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For the term related to tax incidence regarding flat progressivity, see Proportional tax. A proportional tax is a Tax imposed so that the Tax rate is fixed as the amount subject to taxation increases
Public finance
This article is part of the series:
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A flat tax (short for flat rate tax) is a tax system with a constant rate. Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated Payroll tax generally refers to two kinds of taxes: Taxes which Employers are required to withhold from Employees Pay, also known as Withholding A capital gains tax (abbreviated CGT) is a Tax charged on Capital gains the profit realized on the sale of a non-inventory Asset that was purchased Stamp duty is a form of Tax that is levied on documents Historically a physical stamp (a Tax stamp) had to be attached to or impressed upon the document to denote Land value taxation (LVT (or site value taxation) is an Ad valorem tax where only the value of land itself is taxed A sales tax is a Consumption tax charged at the Point of purchase for certain goods and services Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. The tax tariff and trade laws of a political region State or Trade bloc determine which forms of consumption and production tend to be encouraged A tax haven is a place where certain Taxes are levied at a low rate or not at all In Economics, tax incidence is the analysis of the effect of a particular Tax on the distribution of economic welfare. In a Tax system and in Economics, the tax rate describes the burden Ratio (usually expressed as a Percentage) at which a business or person is A proportional tax is a Tax imposed so that the Tax rate is fixed as the amount subject to taxation increases A progressive tax is a Tax imposed so that the Tax rate increases as the amount subject to taxation increases A regressive tax is a Tax imposed in such a manner that the Tax rate decreases as the amount subject to taxation increases Tax advantage refers to the economic bonus which applies to certain accounts or Investments that are by Statute, tax-reduced tax-deferred or tax-free Personal income taxes See also Income tax in Australia Only the federal government imposes income taxes on individuals and this is the most significant source of Taxation in the British Virgin Islands is relatively simple by comparative standards photocopies of all of the tax laws of the British Virgin Islands would together amount to about 200 The level of Taxation in Canada is average among Organisation for Economic Co-operation and Development (OECD countries Taxes provide the most important revenue source for the Government of the People's Republic of China. See Government of Colombia for a wider perspective of Colombian government See Government of France for a wider perspective of French government Taxes in Germany —being a Federal Republic —are levied by the federation ( Bund) the States ( Länder) as well as the HK Inland Revenue Ordinance Cap112 is one of Hong Kong's Ordinances Taxes in India are levied by the Central Government and the State Governments This article ls with Taxation in Indonesia or pajak. Definitions "Pajak" in Indonesian for Tax and taxes whereas " Perpajakan The system of Taxation in Ireland is broadly similar to the system of Taxation in the United Kingdom. The Netherlands has a rich history dealing with taxation predating the Romanic period. Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD on behalf of the Government of New Zealand. The Income tax in Peru is collected by the Superintendencia Nacional de Administración Tributaria, best known as SUNAT. The Russian Tax Code is the primary tax law for the Russian Federation. Individual income tax in Singapore forms part of two main sources of Income tax, the other being Corporate taxes on companies In Tanzania the Income Tax Act 2004 came into effect in July 2004 Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. Comparison of Tax Rates around the world is a difficult and somewhat subjective enterprise This table lists countries by total 2005 Tax revenues (federal state and local as a percentage of GDP (Gross Domestic Product Economic policy refers to the actions that Governments take in the economic field. Monetary policy is the process by which the Government, Central bank, or monetary authority of a country controls (i the Supply of Money, A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states In Economics, money supply, or money stock, is the total amount of money available in an Economy at a particular point in time The gold standard is a monetary system in which a region's common media of exchange are paper notes that are normally freely convertible into pre-set fixed quantities of Gold Fiscal policy, taking the scope of Budgetary policy, refers to government policy that attempts to influence the direction of the economy through changes in government taxes Government spending or government expenditure is classified by economists into three main types A budget deficit occurs when an Entity (often a Government) spends more Money than it takes in Government debt (also known as public debt or national debt) is Money (or credit) owed by any level of government either Central government Trade is the willing exchange of goods, services, or both Trade is also called Commerce. For other uses of this word see Tariff (disambiguation. A tariff is a tax imposed on goods when they are moved across a political boundary A trade pact is a wide ranging Tax tariff and trade pact that often includes Investment guarantees The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated In Economics, a financial market is a mechanism that allows people to easily buy and sell ( Trade) financial Securities (such as stocks and bonds There are two basic financial market participant categories Investor vs Corporate finance is an area of Finance dealing with the financial decisions Corporations make and the tools and analysis used to make these decisions Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit Public finance is a field of economics concerned with paying for collective or governmental activities and with the administration and design of those activities Financial regulations are a form of Regulation or supervision which subjects Financial institutions to certain requirements restrictions and guidelines aiming to A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Fractional-reserve banking is the banking practice in which Banks keep only a fraction of the value of their Bank notes and demand deposits in reserve Full-reserve banking is the Banking practice in which the full amount of each depositor's funds are available in reserve at the bank when each depositor Free banking is a theory of Banking in which commercial banks and market forces control the provision of banking services Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law ( Sharia) principles and guided by Islamic economics Usually this would refer to household income, and possibly corporate profits as well, being taxed at one marginal rate. A corporation is a separate legal entity usually used to conduct business In a Tax system and in Economics, the tax rate describes the burden Ratio (usually expressed as a Percentage) at which a business or person is

