What Americans Can Learn from the Baltics' Flat Tax Success

Riga pinned on a map of europe

The Cato Institute’s Dan Mitchell offers Americans an outstanding primer on the success the Baltics have had with the flat tax.

I’m a big fan of the Baltic nations of Estonia, Latvia, and Lithuania.

These three countries emerged from the collapse of the Soviet Empire and they have taken advantage of their independence to become successful market-driven economies.

One key to their relative success is tax policy. All three nations have flat taxes. Estonia’s system is so good (particularly its approach to business taxation) that the Tax Foundation ranks it as the best in the OECD.

But now Estonia may cause sadness for me. The coalition government in Estonia has broken down and two of the political parties that want to lead a new government are hostile to the flat tax

And Lithuanians just held an election and the outcome does not bode well for that nation’s flat tax.

So the bad news is that the flat tax could soon disappear in Estonia and Lithuania.

But the good news, based on my discussions with people in these two nations, is that the battle isn’t lost. At least not yet.

If Estonia and Lithuania move in the wrong direction, Latvia could be a big winner. That nation already has received some positive attention for being fiscally responsible, and it also has withstood pressure from the IMF to impose bad tax policy. So Latvia is well positioned to reap the benefits if Estonia and Lithuania shoot themselves in the foot.