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Flat taxFrom Wikipedia, the free encyclopedia

A flat tax (short for flat tax rate) is a tax system with a constant marginal rate, usually applied to individual orcorporate income. A flat tax falls under proportional tax as they allow certain deductions. There are various taxsystems that are labeled "flat tax" even though they are significantly different.

Contents

1 Major categories

1.1 "True" flat rate income tax

1.2 Marginal flat tax

1.2.1 Flat tax with limited deductions

1.2.2 Hall–Rabushka flat tax1.2.3 Negative income tax

1.2.4 Capped flat tax

2 Requirements for a fully defined schema

2.1 Defining when income occurs2.2 Policy administration

2.3 Avoiding deductions

3 Tax effects

3.1 Equity of distribution

3.2 Diminishing Marginal Utility3.3 Administration and enforcement

3.4 Revenues

3.5 Overall structure

3.6 Border adjustable

3.6.1 Tax simplification4 Recent and current proposals

5 Around the world

5.1 Countries that have flat tax systems

5.1.1 At the state or provincial level

5.2 Countries reputed to have a flat tax

5.3 Countries that had a flat tax in the past

5.4 Countries considering a flat tax system

5.5 Eastern Europe

6 See also7 Notes

8 References

9 External links

Major categories

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

"True" flat rate income tax

A true flat rate tax is a system of taxation where one tax rate is applied to all income with no deductions orexemptions.

Marginal flat tax

When deductions are allowed a 'flat tax' is a progressive tax with the special characteristic that above the maximumdeduction, the rate on all further income is constant. Thus it is said to be marginally flat above that point. Theconceptual difference between a true flat tax and a marginally flat tax, can be unified by recognizing that the lattersimply excludes certain kinds of funds from being defined as income. Then they are both flat on "taxable" income.

There are many proposed marginal flat taxes systems. Specific flat tax systems enumerated at the bottom of thisarticle primarily intermix aspects of three high level approaches:

Flat tax with limited deductions

Modified flat taxes have been proposed which would allow deductions for a very few items, while still eliminatingthe vast majority of existing deductions. Charitable deductions and home mortgage interest are the most discussedexceptions, as these are popular with voters and often used. Another common theme is a single, large, fixeddeduction; the concept here is that this blanket deduction rolls up a myriad of ubiquitous, fixed, living costs and hasthe simplifying side-effect that many (low income) people will not even have to file tax returns.

Hall–Rabushka flat tax

Main article: Hall–Rabushka flat tax

Designed by economists at the Hoover Institution, Hall–Rabushka is flat tax on consumption.[1] Principally, Hall–Rabushka accomplishes a consumption tax effect by taxing income and then excluding investment. Robert Hall andAlvin Rabushka have consulted extensively in designing the flat tax systems in Eastern Europe.

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 atype of flat tax. The basic idea is the same as a flat tax with personal deductions, except that when deductionsexceed income, the taxable income is allowed to become negative rather than being set to zero. The flat tax rate isthen applied to the resulting "negative income," resulting in a "negative income tax" the government owes thehousehold, 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 $74,000a year would owe tax amounting to 0.20 × (74,000 − 54,000) = $4,000, as under a flat tax with deductions. Butfamilies of four earning less than $54,000 per year would owe a "negative" amount of tax (that is, it would receive

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money from the government). For example, if it earned $34,000 a year, it would receive a check for $4,000. TheNIT is intended to replace not just the USA's income tax, but also many benefits low income American householdsreceive, such as food stamps and Medicaid. The NIT is designed to avoid the welfare trap—effective high marginaltax rates arising from the rules reducing benefits as market income rises. An objection to the NIT is that it is welfarewithout a work requirement. Those who would owe negative tax would be receiving a form of welfare withouthaving to make an effort to obtain employment. Another objection is that the NIT subsidizes industries employinglow cost labor, but this objection can also be made against current systems of benefits for the working poor.

Capped flat tax

A capped flat tax is one in which income is taxed at a flat rate until a specified cap is reached. For example, in2010, the United States Social Security and Medicare payroll tax assessed a flat rate of 7.65% on all income under

$106,800 and only 1.45% above that level.[2] Thus, someone earning $100,000 paid $6,200 (a rate of 6.2%)while someone earning $1,000,000 paid $21,122 (a rate of 1.45% on all income and 6.2% on first $106,800).

This cap has the effect of turning a nominally flat tax into a regressive tax.[3]

Requirements for a fully defined schema

In devising a flat tax system, several recurring issues must be enumerated, principally with deductions and theidentification of when money is earned.

