Russian economy on the climb while the U.S. struggles

I am going to do a series of articles on countries that have introduced a flat tax rate and have showed major economic and social prosperity. The first we will look at is Russia.

A simpler, more streamlined tax code adopted in 2001 reduced the tax burden on people, and dramatically increased state revenue. Russia has a flat personal income tax rate of 13 percent. This ranks it as the country with the second most attractive personal tax system for single managers in the world after the United Arab Emirates, according to a 2007 survey by investment services firm Mercer Human Resource Consulting. The federal budget has run surpluses since 2001 and ended 2007 with a surplus of 6% of GDP. Over the past several years, Russia has used oil revenues from its Stabilization Fund of the Russian Federation to prepay all Soviet-era sovereign debt to Paris Club creditors and the IMF. Oil export earnings have allowed Russia to increase its foreign reserves from $12 billion in 1999 to some $470 billion at the end of 2007, the third largest reserves in the world. The country has also been able to substantially reduce its formerly massive foreign debt. Wow! Do you think we could do that? We have oil too, why the hell aren’t we drilling?

Since the turn of the century, rising oil prices, increased foreign investment, higher domestic consumption and greater political stability have bolstered economic growth in Russia. The country ended 2007 with its ninth straight year of growth, averaging 7% annually since the financial crisis of 1998. In 2007, Russia’s GDP was $2.076 trillion, the 7th largest in the world, with GDP growing 8.1% from the previous year. Growth was primarily driven by non-traded services and goods for the domestic market, as opposed to oil or mineral extraction and exports. The average salary in Russia was $640 per month in early 2008, up from $80 in 2000. Approximately 14% of Russians lived below the national poverty line in 2007, significantly down from 40% in 1998 at the worst of the post-Soviet collapse. Unemployment in Russia was at 6% in 2007, down from about 12.4% in 1999.

The middle class has grown from just 8 million persons in 2000 to 55 million persons in 2006. Russia is home to the largest number of billionaires in the world after the United States, gaining 50 billionaires in 2007 for a total of 110.

Over the last five years, fixed capital investments have averaged real gains greater than 10% per year and personal incomes have achieved real gains more than 12% per year. During this time, poverty has declined steadily and the middle class has continued to expand. Russia has also improved its international financial position since the 1998 financial crisis. A principal factor in Russia’s growth has been the combination of strong growth in productivity, real wages, and consumption. Despite the country’s strong economic performance since 1999, however, challenges facing the Russian economy including diversifying the economy, encouraging the growth of small and medium enterprises, building human capital and improving corporate governance. Did you know that 80% of workers employed in the U.S. are employed by small business owners? These small business owners are the heart of the American economy and Barack Obama wants to give it to them up the you know what in taxes.

Russia has the world’s largest natural gas reserves, the second largest coal reserves and the eighth largest oil reserves. It is the world’s leading natural gas exporter and the second leading oil exporter. Oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Since 2003, however, exports of natural resources started decreasing in economic importance as the internal market strengthened considerably. Despite higher energy prices, oil and gas only contribute to 5.7% of Russia’s GDP and the government predicts this will drop to 3.7% by 2011. Russia is also considered well ahead of most other resource-rich countries in its economic development, with a long tradition of education, science, and industry. The country has more higher education graduates than any other country in Europe.

The Russian Constitution grants a universal right to higher education free of charge through competitive entry. The Government allocates funding to pay the tuition fees within an established quota, or number of students for each state institution. This is considered crucial because it provides access to higher education to all skilled students, as opposed to only those who can afford it. In addition, students are paid a small stipend and provided with free housing. However, the institutions have to be funded entirely from the federal and regional budgets; institutions have found themselves unable to provide adequate teachers’ salaries, students’ stipends, and to maintain their facilities. To address the issue, many state institutions started to open commercial positions, which have been growing steadily since. Many private higher education institutions have emerged to address the need for a skilled work-force for high-tech and emerging industries and economic sectors.

The United States actually has a bill in Senate for a simpler tax system. It is called the FairTax Act. Do you know what the FairTax is?

* Ensures Social Security and Medicare funding
* Enables workers to keep their entire paychecks
* Enables retirees to keep their entire pensions
* Refunds in advance the tax on purchases of basic necessities
* Allows American products to compete fairly
* Brings transparency and accountability to tax policy
* Closes all loopholes and brings fairness to taxation
* Abolishes the IRS

For more information visit www.fairtax.org.

For more information on the economy in Russia. Click here.

Here is an interesting article from The Hoover Institution. Story.

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