Part 1 - AL-Tax

International Taxation Handbook11.2 Tax miseryEach year, Forbes magazine publishes a study on tax misery. The Forbes GlobalMisery and Reform Index is a proxy for evaluating whether tax policy attracts orrepels capital and talent. It is computed by adding the top marginal tax rate for thecorporate income tax, individual income tax, wealth tax, employer’s and employee’ssocial security tax, and value added tax (VAT). The higher the total, the more themisery. Some taxes are omitted, such as the real and personal property tax andexcise taxes. The 2005 Index was used for this study, which uses 2004 data. Fifty-sixcountries are ranked. Table 11.1 contains all the Asian countries that were includedin the Index, as well as selected developed and developing countries for comparisonpurposes. All of the top 10 countries are included for information purposes.As can be seen, the range of misery varies widely. French taxpayers have toendure more than twice the misery of taxpayers in India, Thailand, or Taiwan, andnearly 10 times as much misery as the taxpayers of the United Arab Emirates.Luxembourg is at the midpoint in 28th place with a score of 108.1. Three of the12 Asian economies (China, Japan, and Turkey) have higher than average scores.Nine Asian economies (South Korea, Australia, Indonesia, Malaysia, India, Thailand,Taiwan, Singapore, and Hong Kong) have below average scores. Australia isincluded in the Asian country category because its economy is tied in to theeconomies of several Asian countries and it is in physical proximity to several Asiannations. Furthermore, many immigrants who now live in Australia were born in anAsian country.From Table 11.1, one may tentatively conclude that the Asian economies are generallymore competitive than the average developed market economy. But this conclusioncan only be tentative, as we shall see later, because there is more to consider.Anderson (2005) pointed out that over the prior 12-month period more countrieshave reduced their tax rates than have increased them and that there is a move tothe flat tax, both for individuals and corporations. This increasing popularity of theflat tax has occurred mostly in Europe, especially in transition economies. AlthoughAmerican economists have been advocating the flat tax for decades (Hall andRabushka, 1985), the concept has not yet caught on in the USA. Part of the hesitancyis because of the perception in some quarters that the rich need to pay higher taxesthan the poor for moral reasons (McCaffery, 2002). However, the case for the graduatedincome tax, which Marx and Engels (1848) advocated as a means of destroyingthe capitalist system in their Communist Manifesto, has been demolished onboth utilitarian economic grounds (Blum and Kalven, 1953) and ethical grounds(deJouvenel, 1952; McGee, 1998a, b, 2004).270