Flat taxes, implemented as well as proposed, usually exempt household income below a statutorily determined level that is a function of the type and size of the household. A tax exemption is an exemption from all or certain Taxes of a state or nation in which part of the taxes that would normally be collected from an individual or an organization The household is the basic unit of analysis in many Social, Microeconomic and Government models As a result, so-called flat taxes are often not true proportional "flat" taxes as taxable income may not equal total income. A proportional tax is a Tax imposed so that the Tax rate is fixed as the amount subject to taxation increases Taxable income is the portion of Income that is the subject of taxation according to the laws that determine what is income and the taxation rate for that income A flat tax usually refers to the taxation of incomes but can be applied to consumption. A consumption tax is a Tax on the income or expenditure for goods and services Flat taxes are uncommon in advanced economies, whose nationwide taxes typically include a graduated tax on household incomes and corporate profits, such that the marginal tax rate rises as the income or profit of the taxed entity rises. A progressive tax is a Tax imposed so that the Tax rate increases as the amount subject to taxation increases However, nomenclature regarding flat taxes has become increasingly lax, in that taxes that are described as flat sometimes have little to differentiate them from other tax regimes, e. g. progressive taxes. A progressive tax is a Tax imposed so that the Tax rate increases as the amount subject to taxation increases

Contents

Fairness

This is a hotly debated aspect of flat taxes. Relative fairness hinges crucially on what tax deductions are abolished when a flat tax is introduced, and who profits the most from those deductions.

Proponents of the flat tax claim it is fairer than progressive taxation, since everybody pays the same proportion. A progressive tax is a Tax imposed so that the Tax rate increases as the amount subject to taxation increases Opponents point out first that it might not make sense for everyone to pay the same proportion when some get advantages of prosperity. Also, they note that for the state to raise the same amount of money under a flat rate tax requires that the rich pay less and the poor pay more than they would under a progressive tax system. Proponents respond to this argument by saying that there is no need to raise the tax rate as a flat tax will remove economic disincentives and encourage economic growth leading to higher incomes and, as such, more tax revenues meaning that all taxpayers would be paying at the same or lower rate than their old system.

The issue comes down to how one defines "fair". Proponents claim that since everybody pays the same rate, it treats everyone equally and thus is fair to everyone. Opponents of the flat tax, on the other hand, claim that since the marginal value of income declines with the amount of income (the last $100 of income of a family living near poverty being considerably more valuable than the last $100 of income of a millionaire), taxing that last $100 of income the same amount despite vast differences in the marginal value of money is unfair. Marginalism is the use of Marginal concepts within Economics. Many flat-tax proponents actually concede this premise since most proposals are not truly totally flat but have a threshold below which income is not taxed at all. Therefore, with the exception of flat-tax proponents who argue for no deductions and taxation of all income at one flat rate, both proponents and opponents agree in principle if not in degree with the basic premise of this concept.

However, the sizable exemptions provided under most flat tax proposals go far in restoring effective progressivity. As income for an individual increases, the exempt income becomes an ever smaller percentage of total income.

The issue of removing deductions, exemptions and special treatments is also relevant to fairness, if those special treatments currently benefit the better off. As an example, the tax debate in the UK has recently (2007) focused on the fact that hedge fund managers, some with multi-million pound incomes, "pay less tax than a cleaning lady"[1] (actually a lower tax rate rather than less tax), because the hedge fund manager's "income" qualifies as capital gains, taxable at 10%, rather than the cleaner's employment income taxable at 33% (22% income tax plus 11% social security charge). A flat tax that taxed both at the same rate is argued to be fairer than the current, supposedly progressive, system.

We must also consider fairness in relation to the broader concept of justice. Proponents argue that a flat tax would: (1) by its greater simplicity, reduce taxes for each person, rich and poor; and (2) by stimulating economic growth, produce more government revenue, directable to programs that benefit the poor. Thus, even if a flat-rate taxation is less fair than graduated taxation as a concept, it could produce more social justice.

Arguments in favor

In addition to the controversy over which kind of tax system is fairest to both high and low income earners, there are other arguments favouring or opposing a flat tax.

Simplicity

A flat tax taxes all income once at its source. Hall and Rabushka (1995) includes a proposed amendment to the US Revenue Code implementing the variant of the flat tax they advocate. [2] This amendment, only a few pages long, would replace hundreds of pages of statutory language (although it is important to note that much statutory language in taxation statutes is not directed at specifying graduated tax rates; see Conflating concepts in Arguments against below). As it now stands, the USA Revenue Code is over 9 million words long and contains many loopholes, deductions, and exemptions which, advocates of flat taxes claim, render the collection of taxes and the enforcement of tax law complicated and inefficient. It is further argued that current tax law retards economic growth by distorting economic incentives, and by allowing, even encouraging, tax avoidance. With a flat tax, there are fewer incentives to create tax shelters and to engage in other forms of tax avoidance.

Under a pure flat tax without deductions, companies could simply, every period, make a single payment to the government covering the flat tax liabilities of their employees and the taxes owed on their business income. [3] For example, suppose that in a given year, ACME earns a profit of $3 million, pays $2 million in salaries, and spends an added $1 million on other expenses the IRS deems to be taxable income, such as stock options, bonuses, and certain executive privileges. Given a flat rate of 15%, ACME would then owe the IRS (3M + 2M + 1M) x0. 15 = $900,000. This payment would, in one fell swoop, settle the tax liabilities of ACME's employees as well as taxes it owed by being a firm. Most employees throughout the economy would never need to interact with the IRS, as all tax owed on wages, interest, dividends, royalties, etc. would be withheld at the source. The main exceptions would be employees with incomes from personal ventures. The Economist claims that such a system would reduce the number of entities required to file returns from about 130 million individuals, households, and businesses, as at present, to a mere 8 million businesses and self-employed.

This simplicity would remain even if realized capital gains were subject to the flat tax. In that case, the law would require brokers and mutual funds to calculate the realized capital gain on all sales and redemptions. If there were a gain, 15% of the gain would be withheld and sent to the IRS. If there were a loss, the amount would be reported to the IRS, which would offset gains with losses and settle up with taxpayers at the end of the period.

