0% tax liability.
In terms of growth, Hong Kong’s economy has outperformed most western economies, including the US (ranked #8 in the Heritage survey) in the past decade. By most critical measures it is way ahead of us in
economic performance. They also outperform us by most metrics including a lower unemployment rate; lower individual and corporate tax rates, a lower tax burden as a % of GDP, lower Government expenditures as a % of GDP etc etc…They also run surplus’s and have a huge hoard of foreign currency reserves. To top it off…the Hang Seng has significantly outperformed the S&P 500 over the past five year
during the peak and aftermath of the financial crisis.
Of course many will say that being part of the Chinese command and control economy helps…it does…but don’t forget, the Special Administrative Region of Hong Kong remains independent of the mainland from both a fiscal and monetary standpoint so they continue to have control of their economic destiny…unlike the poor souls in the Club Med countries and other EU countries like Romania.
So I would argue that much of Hong Kong’s economic success can be attributed to the laissez faire taxation attitude of policy makers there…a long time ago they had the wisdom and saw the light of creating a flat tax regime…and that light has shone brightly on their economy ever since. Let’s hope that Mr. Obama’s Tax Commission tears a page out of their play book and takes my advice AND completes the IRD website work sheet! They might learn something and get this economy back on the rails.