Lithuanian economy grows while U.S. economy falls

This is my second of recent articles of countries who have a flat tax rate. We will take a look at Lithuania now.

The Lithuanian economy today is based on capitalist free market principles, and has enjoyed high growth rates in the last decade as it entered the European Union together with other Baltic states. The government pursues a flat tax and the unemployment rate is fairly low.

In 2003, prior to joining the European Union, Lithuania had the highest economic growth rate amongst all candidate and member countries, reaching 8.8% in the third quarter. In 2004 — 7.3%; 2005 — 7.6%; 2006 — 7.4%; 2007 — 8.8%, 2008 Q1 — 7.0% growth in GDP reflects the impressive economic development. Most of the trade Lithuania conducts is within the European Union.

It is a member of the World Trade Organization, and the European Union. By UN classification, Lithuania is a country with a high average income. The country boasts a well developed modern infrastructure of railways, airports and four lane highways. It has almost full employment, with an unemployment rate of only 2.9%. According to officially published figures, EU membership fueled a booming economy, increased outsourcing into the country, and boosted the tourism sector. The litas, the national currency, has been pegged to the Euro since February 2, 2002 at the rate of EUR 1.00 = LTL 3.4528, and Lithuania is expected to switch to the Euro on 1 January 2010. There is gradual but consistent shift towards knowledge based economy with special emphasis on biotechnology (industrial and diagnostic), because in Lithuania there are concentrated major biotech producers in the Baltic countries, as well as laser equipment. Also mechatronics and information technology (IT) are seen as perspective knowledge based economy directions in Lithuania.

Lithuanian income levels still lag behind the rest of the older EU members, with per capita GDP in 2007 at 60% of the EU average. Lower wages may have been a factor that in 2004 influenced the trend of emigration to wealthier EU countries, something that has been made legally possible as a result of accession to the European Union. In 2006, income tax was reduced to 27% and a reduction to 24% was made in October of 2007. Income tax reduction and 19.1 % annual wage growth is starting to make an impact with some emigrants gradually beginning to come back. The latest official data show emigration in early 2006 to be 30% lower than the previous year, with 3,483 people leaving in four months.

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 Lithuania. Click here.

This is an interesting article of Lithuania’s economy. Link.

Article on Russia and it’s economy. Link.

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