Economic efficiency

A common approximation in economics is that the economic distortion or excess burden from a tax is proportional to the square of the tax rate. [4] A 20 percent tax rate thus causes four times the excess burden or deadweight loss of a 10 percent tax, since it is twice the rate. In Economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic efficiency that can occur when equilibrium Broadly speaking, this means that a low uniform rate on a broad tax base will be more economically efficient than a mix of high and low rates on a smaller tax base. Economic efficiency is used to refer to a number of related concepts

Elimination of other taxes

Some flat tax plans, such as that proposed by U. S. Rep. Dick Armey in the early 1990s, include the elimination of taxation on income from dividends on corporate stock and realized capital gains. Dividends are payments made by a Corporation to its Shareholder members Instead, individuals would be taxed only on wages, salary, and pensions, while businesses would be taxed on net income. [5]

A flat tax might also serve as a substitute for taxes of Social Security benefits, if FICA tax liabilities are not a deductible expense for employers. Social Security, in the United States currently refers to the federal Old-Age Survivors and Disability Insurance ( OASDI) program The Federal Insurance Contributions Act (FICA tax ( is a United States payroll (or employment Tax imposed by the federal government on both employees It may also enable the reduction or elimination of estate or bequest taxes, though income tax reform does not necessarily entail the reform of other types of taxes. Estate tax and Death duty redirect here Inheritance tax, estate tax and death duty are the names given to various taxes which

Increased tax revenues

Some claim the flat tax will increase tax revenues, by simplifying the tax code and removing the many loopholes corporations and the rich currently exploit to pay less tax. The Russian Federation is a claimed case in point; the real revenues from its Personal Income Tax rose by 25. 2% in the first year after the Federation introduced a flat tax, followed by a 24. 6% increase in the second year, and a 15. 2% increase in the third year. [6] The Laffer curve predicts such an outcome, but attributes the primary reason for the greater revenue to higher levels of economic growth. In Economics, the Laffer curve is used to illustrate the idea that increases in the rate of Taxation may sometimes decrease Tax revenue. The Russian example is often used as proof of this, although an IMF study in 2006 found that there was no sign "of Laffer-type behavioral responses generating revenue increases from the tax cut elements of these reforms" in Russia or in other countries. [7]

Minor matters

Under a flat tax, the government's cost of processing tax returns would become much smaller, and the relevant tax bodies could be abolished or massively downsized. The people freed from working in administering taxes will then be employed in jobs that are more productive. If combined with a provision to allow for negative taxation, the flat tax itself can be implemented in an even simpler way. In Economics, a negative income tax (abbreviated NIT) is a Progressive income tax system where people earning below a certain amount receive supplemental In addition, such a tax reduces the cost of welfare administration significantly.

It is also argued that a flat tax will help lessen outsourcing, a growing problem in recent years, because under a flat tax, businesses will be able to pay taxes more easily and to deal with fewer regulations.

The effect of a shift to flat taxation on charitable giving is unclear. Those whose after-tax incomes will rise under a flat tax may give more. On the other hand, the net of tax "price" of donating to charity will rise, which would discourage giving. A survey ranked tax deductibility #7 among the reasons people give for donating money to worthy causes.

Arguments against

Overall tax structure

Some taxes other than the income tax (for example, taxes on sales and payrolls) tend to be regressive. Hence, making the income tax flat could result in a regressive overall tax structure. A regressive tax is a Tax imposed in such a manner that the Tax rate decreases as the amount subject to taxation increases Under such a structure, those with lower incomes tend to pay a higher proportion of their income in total taxes than the affluent do. The fraction of household income that is a return to capital (dividends, interest, royalties, profits of unincorporated businesses) is positively correlated with total household income. Hence a flat tax limited to wages would seem to leave the wealthy better off. Modifying the tax base can change the effects. A flat tax could be targeted at income (rather than wages), which could place the tax burden equally on all earners, including those who earn income primarily from returns on investment. Tax systems could utilize a flat sales tax to target all consumption, which can be modified with rebates or exemptions to remove regressive effects (such as the proposed FairTax in the U. A sales tax is a Consumption tax charged at the Point of purchase for certain goods and services The FairTax is a proposed change to the federal tax laws of the United States that would replace all federal income taxes with a single national retail S. [8]).

Conflating Concepts

It is invariably argued that a flat tax will greatly simplify tax compliance and administration. In fact, simplicity does not so much stem from the structure of tax rates (a progressive rate structure is nothing more than a look-up table filling at most one page) as from the definition of what is subject to tax. Tax simplification - getting rid of all the deductions, exemptions, and special rules added over the years - is an issue wholly separable from that of the rate structure. A nation can vastly simplify its tax code while keeping its rate structure progressive.

Ensuring simplification

It is possible that a flat tax would not remain simple over time, given the realities of interest group politics. While all flat tax proposals propose to eliminate nearly all deductions and credits, some envision keeping the mortgage interest deduction and possibly some others (note that Hall and Rabushka 1995 do not).

Influence on particular investments

Through tax deductions and credits, the government is given more central control and can stimulate investments in activities it deems worthy, for example, renewable energies or developing improved stealth bombers. Under a flat tax without deductions, the government loses this particular form of control.

