Saturday, April 7, 2012

Estonia in the news

There have been two articles about Estonia in the news recently, one good and one bad.

You can read about the good one here.   Estonia has some pretty interesting laws to promote growth, a flat income tax rate at 21%, and 0% on businesses as long as they leave their profits in Estonia.  Once they pay out dividends then they have to pay a tax.  They do have a high VAT tax of 20% and a high tax for social services.  I think I generally agree with this strategy, but I would change a lot of specifics about it.  I think there is a lot of tax evasion going on with businesses.  There are still a lot of poor people and there are a few who are super rich.  I think they should have a corporate tax rate like Ireland, really low say 12% but have the companies pay it on all of their profit.  This means that there is no tax evasion.  When I see all these $100,000 cars driving around Tallinn it is kind of sad to think that they are all company cars where the person has paid no tax.  I like having a low tax burden on the people, and then offering low social services but when you do have a low tax burden you need to make sure you spend the money wisely.  This is something Estonia has not done.  They are spending too much on defense and too much on maternity pay.  This does not leave any money for elderly pensions, teacher pay, and other investments.  They also are thinking of getting rid of property tax.  They should first lower the income tax, which gives tax relief for everyone then lower property taxes if they have money.  In Estonia most people live in apartments, so the people who own property are usually people who are better off.  This is the reason why the opposition party is very popular right now.  If the ruling coalition doesn't start to make some changes they won't win in the next elections.

I was a bit critical in the last part, but that was actually the good news.  The bad news you can read here. 

This really highlights the drug problem in Estonia.  Estonia has tried to focus more on economic growth and not as much on social issues.  When I think of Estonia's society I often think of the promise in the Book of Mormon about keeping the commandments and prospering in the land.  high levels of drug use, alcohol use, and tobacco use make if very difficult for a state to be prosperous.  Productivity in the labor market declines, state spending on health care increases, and spending on law enforcement rises.  Only recently has Estonia made an effort to decrease alcohol consumption (one of the highest in Europe).  Hopefully they will be successful.

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