Defining when income occurs

Since a central philosophy of the flat tax is to minimize the compartmentalization of incomes into myriad special orsheltered cases, a vexing problem is deciding when income occurs. This is demonstrated by the taxation of interestincome and stock dividends. The shareholders own the company and so the company's profits belong to them. If acompany is taxed on its profits, then the funds paid out as dividends have already been taxed. It's a debatablequestion if they should subsequently be treated as income to the shareholders and thus subject to further tax. Asimilar issue arises in deciding if interest paid on loans should be deductible from the taxable income since that

interest is in-turn taxed as income to the loan provider.[4] There is no universally agreed answer to what is fair. For

example, in the United States, dividends are not deductible[5] but mortgage interest is deductible.[6] Thus a FlatTax proposal is not fully defined until it differentiates new untaxed income from a pass-through of alreadytaxed income.

Policy administration

Taxes, in addition to providing revenue, can be potent instruments of policy. For example, it is common forgovernments to encourage social policy such as home insulation or low income housing with tax credits rather than

constituting a ministry to implement these policies.[7] In a flat tax system with limited deductions such policyadministration mechanisms are curtailed. In addition to social policy, flat taxes can remove tools for adjustingeconomic policy as well. For example, in the US short term gains are taxed at a higher rate than long term gains as

means to promote long term investment horizons and damp speculative fluctuation.[8] Thus claims that flat taxesare cheaper/simpler to administer than others are incomplete until they factor in costs for alternative policyadministration.

Avoiding deductions

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In general, the question of how to eliminate deductions is fundamental to the flat tax design: deductions dramaticallyaffect the effective "flatness" in the tax rate. Perhaps the single biggest necessary deduction is for business expenses.If businesses were not allowed to deduct expenses, businesses with a profit margin below the flat tax rate couldnever earn any money since the tax on revenues would always exceed the earnings. For example, grocery storestypically earn pennies on every dollar of revenue; they could not pay a tax rate of 25% on revenues unless theirmarkup exceeded 25%. Thus, corporations must be able to deduct operating expenses even if individual citizens

cannot. A practical difficulty now arises as to identifying what is an expense for a business.[9]

For example, if peanut butter makers purchases a jar manufacturer, is that an expense (since they have to purchasejars somehow) or a sheltering of their income through investment? Flat tax systems can differ greatly in how theyaccommodate such gray areas. For example, the "9-9-9" flat tax proposal would allow businesses to deduct

purchases but not labor costs.[10] (This thus effectively taxes labor-intensive industrial revenue at a higher rate.[11])

How deductions are implemented will dramatically change the effective total tax and thus the flatness of the tax.[4]

Thus, a flat tax proposal is not fully defined until it differentiates deductible and non-deductible expenses.

Tax effects

Equity of distribution

Introduction of flat tax may remove preexisting tax deductions. This may lead to unequal distribution for variousincome brackets that other tax methods also do.

Diminishing Marginal Utility

Flat tax benefits higher income brackets progressively due to decline in marginal value.[12] For example, if a flat taxsystem has a large per-citizen deductible (such as the "Armey" scheme below), then it is a progressive tax. As a

result, sometimes the term Flat Tax is actually a shorthand for the more proper marginally flat tax.[4]

Administration and enforcement

One type of 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.[13] This amendment, only a fewpages long, would replace hundreds of pages of statutory language (although it is important to note that muchstatutory language in taxation statutes is not directed at specifying graduated tax rates). As it now stands, the USA

Revenue Code is over 9 million words long[citation needed] and contains many loopholes, deductions, andexemptions which, advocates of flat taxes claim, render the collection of taxes and the enforcement of tax lawcomplicated and inefficient. It is further argued that current tax law retards economic growth by distorting economicincentives, and by allowing, even encouraging, tax avoidance. With a flat tax, there are fewer incentives than in the

current system to create tax shelters and to engage in other forms of tax avoidance.[citation needed] Flat tax criticscontend that a flat tax system could be created with many loopholes, or a progressive tax system without loopholes,and that a progressive tax system could be as simple, or simpler, than a flat tax system. A simple progressive taxwould also discourage tax avoidance.