Border adjustable

A flat tax system and income taxes overall are not border-adjustable; meaning the tax component embedded into products via taxes imposed on companies (including corporate taxes and payroll taxes) can not be removed when exported to a foreign country (see Effect of taxes and subsidies on price). Corporate tax refers to a Tax levied by various jurisdictions on the Profits made by companies or associations. Payroll tax generally refers to two kinds of taxes: Taxes which Employers are required to withhold from Employees Pay, also known as Withholding Taxes and subsidies have the effect of shifting the quantity and price of goods Taxation systems such as a national sales tax or value added tax remove the tax component when goods are exported and apply the tax component on imports. The FairTax is a proposed change to the federal tax laws of the United States that would replace all federal income taxes with a single national retail Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. Under a flat tax, domestic products are at a disadvantage to foreign products (at home and abroad). Such a system greatly impacts the global competitiveness of a country. For example, the United States is the only one of 30 OECD countries with no border adjustment element in its tax system. [9] Due to this tax structure, it is estimated that U. S. goods are at a 17% competitive disadvantage, on average, to foreign producers. [10] Though, it's possible that this argument falls under the Conflating Concepts category since a flat tax system with border adjustments could be implemented as easily as one without.

Race to the bottom

Main article: Race to the bottom

An argument raised by opponents of the flat tax is that corporations or wealthy persons might move to countries with lower taxes, especially in a single country context. In Government regulation, a race to the bottom is a phenomenon that is said to occur when competition between nations or states (over Investment capital for example The argument states that this would lead to a race to the bottom in which countries compete to offer ever-lower taxes for the rich, so that the rich become even richer, while the poor and middle classes, unable to financially handle relocation to another country, are left to shoulder the entire cost of all government services. A consequence would be an ever-worsening under-funding and neglect of the public sector. Proponents might respond to that argument by questioning if the wealthy would relocate to pay less in taxes. More fundamentally, it is hard to see how that this is a criticism of the flat tax per se, as the same principle may apply under any tax system. The only sure remedy would be a universal tax system, a solution few would find acceptable.

Opponents of the flat tax argue that the end result of this race to the bottom is social disintegration (see also failed state), a situation from which even the richest cannot benefit. A failed state is a State whose central government is so weak or ineffective that it has little practical control over much of its territory It is argued that in order to prevent this it is the responsibility of local and national governments everywhere to ensure that the rich pay a fair share of the tax burden. Concepts such as flat rate taxes are therefore said to be irresponsible at a global level, even if they may seem to grant a temporary advantage at a national level. In other words, making economic conditions too desirable in one country may have the effect of forcing other countries to compete by making their conditions equally desirable.

Inequality

Irrespective of economic growth, a rise in inequality is seen as undesirable in developed nations as it is linked to poorer health, higher crime and more social unrest (See economic inequality). Economic inequality refers to disparities in the distribution of Economic Assets and Income. Since the health of a population, for instance, takes many years to respond to economic realities, the negative effects of a flat tax may not be immediately observable.

However, proponents argue that this does not consider the effects of the sizable exemptions included in most flat tax proposals. Further it is possible to envision a scenario in which all parties are better off under a flat tax than without, despite inequality; in this case, according to utility theory, the flat tax scenario dominates the status quo (meaning it is preferred in all cases); the 'inequity' becomes a mere abstract consideration, as contrasted with the tangible economic benefit achieved by each individual. This assumes, of course, that there is not some third alternative which benefits each individual in a more equitable way.

Compensatory increase of other taxes

Proponents of flat tax tend to discuss it as stand-alone problem, while personal income tax is only a part of overall tax system of the country. Introduction of flat tax might, at least temporarily, require the country to raise other taxes and payments, like excise to balance the overall budget. Excise or Excise tax (sometimes called an excise duty) is a type of Tax charged on goods produced within the country (as opposed to Customs duties Budget (from French bougette, purse generally refers to a list of all planned expenses and revenues These payments would themselves have negative economic effects, possibly negating or reversing benefits of flat tax.

Recent and current proposals

Flat tax proposals have made something of a "comeback" in recent years. In the United States, former House Majority Leader Dick Armey and FreedomWorks have sought grassroots support for the flat tax (Taxpayer Choice Act). The United States of America —commonly referred to as the Party leaders of the United States House of Representatives are elected by their respective parties in a closed-door (private Caucus. Richard Keith "Dick" Armey (born July 7, 1940 in) is a former U FreedomWorks is a conservative Non-profit organization based in Washington D For other meanings see Grass roots (disambiguation. A grassroots movement (often referenced in the context of a Political movement The Taxpayer Choice Act (/ is a bill in the United States Congress which if enacted would amend the Internal Revenue Code to eliminate the In other countries, flat tax systems have also been proposed, largely as a result of flat tax systems being introduced in several countries of the former Eastern Bloc, where it is generally thought to have been successful, although this assessment has been disputed (see below). During the Cold War, the term Communist Bloc (or Soviet Bloc) was used to refer to the Soviet Union and countries it either controlled or that were [11] This has elicited much interest from countries such as the US, where it has gone hand in hand with a general swing towards conservatism. The United States of America —commonly referred to as the Conservatism is a term used to describe political philosophies that favour Tradition, where tradition refers to various religious cultural or nationally defined [12]

