A Russia to love. (Forward Observer).(Brief Article)

There's a saying about new technology: that it is overestimated in the short run, but underestimated in the long run. The same may be true of countries like Russia.

The red flag went down over the Kremlin on Christmas Day 1991, and by the end of that month, the USSR had vanished. There were high hopes in the West, but lawlessness, moral decay, and economic collapse followed. In 1998, Russia defaulted on its debt, creating an international financial crisis. Since then, most of the world has paid little attention to Russia, figuring that it would remain an economic backwater.

Instead, Russia is reviving. Gross domestic product grew 8 percent in 2000 and 5 percent in 2001. Its stock market was the most fervent in the world last year, and rose 48 percent (in dollar terms) during the first four months of this year. Inflation and interest rates are still high, and Russia owes foreign lenders $40 billion. But as a banker at a business conference in London recently put it, "The fundamentals of the Russian economy are pretty sound."

Why? President Vladimir Putin has realized that Russia has to create a friendly environment for business. He's made changes in the legal system to make it more reliable and fair, and he has emerged as the world's leading advocate of lower taxes, putting even George W. Bush to shame.

At the beginning of last year, Russia adopted a 13 percent flat tax on personal income. There's no capital gains tax on stocks, bonds, or home sales. Interest on government bonds is exempt from taxes, and corporate dividends are taxed only once.

The lower rate, limited deductions, and simpler system have produced higher tax revenues (as supply siders predict). Vastly higher. Preliminary data show that 2001's lower flat tax rate raised 28 percent more revenue--after adjusting for inflation--than the higher graduated rates raised the year before. Russia now has a budget surplus. Starting in 2002, Russia also cut the corporate tax from 35 percent to 24 percent, and Putin has proposed giving small businesses a choice of either paying an 8 percent flat tax on their revenues or a 20 percent flat tax on their profits. The Russians now have the best tax system in Europe, and are showing us all the ...