Estonia: What kind of political system do people who went from Capitalism to Socialism to Capitalism adopt? By Philip Greenspun.
Our guide in Estonia explained that Estonia was forced by the Soviets to adopt a Socialist economic system in 1944. Private houses and apartment buildings were confiscated by the state. Farmers were allowed to keep a farmhouse and one hectare of land but the rest of their land was turned into communal farms. Families that had previously owned a house were generally allowed to stay in the house but they then had to share with multiple additional families.
All of this was then unrolled starting in 1991 when the country became independent once again. Old property records were dug up and real estate was restored to previous owners and/or their heirs, even if those owners had left the country 50 years earlier. People who lived in houses and apartments under the Socialist system were then forced to move out, but they didn’t have enough money to rent or buy a new place due in part to the fact that there weren’t really enough housing units. It took about ten years to sort this all out and get every family into its own place. …
The Estonians now prefer a simple system of flat taxes.
“We’re quite conservative,” Siiri explained. She described a streamlined government in which all business could be conducted online. She described taxes as “simple” and explained that people pay a flat 21 percent income tax plus a flat 20 percent consumption tax (VAT, as in the rest of Europe). In addition, employers pay a tax of 33 percent on top of wages to fund pensions and health care.
It seems that there is no support for a progressive income tax rate; Estonians are satisfied that a person who makes 5X the average will pay 5X in tax; they don’t dream of a world in which that person will pay 10X or 15X.
She expressed pride that Estonia had a budget surplus, a distinction that only Germany shares within Europe. The Heritage Foundation rates Estonia as having more economic freedom than the U.S. … [Where as] a U.S. company may face a combined 40 percent federal and state corporate income tax rate, the comparable number in Estonia is 0. Estonia will tax distributed profits, however, just as the U.S. taxes dividends, but at a somewhat lower rate. …
hat-tip Adrian