See also Tax rates around the world

The countries that have recently reintroduced flat taxes have done so largely in the hope of boosting economic growth. Comparison of Tax Rates around the world is a difficult and somewhat subjective enterprise The Baltic countries of Estonia, Latvia and Lithuania have had flat taxes of 24%, 25% and 33% respectively with a tax exempt amount, since the mid-1990s. The Baltic states (Balti riigid Baltijas valstis Baltijos valstybės or Baltic countries are three countries in Northern Europe, all members of the Estonia, officially the Republic of Estonia ( Eesti or Eesti Vabariik) is a Country in Northern Europe in the Baltic region Latvia ( Latvija officially the Republic of Latvia (Latvijas Republika is a Country in Northern Europe in the Baltic region. Lithuania, officially the Republic of Lithuania (Lietuvos Respublika is a Country in Eastern often referred to as Northern Europe or in the A tax exemption is an exemption from all or certain Taxes of a state or nation in which part of the taxes that would normally be collected from an individual or an organization On 1 January 2001, a 13% flat tax on personal income took effect in Russia. New Year See also New Year The Ancient Romans began their consular year on January 1st since 153 BC Year 2001 ( MMI) was a Common year starting on Monday according to the Gregorian calendar. Russia (Россия Rossiya) or the Russian Federation ( Rossiyskaya Federatsiya) is a transcontinental Country extending Ukraine followed Russia with a 13% flat tax in 2003, which later increased to 15% in 2007. Ukraine (Україна Ukrayina, /ukrɑˈjinɑ/ is a country in Eastern Europe. Slovakia introduced a 19% flat tax on most taxes (that is, on corporate and personal income, for VAT etc. Slovakia (long form Slovak Republic; Slovak:, long form, is a Landlocked country in Central Europe with a population of over five million Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. , almost without exceptions) in 2004; Romania introduced a 16% flat tax on personal income and corporate profit on January 1, 2005. Romania ( dated: Rumania, Roumania New Year See also New Year The Ancient Romans began their consular year on January 1st since 153 BC Year 2005 ( MMV) was a Common year starting on Saturday (link displays full calendar of the Gregorian calendar. Macedonia introduced a 12% flat tax on personal income and corporate profit on January 1, 2007 and promised to cut it to 10% in 2008. The Republic of Macedonia (Република New Year See also New Year The Ancient Romans began their consular year on January 1st since 153 BC Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. [35] Albania would be implementing 10% flat tax from 2008. [13]

In the United States, while the Federal income tax is progressive, five states — Illinois, Indiana, Massachusetts, Michigan and Pennsylvania — tax household incomes at a single rate, ranging from 3% (Illinois) to 5. The United States of America —commonly referred to as the The State of Illinois ( roughly ill-i-NOY is a state of the United States of America, the 21st to be admitted to the Union. The State of Indiana ( was the 19th US state admitted into the union The Commonwealth of Massachusetts ( is a state located in the New England region of the northeastern United States. Michigan ( is a Midwestern state of the United States of America. The Commonwealth of Pennsylvania ( often colloquially referred to as PA (its abbreviation by natives and Northeasterners is a state located in the Northeastern 3% (Massachusetts). Pennsylvania even has a pure flat tax with no zero-bracket amount.

Greece (25%) and Croatia are planning to introduce flat taxes. Greece (Ελλάδα transliterated: Elláda, historically, Ellás,) officially the Hellenic Republic (Ελληνική Δημοκρατία Croatia (Hrvatska ˈxȓvatska officially the Republic of Croatia ( Republika Hrvatska) is a southern Central European country at the crossroads between Paul Kirchhof, who was suggested as the next Finance minister of Germany in 2005, proposed introducing a flat tax rate of 25% in Germany as early as 2007, which sparked widespread controversy. Paul Kirchhof (born February 21 1943 in Osnabrück) is a German Jurist and Tax law expert Some claim the German tax system is the most complex one in the world. Taxes in Germany —being a Federal Republic —are levied by the federation ( Bund) the States ( Länder) as well as the

On 27 September 2005, the Dutch Council of Economic Advisors recommended a high flat rate of 40% for income tax in the Netherlands. Events 489 - Odoacer attacks Theodoric at the Battle of Verona and is defeated again Year 2005 ( MMV) was a Common year starting on Saturday (link displays full calendar of the Gregorian calendar. The Netherlands ( Dutch:, ˈnedərlɑnt is the European part of the Kingdom of the Netherlands, which consists of the Netherlands the Netherlands The Netherlands ( Dutch:, ˈnedərlɑnt is the European part of the Kingdom of the Netherlands, which consists of the Netherlands the Netherlands Some deductions would be allowed, and persons over 65 years of age would be taxed at a lower rate.

In the United States, proposals for a flat tax at the federal level have emerged repeatedly in recent decades during various political debates. Jerry Brown, former Democratic Governor of California, made the adoption of a flat tax part of his platform when running for President of the United States in 1992. Edmund Gerald "Jerry" Brown Jr (born April 7, 1938) is the current Attorney General and former governor of the State of The Democratic Party is one of two major Political parties in the United States, the other being the Republican Party. The Governor of California is the highest executive authority in the state government whose responsibilities include making annual "State of the State" addresses The President of the United States is the Head of state and Head of government of the United States and is the highest political official in United States by The United States presidential elections of 1992 featured a battle between incumbent President, Republican George H At the time, rival Democratic candidate Tom Harkin ridiculed the proposal as having originated with the "Flat Earth Society". Thomas Richard "Tom" Harkin (born November 19 1939 is a Democratic Senator from Iowa serving in his fourth senate term The Flat Earth Society is an Organization first based in England and later in Lancaster, California, that advocates a flat Earth Four years later, Republican candidate Steve Forbes proposed a similar idea as part of his core platform. Malcolm Stevenson " Steve " Forbes Jr (born July 18, 1947) is the son of Malcolm Forbes and the editor-in-chief of business Although neither captured his party's nomination, their proposals prompted widespread debate about the current U. S. income tax system.

Flat tax plans that are presently being advanced in the United States also seek to redefine "sources of income"; current progressive taxes count interest, dividends and capital gains as income, for example, while Steve Forbes's variant of the flat tax would apply to wages only. Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Dividends are payments made by a Corporation to its Shareholder members Malcolm Stevenson " Steve " Forbes Jr (born July 18, 1947) is the son of Malcolm Forbes and the editor-in-chief of business