Under a pure flat tax without deductions, every tax period a company would make a single payment to the

government covering the taxes on the employees and the taxes on the company profit.[14] For example, supposethat in a given year, ACME earns a profit of 3 million, spends 2 million in wages, and spends 1 million on other

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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) × 0.15 = 900,000. This paymentwould, in one fell swoop, settle the tax liabilities of ACME's employees as well as the corporate taxes owed byACME. Most employees throughout the economy would never need to interact with the IRS, as all tax owed onwages, interest, dividends, royalties, etc. would be withheld at the source. The main exceptions would beemployees with incomes from personal ventures. The Economist claims that such a system would reduce thenumber 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.[15]

However this simplicity relies on there being no deductions of any kind allowed (or at least no variability in thedeductions of different people). Furthermore, if income of differing types are segregated (e.g., pass-thru, long termcap gains, regular income, etc.) then complications ensue. For example, if realized capital gains were subject to theflat tax, the law would require brokers and mutual funds to calculate the realized capital gain on all sales andredemption. If there were a gain, 15% of the gain would be withheld and sent to the IRS. If there were a loss, theamount would be reported to the IRS, which would offset gains with losses and settle up with taxpayers at the endof the period. Lacking deductions this scheme cannot be used to implement economic and social policy indirectlyby tax credits, and thus, as noted above, the simplifications to the government's revenue collection apparatus maybe offset by new government ministries required to administer those policies.

Revenues

The Russian Federation is a considered a prime case of the success of a flat tax; the real revenues from its PersonalIncome 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.[16] The Laffer curve predicts such an outcome,attributing the primary reason for the greater revenue to higher levels of economic growth stemming from theintroduction of the flat tax.

The Russian example is often used as proof of the validity of this analysis, despite an International Monetary Fundstudy in 2006 which 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.[17]

Overall structure

Taxes other than the income tax (for example, taxes on sales and payrolls) tend to be regressive. Hence, making theincome tax flat could result in a regressive overall tax structure. Under such a structure, those with lower incomestend to pay a higher proportion of their income in total taxes than the affluent do. The fraction of household incomethat is a return to capital (dividends, interest, royalties, profits of unincorporated businesses) is positively correlated

with total household income.[citation needed] Hence a flat tax limited to wages would seem to leave the wealthybetter off. Modifying the tax base can change the effects. A flat tax could be targeted at income (rather thanwages), which could place the tax burden equally on all earners, including those who earn income primarily fromreturns 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.S.[18]).

Border adjustable

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A flat tax system and income taxes overall are not inherently border-adjustable; meaning the tax componentembedded into products via taxes imposed on companies (including corporate taxes and payroll taxes) are notremoved when exported to a foreign country (see Effect of taxes and subsidies on price). Taxation systems suchas a sales tax or value added tax can remove the tax component when goods are exported and apply the taxcomponent on imports. The domestic products could be at a disadvantage to foreign products (at home andabroad) that are border-adjustable, which would impact the global competitiveness of a country. However, it'spossible that a flat tax system could be combined with tariffs and credits to act as border adjustments (theproposed Border Tax Equity Act in the U.S. attempts this). Implementing an income tax with a border adjustmenttax credit is a violation of the World Trade Organization agreement. Tax exemptions (allowances) on low incomewages, a component of most income tax systems could mitigate this issue for high labour content industries liketextiles that compete Globally.

In a subsequent section, various proposals for flat tax-like schemes are discussed, these differ mainly on how theyapproach with the following issues of deductions, defining income, and policy implementation.

Tax simplification

Flat tax has been proposed as a means of simplifying the tax code from the current progressive or graduatedmarginal tax rates. Yet of the 72,000+ pages in the US tax code as of 2009, less than a quarter of one of thosepages is needed to list the progressive marginal tax rates. Calculating the progressive tax after determining the nettaxable income may be the simplest activity one performs in manually calculating one's income tax liability. Extremesimplification could be achieved by merely eliminating all tax deductions, exclusions, subsidies, rebates etc. andretaining the six tier progressive marginal tax structure.

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[19] have sought support for the flat tax (Taxpayer Choice Act).In other countries, flat tax systems have also been proposed, largely as a result of flat tax systems being introducedin several countries of the former Eastern Bloc, where it is generally thought to have been successful, although this

assessment has been disputed (see below).[20]

The countries that have recently reintroduced flat taxes have done so largely in the hope of boosting economicgrowth. 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. On 1 January 2001, a 13% flat tax on personalincome took effect in Russia. Ukraine followed Russia with a 13% flat tax in 2003, which later increased to 15% in2007. Slovakia introduced a 19% flat tax on most taxes (that is, on corporate and personal income, for VAT, etc.,almost without exceptions) in 2004. Romania introduced a 16% flat tax on personal income and corporate profit on1 January 2005. Macedonia introduced a 12% flat tax on personal income and corporate profit on 1 January 2007

and promised to cut it to 10% in 2008.[21] Albania has implemented a 10% flat tax from 2008.[22] Bulgaria applies

flat tax rate of 10% for corporate profits and personal income tax since 2008.[23]

In the United States, while the Federal income tax is progressive, seven states — Colorado, Illinois, Indiana,Massachusetts, Michigan, Pennsylvania, and Utah — tax household incomes at a single rate, ranging from 3.07%(Pennsylvania) to 5.3% (Massachusetts). Pennsylvania even has a pure flat tax with no zero-bracket amount.

