Russian leaders on tax
October 21, 2003

The new Russia is turning into quite a place. Russian President Vladimir Putin may be a former KGB apparatchik and he may sometimes act more like a czar than the head of an emerging democratic state, but he and those around him are an interesting bunch.

Thus, while policymakers in this country have been struggling for years over the question of how we might reform and simplify the tax code, Putin's government looked the question in the eye and opted for a 13 percent flat tax. The results since its implementation have been dramatic. The Russian economy, in spite of all the problems it faces, is growing faster than any in Europe. What's more, tax revenues are up so markedly that the Kremlin seems to be seriously considering lowering what already is Europe's lowest marginal rate even further.

This is good news for Russia and, ultimately, for the rest of us because a successful, stable and sensible Russia can offset the goofy thinking that dominates the leadership of old Europe. Indeed, it is entirely possible that Putin and his successors will ultimately prove Alexis de Tocqueville's observation that America's natural continental ally across the Atlantic is Moscow rather than Paris or Berlin. Lenin and his buddies made that observation seem a bit silly to many of us for a long time, but they are gone and it doesn't seem quite as silly anymore.

This became a little clearer earlier this month with the announcement that the Putin government has, after several years of study, decided that the Kyoto treaty isn't all it's cracked up to be. Putin didn't flat out say that Russia was ready yet to scuttle the U.N. Convention on Climate Change for all time, but he questioned the "science" underlying the treaty. That is more than our own president has managed to do.

Global-warming warriors were, of course, shocked. They had fully expected Putin to announce that Moscow would join in ratifying a treaty that the politically correct Europeans believe no rational human could oppose for any reason. The relative importance they give the Kyoto treaty was brought home to me at a European Union (EU)-sponsored conference I attended earlier this year. The keynote speaker told the audience that in his view "the earth faces three crises: global warming, HIV/AIDS and George W. Bush."

In their view, Putin has gone over to the dark side in questioning the wisdom of the politically correct on Kyoto. Indeed, following the Russian announcement, EU officials suggested that Russia would pay a "high price" for siding with the United States on so important a question. Others claimed that Putin's position was but an attempt to blackmail Europe into giving his country money in exchange for its support of Kyoto.

This is consistent with the old European view that anyone who disagrees with Brussels is a fool, an agent of the hated George W. Bush or a money-hungry knave. The evidence suggests, however, that Putin's position is based both on questions about the basic science underlying Kyoto and a recognition that while its implementation might prove beneficial to old Europe, it could cripple both the Russian and U.S. economies.

In fact, Putin's chief economic adviser, Andrei Illarionov, stated rather emphatically following the announcement of his government's decision to back away from Kyoto that "the Kyoto protocol will stymie economic growth [and] doom Russia to poverty, weakness and backwardness." It may have occurred to Putin that old Europeans know this and don't find it as troubling as the Russians.

Of more importance to the substantive debate is the fact that the Russians openly questioned the validity of the science that proponents of Kyoto use to justify their policy prescriptions. The U.S. government hasn't gone this far and seems disinclined to do so.

The U.S. position has thus been complicated by the fact that our government accepts the politically correct view of the problem in spite of the evidence but then argues that Kyoto is not in our economic interests. We are right in our view of the economic impact of a scheme that is designed more to redistribute world income than to deal with environmental degradation, but accepting the arguments of those who hold that our self-interested opposition to necessary action endangers all of mankind puts us at what might best be described as a moral disadvantage in the debate.

The fact is, of course, that the Russians are right. They seem prepared to join the argument not simply on the grounds of their narrow self-interest but on the question of whether those who think we are destroying the earth might just be wrong.

That's what leadership is about.