In 2005 Senator Sam Brownback, a Republican from Kansas, stated he had a plan to implement a flat tax in Washington, D.C.. The United States Senate is the Upper house of the bicameral United States Congress, the Lower house being the House of Representatives Samuel Dale Brownback (born September 12 1956) is the senior United States Senator from the U Kansas ( is a Midwestern state in the central region of the United States of America, an area often referred to as the American " Washington DC ( formally the District of Columbia and commonly referred to as Washington, the District, or simply D This version is one flat rate of 15% on all earned income. Unearned income (in particular capital gains) would be exempt. His plan also calls for an exemption of $30,000 per family and $25,000 for singles. Mississippi Republican Senator Trent Lott stated he supports it and would add a $5,000 credit for first time home buyers and exemptions for out of town businesses. Mississippi ( is a state located in the Deep South of the United States Chester Trent Lott Sr (born October 9, 1941) is a former United States Senator from Mississippi and a member of the Republican Party DC Delegate Eleanor Holmes Norton's position seems unclear, however DC mayor Anthony Williams has stated he is "open" to the idea. Eleanor Holmes Norton (born June 13, 1937) is a Delegate to Congress representing the District of Columbia Anthony Allen "Tony" Williams (born July 28 1951, in Los Angeles California) is an American Politician who served

Flat taxes have also been considered in the United Kingdom by the Conservative Party. The Conservative Party (officially the Conservative and Unionist Party) is a Political party in the United Kingdom. However, it has been roundly rejected by Gordon Brown, then Chancellor of the Exchequer for Britain's ruling Labour Party, who said that it was "An idea that they say is sweeping the world, well sweeping Estonia, well a wing of the neo-conservatives in Estonia", and criticised it thus: "The millionaire to pay exactly the same tax rate as the young nurse, the home help, the worker on the minimum wage". WikipediaManual of Style (biographies#Academic titles --> James Gordon Brown (born 20 February 1951 is The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all Economic and Financial The Labour Party is a Political party in the United Kingdom. Founded at the start of the 20th century it has been since the 1920s the principal party of the [14]

Flat tax proposals differ in how they define and measure what is subject to tax.

Flat tax with deductions

US Congressman Dick Armey has advocated a flat tax on all income in excess of an amount shielded by household type and size. Richard Keith "Dick" Armey (born July 7, 1940 in) is a former U For example, draft legislation proposed by Armey would allow married couples filing jointly to deduct $26,200, unmarried heads of household to deduct $17,200, and single adults, $13,100. $5,300 would be deducted for each dependent. A household would pay tax at a flat rate of 17% on the excess. Businesses would pay a flat 17% rate on all profits. Others have put forth similar proposals with various rates and deductions. Armey defined income to include only salary, wages, and pensions; capital gains and all other sources of wealth appreciation were excluded from taxation under his proposal. [15]

While campaigning for the American presidency in 1996 and 2000, Steve Forbes called for replacing the income tax by a tax at the flat rate of 17% of consumption, defined as income minus savings, in excess of an amount determined by the type and size of the household. Malcolm Stevenson " Steve " Forbes Jr (born July 18, 1947) is the son of Malcolm Forbes and the editor-in-chief of business A consumption tax is a Tax on the income or expenditure for goods and services For example, the exempt amount for a family of four would be $42,000 per year.

Modified flat taxes have been proposed which would allow deductions for a very few items, while still eliminating the vast majority of existing deductions. Charitable deductions and home mortgage interest are the most discussed exceptions, as these are popular with voters and often used.

Hall-Rabushka flat tax

Designed by economists at the Hoover Institution, Hall-Rabushka is a fully developed flat tax on consumption (taxing consumption is thought by economists to be more efficient than taxing income). The Hoover Institution on War Revolution and Peace is a libertarian Public policy Think tank and Library founded in 1919 by U A consumption tax is a Tax on the income or expenditure for goods and services [16] Loosely speaking, Hall-Rabushka accomplishes this by taxing income and then excluding investment. An individual could file a Hall-Rabushka tax return on a postcard. Robert Hall and Alvin Rabushka have consulted extensively in designing the flat tax systems in Eastern Europe. Robert Ernest "Bob" Hall (1943 is an American Economist at Stanford University with a wide variety of interests

Negative income tax

Main article: Negative income tax

The Negative Income Tax (NIT) which Milton Friedman proposed in his 1962 book Capitalism and Freedom is a type of flat tax. In Economics, a negative income tax (abbreviated NIT) is a Progressive income tax system where people earning below a certain amount receive supplemental Milton Friedman (July 31 1912 November 16 2006 was an American Nobel Laureate Economist and Public intellectual. Capitalism and Freedom is a book by Milton Friedman originally published in 1962 which discusses the role of Economic Capitalism in The basic idea is the same as a flat tax with personal deductions, except that when deductions exceed income, the taxable income is allowed to become negative rather than being set to zero. The flat tax rate is then applied to the resulting "negative income," resulting in a "negative income tax" the government owes the household, unlike the usual "positive" income tax, which the household owes the government.

For example, let the flat rate be 20%, and let the deductions be $20,000 per adult and $7,000 per dependent. Under such a system, a family of four making $54,000 a year would owe no tax. A family of four making $74,000 a year would owe tax amounting to 0. 2(74,000-54,000) = $4,000, as under a flat tax with deductions. But families of four earning less than $54,000 per year would owe a "negative" amount of tax (that is, it would receive money from the government). E. g. , if it earned $34,000 a year, it would receive a check for $4,000.

The NIT is intended to replace not just the USA's income tax, but also many benefits low income American households receive, such as food stamps and Medicaid. The United States of America —commonly referred to as the The US Food Stamp Program is a Federal assistance program that provides food to low and no income people living in the United States. Medicaid is the United States health program for eligible individuals and families with low incomes and resources The NIT is designed to avoid the welfare trap—effective high marginal tax rates arising from the rules reducing benefits as market income rises. The welfare trap theory asserts that Taxation and welfare systems can jointly contribute to keep people on social insurance An objection to the NIT is that it is welfare without a work requirement. Those who would owe negative tax would be receiving a form of welfare without having to make a try to obtain employment. Another objection is that the NIT subsidizes industries employing low cost labor, but this objection can also be made against current systems of benefits for the working poor. Working poor is a term used to describe Individuals and families who maintain regular employment but remain in relative Poverty due to low levels of pay

True flat income tax

As per the definition at the beginning of the article, a true flat tax is a system of taxation where one tax rate is applied to all income with no exceptions.

