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Letter from Rome: Is Italy ready for the flat tax?

Dear friends of Istituto Acton,

Writing just a few days before the March 4 election here, I’m tempted to say the results won’t matter much to the life of the Italian nation, which will continue to suffer from low economic growth, high unemployment, and a continued fraying of social cohesion. If you’re a regular reader of these letters, this is no surprise. In the more than eighteen years I’ve been living in Rome, the decline has been obvious, persistent and sad.

I’m only tempted to despair, however, because maybe, just maybe, some radical change is in the air. The leaders of the major right-wing parties, Matteo Salvini of the quasi-separatist Lega Nord, Giorgia Meloni of Fratelli d’Italia, and Silvio Berlusconi (yes, him!) of Forza Italia, have each proposed substituting the progressive income tax with a flat tax. Our friends at Istituto Bruno Leoni have put together a serious, detailed program for instituting a flat tax in place of the myriad of other taxes currently in place, abolishing many welfare programs and replacing them with the guarantee of a universal basic income, which would fundamentally redefine relations between the Italian State and its citizens.

Of course one must never be too optimistic when dealing with Italian politics. There is some history when it comes to flat tax proposals here. When Berlusconi first came to power in 1994, he proposed a flat tax with the help of University of Chicago-trained economist Antonio Martino, who was then put as far away from economic policy as possible in the Ministries of Foreign Affairs and Defense. The flat tax went the way of many other potential reforms and was never seriously considered during Berlusconi governments. As happens much too often around the world and especially in Italy, the maintenance of political power eventually overcame the zeal to reform.

I was working in Washington DC in 1994, when the Republicans took over the U.S. House of Representatives for the first time in over 40 years, and clearly remember the great enthusiasm many of us had for Newt Gingrich’s Contract with America and even the possibility of a flat tax back then. It was a very exciting time that would be worth seeing replicated in Italy, if only to help young Italians realize that well-thought-out, well-presented proposals can win elections, which in turn makes elections a real choice between competing visions for society.

For far too long, Italian elections have been about rotating power among the same group of politicians who seem intent to do little more than manage Italy’s stagnation and eventual decline. The same could said for Western Europe in general; politics has been replaced by public administration, turning active citizens into passive subjects of the welfare state. There has been more hope in Central and Eastern Europe where memories of “real socialism” still exist and where, not coincidentally, many countries have instituted a flat tax.

It would be naïve to think that a flat tax will suddenly turn Italy into a dynamic world power. It may not even be politically feasible. Article 53 of the Italian constitution mandates a “progressive” tributary system, and the average Italian will not be impressed to see more money in the pockets of already wealthy politicians and associated cronies. There’s an egalitarian streak that rebels at “meno tasse per Totti” [less taxes for A.S. Roma soccer legend Francesco Totti], as one of my Lazio friends used to put it.

If it manages to be more than an election ploy, however, a serious flat tax/universal basic income proposal could be the first step towards a healthy, even constructive populism – as opposed to the unhealthy, destructive one promoted by the Movimento 5 Stelle and that could still end up winning the most votes in the upcoming election. M5S has been able to breed resentment with little in the way of policies that would improve the lives of the people and made the country worse off and angrier at the same time. They don’t realize that big government always means broken government: taxes and government spending have an inverse relationship with how much people work. A real reform of the fiscal system could help restore the people’s freedom and responsibility which have been incrementally taken away by the political class for decades.

The Italian flat tax campaign seems to be the kind of reform that would have pleased the recently deceased Jeffrey Bell, who ran three rather quirky campaigns in New Jersey for the US Senate on the basis of monetary reform, specifically a return to the gold standard. He had been a policy advisor to conservative heroes such as Jack Kemp and Ronald Reagan and saw the need to enter the political area more directly. He lost elections in 1978, 1982 and 2014, but never reneged on his supply-side economics and pro-life/pro-family positions. His persistence in pushing this obscure economic issue was ultimately at the service of social conservativism and love of country.

Some American and more than a few European conservatives have turned their backs on economic freedom, thinking it an elitist vehicle that has destroyed the middle class and traditional values. Following the Brexit and Trump victories, wouldn’t it be an irony if the flat tax is the catalyst for populist fusionism Italian-style?

KJ Sgnature

Kishore Jayabalan

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