Armenia Needs A Fair Tax, Not A Flat Tax

Armenians still feel the euphoria of the Velvet Revolution, but the time for hard work has begun. The restructuring of the tax code is crucial for economic fairness and growth. High income individuals, large corporations, monopolies and oligopolies have to pay their fair share. As such, a flat tax is not the answer.

Simply put, a flat tax system benefits large companies and the rich. These entities are well-positioned to pay their fair share of taxes, but they argue that because they are the “engines of economic growth,” they should be exempt from paying higher or graduated (progressive) tax rates.

This argument is faulty. Small businesses are the backbone of a robust economy, and small business formation creates the most new jobs. Since independence, the Armenian economy has been dominated by large monopolies and extractive businesses. Both of these types of economic activity are bad, not just for the economy, but for the local communities that make those economies possible. Monopolies destroy competition and keep prices for necessities high, and extractive industry benefits handful of people, who usually live far away from the site of extraction (largely because the remaining environment is degraded and/or uninhabitable—and what wealthy individual would do that to their own hometown?). These dominant corporations perpetuate a small number of elite and leave a significant percentage of the population in residual poverty.

Secondly, the working poor spend the greatest percentage of their wages. Their spending, and not the savings of the rich, drive the economy in a country like Armenia. The working poor should therefore be given tax breaks so that they can spend more money on basic necessities which will keep the economy afloat and basic needs met.

In order to incentivize small business formation, taxes in the first few years of operation should be kept low, and then increased gradually as the business becomes more profitable. A special incentive can be given to small businesses that add new employees.

High income individuals and large corporations have the greatest means to pay taxes, yet because they have the most clout to put pressure on the government, they are able to keep tax rates low. The voices of the rich should not overpower the voices of the average worker. The wealthy argue that if taxes are too high, they will have to reduce the number of employees. These types of arguments are often not borne out by facts.

Not only should a higher tax rate be implemented, but the system could be structured in such a way that the slope of the graduated tax rate increases over time. In other words, the tax rates for the higher income earners could be increased in a step process over a period of five years.

In Armenia, the largest corporations and the rich have been the greatest beneficiaries of the country’s, up-till-now, oligarchic economic structure. Higher tax rates may come as a shock to many corporations and individuals who paid next to nothing in taxes these past few decades since Armenia’s independence, but from the point of view of fairness, a progressive tax system is the right choice for Armenia. It just makes economic sense.

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Judith Saryan

Judith Saryan was born in Delaware and graduated from Wellesley College in Massachusetts with a major in economics. She spent her career in the financial industry, most recently at Eaton Vance Management, where she was vice president and portfolio manager. Saryan left her successful career in order to pursue her passion for literature and history. For her first project, she worked with the Armenian International Women's Association (AIWA) to showcase the work of newly translated Ottoman Armenian author, Zabel Yessayan.

6 Comments

  1. Comrade Saryan has allowed whatever economics education she possesses to become befuddled by her Socialist emotions AND she does not believe in the US Constitution.

    In our common undertaking (Republic), taxation is a means of allocating the cost of a VERY limited fed gov among all citizens who can vote, based upon each persons relative impact of the total cost (as it would be in any similar “cooperative”). While that would mean equal dollar income taxes, a flat (single rate, no Standard deduction) tax is a practical alternative.

    Our Republic cannot stand if 10 people can vote but ony 2 pay any income tax.

    Our current income tax progressivity is a result of Marxism’s gradual erosion of the American mentality. Comrade Saryan reads from the Communist Manifesto which declared a vefry progressive income tax (along with Karl Marx’s “from each according to his means, to each according to his needs”)

    • Uhm, what’s the US constitution got to do with anything? I mean, beyond all the non-argument and inaccurate statements you’re making, not to mention the over-done “socialist-baiting” (psst, socialist is not a curse word), this article is about Armenia and Armenian economics and Armenian taxes. As much as the US likes to act like the ruler of the world, the US constitution and the “American mentality” (which means what exactly? The mentality of colonialism and aggressive capitalism at all costs?) is entirely irrelevant.

    • TJ,

      While I admit that I overlooked the fact that Ms Saryan wants this Socialist nonsense for Armenia, rather than for America, the substance of what I wrote is equally important to Armenia.

      Why would you impose Socialist nonsense on Armenia? What do you have against Armenia?

      Yes, Socialism IS a curse! If you had any real knowledge of Socialism, you would know that.

      Anyone with intelligence understands that “just a little Sociialism” always progresses to fatal Socialism. That is its nature.

      I challenge you to prove a single “inaccurate” statement that suppossedly made , according to YOU.

      the true American “mentality” (which I did not exprfessly state) is very small fed gov, maximum individual liberty and responsibility (the fed gov does not steal “from each according to his means” and redistribute “to each according to his needs” (said Karl Marx).

      Again, why do you hate Armenia?

  2. Mrs. Saryan seems to be confusing corporate and personal income tax. She routinely switches between the two when making her case.

    The original flat tax proposal mostly pertains to the elimination of personal income tax brackets. This letter does little to dispute any of the arguments (that a flat tax would reduce corruption. stimulate economic activity, and encourage worker productivity) – put forward in last week’s “In defense of the flat tax” op-ed, (which I assume this is meant to be a response to)

  3. When you say Armenia needs a “fair tax”, I agree with you: a flat tax IS a fair tax: what’s unfair is punishing people for being productive and successful. So why you think you or anyone else has right to share wealth generated by those who produce in our country? Enough talking. Armenia needs favorable economic conditions to grow! Come to Armenia and start business. Create something with your hands and hire people. If u want to give good salary, you’ll understand why the current tax hurts us.

  4. TJ,

    I must admit that I misread that she was not talking about America.

    Psst, “Socialism” IS a curse word. Anyone who can read understands that even just a little Socialism always progressive until the country is destoyed (or until sociaalism is overthrown).

    However, what does she (and you) have against Armenia. She proposes progressive taxation (specified in the Communist Manifesto) and in keeping with Karl Marx’s “from each according to his means, to each according to his needs.” One who supports such Socialist nonsense hates the people of Armenia.

    Please try to express a single “inaccurate” statemnet that you claim I made, and what you consider to be my “non-argument.

    I am not arguing for the US to be “ruler of the world.”

    By “American mentaloity” I meant, its constitutional form of govt; verfy small fed gov doing opnly a limited number of things, most power in its people, our rightsa coming from g-d not from govt, etc.

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