In an article titled The flat-tax revolution, dated April 14, 2005, The Economist argued as follows: If the goals are to reduce corporate welfare and to enable household tax returns to fit on a postcard, then a true flat tax best achieves those goals. The Economist is an English-language weekly news and International affairs publication owned by The Economist Newspaper Ltd and edited in London Corporate welfare is a term describing a government's bestowal of money grants tax breaks, or other special favorable treatment on Corporations or select corporations The flat rate would be applied to all taxable income and profits without exception or exemption. It could be argued that under such an arrangement, no one is subject to a preferential or "unfair" tax treatment. No industry receives special treatment, large households are not advantaged at the expense of small ones, etc. Moreover, the cost of tax filing for citizens and the cost of tax administration for the government would be further reduced, as under a true flat tax only businesses and the self-employed would need to interact with the tax authorities.

Flat taxation effects in Eastern Europe

     Countries that have flat taxes      Countries considering flat taxes
     Countries that have flat taxes      Countries considering flat taxes

Advocates of the flat tax argue that the former-Communist states of Eastern Europe have benefited from the adoption of a flat tax. Communist state is a term used by many Political scientists to describe a Form of government in which the State operates under a one-party system Eastern Europe is a general term that refers to the Geopolitical region encompassing the easternmost part of the European continent. Most of these nations have experienced strong economic growth of 6% and higher in recent years, some of them, particularly the Baltic countries, experience exceptional GDP growth of around 10% yearly. The Baltic states (Balti riigid Baltijas valstis Baltijos valstybės or Baltic countries are three countries in Northern Europe, all members of the Vilnius skyline at nightLithuaniaJPG|thumb|250px| Vilnius Financial Center is a symbol of rapid economic growth in Lithuania Some economists, however, express concerns of the overall effect that flat rates of taxation are having on these countries, both socially and politically, and argue that flat tax has had less influence on economic growth than previously thought.

Countries that have flat tax systems

These are countries, as well as minor jurisdictions with the autonomous power to tax, that have adopted tax systems that are commonly described in the media and the professional economics literature as a flat tax.

     flat personal income tax >0%      flat personal income tax 0%

Also:

Countries that have no income tax

Not having income tax can be considered as an example of a flat tax, with a rate of 0%. There are countries that have no income tax. Some of these countries have alternative sources of income (often natural resources), while others (such as Somalia) lack a government apparatus to effectively collect taxes. Somalia ( Soomaaliya; الصومال) officially the Somali Republic ( Jamhuuriyadda Soomaaliya, جمهورية الصومال) and formerly known

Countries reputed to have a flat tax

Countries considering a flat tax system

These are countries where concrete flat tax proposals are currently being considered by influential politicians or political parties.

