Go flat--now.

'OLD SCHOOL" progressives argue that marginal tax rates should increase with income. Their political might in the U.S. has led to a tax code that is steeply progressive. The bottom half of the income distribution pays almost no tax at all. The top 10 percent, by contrast, paid 52.3 percent of all federal taxes in 2004.

This tilt against the rich is accomplished with marginal tax rates that increase as your income does, from 0 to 35 percent. Many economists have argued that high marginal tax rates can be harmful to economic growth, and that steeply progressive tax schemes might not achieve progressive objectives. The costs of lower growth, after all, are borne by someone, and the poor are first in line when suffering is doled out in a weakening economy. These arguments have had little political force, however. Attempts to lower top tax rates are lampooned as giveaways to the rich.

But peering only at tax rates gives us a woefully misleading picture of a tax system's distributional impact. The data increasingly suggest that the best progressive policy would rely less on brute-force redistribution, and that the right tax reform would boost wages and benefit everyone. A "new school" of progressives--many of them residing in the former Soviet Union--is recognizing this fact.

The nearby chart illustrates the point quite dramatically. Perhaps the most "radical" of conservative reforms is the flat tax, which allows only one positive tax rate on income. Old-school progressives have opposed such a tax, claiming that it transfers the tax burden from the rich to the middle class and the poor.

The chart shows the average wage in countries that have adopted a flat tax, both before and after tax reform. What's clear is that the average wage in these flat-tax countries has skyrocketed. For example, the average Estonian wage was $84.20 per month over the two years before tax reform; in the five years after reform, it increased more than 265 percent, to $308.20 per month. It's true that other changes in Estonia over this period might also have influenced wages, but the pattern across countries is consistent and clear: Wages go up markedly after a flat tax is introduced.

Wages have not shown such increases in economically comparable countries that have not adopted a flat tax. On average, wages in Armenia, Azerbaijan, Belarus, Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Slovenia, and Tajikistan went up only 8 percent in the five years after 1994.

Even the direct impact of a flat tax (ignoring, that is, its tendency to boost wages) need not be harmful to the poor, since flat taxes commonly exempt a large amount of income. Indeed, a recent paper for the International Monetary Fund said that "the distributional effects of the flat taxes are not unambiguously regressive, and in some cases they may have increased progressivity."

All this makes a powerful case that the best progressive policy is a flat tax that exempts a healthy share of income. Properly designed, it would be distributionally neutral at the outset, and hugely beneficial to the working poor once wages began to rise.

It's time to shut the old school down.

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