Sustainability and the Flat Tax

Garen Yegparian
Garen Yegparian

Garen Yegparian

BY GAREN YEGPARIAN

The idea for an article about sustainability in the Republic of Armenia has been brewing in my head for some time now. It was to take the form of recommending that a Ministry of Sustainability be created. The adoption of a flat tax by RoA’s parliament brought the need for such a piece to the fore.

It would not surprise me if you are wondering what a flat tax and sustainability have to do with one another, and thinking that such a ministry would be redundant with that of Nature Protection which already exists.

Two clarifications are in order: what sustainability is and what a flat tax does.

I’ve noticed that many people perceive “sustainability” to be just another way of saying “environmentalism” or “conservation” – just a new name for an old thing. That is not the case. Sustainability is founded on the concept of a triad that assures the best possible conditions for human society. That triad is known as “The Three Es” – ecology, economy, equity (listed in alphabetical, not priority, order, since they are co-equal from a sustainability perspective). What is done in these three areas should be perpetually doable without causing damage that would eventually make the same activity impossible to continue. (examples- if you cut trees too fast and do not replant, eventually there are no trees left to harvest; if you don’t invest in factories and newer technologies, eventually, there are no jobs to be had; if you overwork and underpay people, they will eventually leave, get sick or die, and no labor will be available).

The idea is that without a properly functioning environment, an economy which provides opportunity, and fairness for people in their work and other aspects of life, no society can long survive, let alone grow and develop. So you see, the environment is only part of the sustainability picture.

The idea of a flat tax, i.e. everyone in a jurisdiction (country, province, city, etc.) paying the same rate is superficially appealing and seems very fair. Every citizen is treated the same, right? Wrong! The problem lies in its IMPACT on people. Let’s say that a 10% flat tax is enacted for the citizens of a country called Yergeer. Now, let’s look at the impact of that flat tax on three citizens named Low Tsadzian, Middle Meechagian, and High Partsrian. Let’s say Low makes 100 money units (MUs), Middle 500 MUs, and High 1000 MUs. Let’s also say that each of them is part of a family of five people. Naturally, people eat more or less the same amount, which means the cost of food is roughly the same for each of our three citizens. Similarly, the cost of housing is roughly the same for them. The same applies to transportation, recreation, etc. But we all know that as people make more money, they tend to buy more expensive versions of the same things, so we’ll say that Middle spends 10% more, and High 20% more, than Low on each category of life expenses. What do we get? Take a look at this table.

Sustainability and the flat tax

Sustainability and the flat tax

You can see that the Tsadzian family has very little left for emergencies or recreation, even savings, after paying for the necessities and the flat tax. So the IMPACT of the 10% flat tax on the budget of the family is much greater than on the Meechagian and Partsrian families. A fairer tax system might be one that is progressive. In our example, perhaps the Tsadzians should pay 5% (or even zero), Meechagians 15%, and Partsrians 25%. This would leave the families with 25MUs, 348 MUs, and 741 MUs, respectively. Obviously, the latter two families would still be comfortable with this arrangement, while the Tsadzians would be significantly less negatively IMPACTED, i.e. those extra % MUs would be a big boon for them.

Yet, despite the obvious fairness of a progressive tax system, the parliament of the RoA just adopted a flat tax system, throwing out the previously existing progressive one. This was done despite advocacy by the ARF (probably others too, of which I am unaware), and even demonstrations by the AYF, against the flat tax.

This is very ironic. Parliament is currently composed of members coming from the people who led last year’s uprising against the corrupt system and leadership that was smothering the RoA. Citizens were expatriating in droves. The uprising threw out the corrupt oligarchs and inspired hope for a better life. Yet now, we have the flat tax which benefits the same class of people who enriched themselves on the backs of the population at large while hurting those who are in the weakest economic condition. It’s insufficient to fight corruption and tax evasion by the rich, which this government has made a priority and is achieving some success in accomplishing. An equitable system must be put in place.

That’s why a RoA Ministry of Sustainability is needed, along with a corresponding committee/commission in parliament. It would be the purview of this ministry to review all proposed policies for how sustainable they are. It would be the barrier to adoption of policies such as the flat tax that flouts the notion of sustainability in both the economy and equity aspects.

Let’s let the RoA government know how bad of a decision they have made- write and tell it through Armenian embassies worldwide.

Authors

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4 Comments

  1. Ray Hart said:

    GAREN Excellent article
    You forgot to add Middle or High might have a huge student loans which they r paying for 20- years,
    Spending ratio on the categories for M and H compare with L are not accurate, Most likely M&H live in much expensive home which brings higher property tax, local school tax, police tax etc etc. if M&H are Armenian will likely spend more on recreation , transportation and food, these all going back to the society unless you are against luxury and like the idea “one size feet all”! back in USSR.
    likely L is eligible for health, housing and education subsidiary or benefit from government.
    Back to fairness and being right or wrong,

  2. Gaidzag said:

    Although Hungary saw revenue advantages come through the passing of a flat tax, they also experienced an immediate drop in their gross domestic product. During the first year of the flat tax, the GDP in Hungary reclined by 1.6%. That happened because consumers put any extra funds they had into items they need anyway or toward debts they were carrying. In time.

  3. joe said:

    A flat tax is a recipe for disaster as the wealthiest win big and the lower income in society are the losers. Even our American forefathers knew this well, as Jefferson noted in a 1785 letter to Madison, “Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise.” Meaning a progressive tax, where the more you have the MORE IN PERCENTAGE of tax you pay, works best. It’s the opposite now in Armenia. Another lose for the average Armenian.

  4. ardachece barseghian said:

    Tax justice, ultimately social, implies at the outset, imperatively, a free equality and access of the citizen (a French, European example) in the fields of health, education, justice, openness to a civil society, defense of workers’ rights, salaries, in all sectors of activity, then progressive taxation, differing, between the incomes of the wage earner and the profits of the company and the entrepreneur, the liberal professions, civil servants. This approach is realistic and realizable in the short medium term … if the ruling (government) and political class, (parliamentary) decides it through a programme reflected, written, in cooperation with international experiences. Am I off topic?

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