U. S. States and Canadian Provinces with a flat rate personal income tax

http://www.taxadmin.org/fta/rate/ind_inc.html

See also

Economic Concepts

Tax Systems

Notes

  1. ^ "SVG chairman breaks tax taboo", Financial Times, London, 3rd June 2007 ([1])
  2. ^ Hoover Institution - Books - The Flat Tax
  3. ^ Simpler taxes | The flat-tax revolution | Economist.com
  4. ^ Louis Kaplow. The State of Utah (ˈjuːtɔː or) is a western state of the United States. Fiscal drag refers to the process where tax thresholds are either not adjusted for inflation or fail to keep pace with earnings growth causing in either case an automatic rise in In Economics, the Laffer curve is used to illustrate the idea that increases in the rate of Taxation may sometimes decrease Tax revenue. A consumption tax is a Tax on the income or expenditure for goods and services The FairTax is a proposed change to the federal tax laws of the United States that would replace all federal income taxes with a single national retail In Economics, a negative income tax (abbreviated NIT) is a Progressive income tax system where people earning below a certain amount receive supplemental A progressive tax is a Tax imposed so that the Tax rate increases as the amount subject to taxation increases The Real Property Use Tax (RPUT is a tax system with assessment based on the size level of development and time-in-use of real property and designed for general revenue acquisition A regressive tax is a Tax imposed in such a manner that the Tax rate decreases as the amount subject to taxation increases A sales tax is a Consumption tax charged at the Point of purchase for certain goods and services Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. "Accuracy, Complexity, and the Income Tax," Journal of Law, Economics, and Organization (1998), V14 N1, p. 68. [2]
  5. ^ Daniel J. Mitchell. "The Global Flat Tax Revolution," Cato Policy Report July/August 2007. [3]
  6. ^ The Flat Tax at Work in Russia: Year Three, Alvin Rabushka, Hoover Institution Public Policy Inquiry, www. russianeconomy. org, April 26, 2004
  7. ^ The "Flat Tax(es)": Principles and Evidence
  8. ^ Boortz, Neal; Linder, John (2006). The FairTax Book, Paperback, Regan Books. The FairTax Book is a Non-fiction book by libertarian Radio Talk show host Neal Boortz and Congressman ReganBooks was a controversial American bestselling Imprint or division of HarperCollins book publishing house (parent company is News Corp) ISBN 0-06-087549-6.  
  9. ^ Linbeck, Leo (2006-06-22). Year 2006 ( MMVI) was a Common year starting on Sunday of the Gregorian calendar. Events 217 BC - Battle of Raphia: Ptolemy IV of Egypt defeats Antiochus III the Great of the Seleucid kingdom. Testimony Before the Subcommittee on Select Revenue Measures. House Committee on Ways and Means. Retrieved on 2006-08-11. Year 2006 ( MMVI) was a Common year starting on Sunday of the Gregorian calendar. Events 2492 BC - Traditional date of the defeat of Bel by Hayk, progenitor and founder of the Armenian nation
  10. ^ FairTax Frequently Asked Questions. Americans For Fair Taxation. Retrieved on 2006-11-14. Year 2006 ( MMVI) was a Common year starting on Sunday of the Gregorian calendar. Events 1533 - Conquistadors from Spain under the leadership of Francisco Pizarro arrive in Cajamarca, Inca
  11. ^ Flat-Tax Comeback Bruce Bartlett, National Review, November 10, 2003
  12. ^ Cameron is no moderate, Neil Clark, The Guardian October 24, 2005
  13. ^ Albanian government to implement flat tax (SETimes.com)
  14. ^ Gordon Brown's speech to the Labour party conference September 26, 2005
  15. ^ The Armey Flat Tax, National Center for Policy Analysis
  16. ^ Hoover Institution - Books - The Flat Tax
  17. ^ http://www.state.gov/e/eb/ifd/2005/42068.htm
  18. ^ IMF Survey: February 21, 2005
  19. ^ a b Niedrige Steuer für alle: Osteuropa: Einige Länder haben die Einheitssteuer. Doch sie ist umstritten | ZEIT online
  20. ^ The Associated Press. "Bulgarian parliament approves 2008 budget that foresees record 3 percent surplus". [4]
  21. ^ Daniel Mitchell. "Albania Joins the Flat Tax Club. " Cato at Liberty, April 9, 2007. [5]
  22. ^ Jonilda Koci. "Albanian government approves 10% flat tax". Southeast European Times, June 4, 2007. [6]
  23. ^ Alvin Rabushka. "The Flat Tax Spreads to the Czech Republic. " hoover. org, 27 August 2008. [7]
  24. ^ Alvin Rabushka. "Estonia Plans to Reduce its Flat-Tax Rate. " March 26, 2007. [8]
  25. ^ Toby Harnden. "Pioneer of the 'flat tax' taught the East to thrive. " Telegraph, April 9, 2005. [9]
  26. ^ a b c d e f g h Michael Keen, Yitae Kim, and Ricardo Varsano. "The 'Flat Tax(es)': Principles and Evidence. " IMF Working Paper WP/06/218. [10]
  27. ^ Alvin Rabushka. "The Flat Tax Spreads to Georgia. " January 3, 2005. [11]
  28. ^ a b c d e Alvin Rabushka. "Flat and Flatter Taxes Continue to Spread Around the Globe. " January 16, 2007. [12]
  29. ^ The Economist Intelligence Unit, Kazakhstan fact sheet. "In 2007 Kazakhstan introduced several changes to the taxation system. The flat-rate VAT on all goods was reduced from 15% to 14%, and a flat rate of income tax of 10% was introduced, in place of the previous progressive range of 5-20%. " [13]
  30. ^ Daniel Mitchell. "Iceland Comes in From the Cold With Flat Tax Revolution. " March 27, 2007. [14]
  31. ^ The Globe and Mail, as quoted on Cato-at-liberty by Daniel Mitchell: "Effective this year, Iceland (population: 300,000) taxes all personal income at a flat rate of 32 per cent — which appears high because it includes municipal as well as national taxes. The Globe and Mail is a Canadian English language nationally distributed Newspaper, based in Toronto and printed in six cities " [15]
  32. ^ Daniel Mitchell. "Iceland Joins the Flat Tax Club. " Cato Tax and Budget Bulletin, February 2007. [16]
  33. ^ Daniel Mitchell. "If a Flat Tax is Good for Iraq, How About America?" Heritage foundation, November 10, 2003. [17].
  34. ^ Alvin Rabushka. "The Flat Tax in Iraq: Much Ado About Nothing—So Far. " May 6, 2004. [18]
  35. ^ Noam Chomsky. "Transfer real sovereignty. " znet, May 11, 2004. [19]
  36. ^ [20]
  37. ^ Alvin Rabushka. "A Competitive Flat Tax Spreads to Lithuania. " November 2, 2005. [21]
  38. ^ "The lowest flat corporate and personal income tax rates. " Invest Macedonia government web site. Retrieved June 6, 2007. [22]
  39. ^ Alvin Rabushka. "The Flat Tax Spreads to Mongolia. " January 30, 2007. [23]
  40. ^ Alvin Rabushka. "The Flat Tax Spreads to Montenegro. " April 13, 2007. [24]
  41. ^ Alvin Rabushka. "Russia adopts 13% flat tax. " July 26, 2000. [25]
  42. ^ Alvin Rabushka. "The Flat Tax Spreads to Serbia. " March 23, 2004. [26]
  43. ^ Alvin Rabushka. "The Flat Tax Spreads to Ukraine. " May 27, 2003. [27]
  44. ^ Transnistrian government web site. [28]
  45. ^ Daniel Mitchell. "Fixing a Broken Tax System with a Flat Tax. " Capitalism Magazine, April 23, 2004. [29]
  46. ^ Duncan B. Black. "Hyman falsely claimed Hong Kong imposes flat tax on income," Media Matters, Jan 27, 2005. [30]
  47. ^ Duncan B. Black. "Fund wrong on Hong Kong 'flat tax'. " Media Matters, Feb 28, 2005. [31]
  48. ^ Alan Reynolds. "Hong Kong's Excellent Taxes. " townhall. com, but the column was syndicated. June 6, 2005. [32]
  49. ^ "Poland brings in flat tax", Adam Smith Institute
  50. ^ Greece joins the flat rate tax bandwagon. By George Trefgarne, Economics Editor. The Telegraph. 2005. [33]
  51. ^ "Flat tax rate on the cards. " Kathimerini. Date unclear. [34]

References

External links

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