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Paul Kirchhof, who was suggested as the next finance minister of Germany in 2005, proposed introducing a flat taxrate of 25% in Germany as early as 2001, which sparked widespread controversy. Some claim the German tax

system is the most complex one in the world.[citation needed]

On 27 September 2005, the Dutch Council of Economic Advisors recommended a flat rate of 40% for income tax

in the Netherlands.[citation needed] Some deductions would be allowed, and persons over 65 years of age wouldbe taxed at a lower rate.

In the United States, proposals for a flat tax at the federal level have emerged repeatedly in recent decades duringvarious political debates. Jerry Brown, former and current Democratic Governor of California, made the adoptionof a flat tax part of his platform when running for President of the United States in 1992. At the time, rivalDemocratic candidate Tom Harkin ridiculed the proposal as having originated with the "Flat Earth Society". Fouryears later, Republican candidate Steve Forbes proposed a similar idea as part of his core platform. Althoughneither 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.[24]

In 2005, Senator Sam Brownback, a Republican from Kansas, stated he had a plan to implement a flat tax in

Washington, D.C..[25] This version is one flat rate of 15% on all earned income. Unearned income (in particularcapital 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.[citation needed] DC Delegate Eleanor Holmes Norton's position

seems unclear, however DC mayor Anthony Williams has stated he is "open" to the idea.[citation needed]

Flat taxes have also been considered in the United Kingdom by the Conservative Party. In September 2005,George Osborne, then in opposition, said that while he was "fully conscious that we may not be able to introduce a

pure flat tax, we may be able to move towards simpler and flatter taxes."[26] However, it was roundly rejected byGordon Brown, then the Labour Chancellor of the Exchequer, who said that it was "An idea that they say issweeping 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".[27]

Around the world

Main article: Tax rates around the world

Countries that have flat tax systems

These are countries, as well as minor jurisdictions with the autonomous power to tax, that have adopted taxsystems that are commonly described in the media and the professional economics literature as a flat tax. In somecountries different rates apply to different kinds of income, the main rate for personal income is shown below.

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No personal income tax

Flat personal income tax

Country or territory Flat tax rate

Abkhazia[28] 10%

Albania[29][30][31] 10%

Andorra[32] 10%

Anguilla[33] 3%

Belarus[31] 12%

Belize[34] 25%

Bolivia[31] 13%

Bosnia and Herzegovina[35][36] 10%

Bulgaria[37][31] 10%

East Timor[38] 10%

Estonia[39][40][41][31] 21%

Georgia[41][42][31] 20%

Greenland[43] 37 to 46% (depending on the municipality)

Grenada[44] 30%

Guernsey[45][31] 20%

Guyana[46] 33.33%

Hungary[31] 16%

Jamaica[31] 25%

Jersey[47][31] 20%

Kazakhstan[48][31] 10%

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Kyrgyzstan[45][49] 10%

Latvia[41][31] 25%

Lithuania[41][50][31] 15%

Macedonia[45][51][31] 10%

Madagascar[31] 22%

Mauritius[45][31] 15%

Mongolia[52] 10%

Montenegro[53][31] 9%

Nagorno-Karabakh[54] 5%

Romania[41][31] 16%

Russia[41][55][31] 13%

Saint Helena[56] 25%

Saudi Arabia[31] 2.5% zakat (citizens of GCC countries)

20% income tax (foreigners)

Serbia[57][31] 12%

Seychelles[31] 15%

South Ossetia[58] 12%

Transnistria[59] 10%

Trinidad and Tobago[31] 25%

Turkmenistan[60] 10%

Tuvalu[61] 30%

Ukraine[41][62][31] 15%

At the state or provincial level

At the federal level, Canada and the United States tax personal income at progressive rates. In addition to thefederal income tax, most states, provinces and territories in these countries also tax income. Most of them also useprogressive rates, but some use a flat tax rate.

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State or province Flat tax rate

Alberta[63] 10%

Colorado[64] 4.63%

Illinois[64] 5%

Indiana[64][65] 3.4 to 6.53% (depending on the county)

Massachusetts[64] 5.3%

Michigan[64][65] 4.35 to 6.85% (depending on the city)

New Hampshire[64] 5%

Pennsylvania[64][65] 3.07 to 6.998% (depending on the municipality)

Tennessee[64] 6%

Utah[64] 5%

Countries reputed to have a flat tax

Hong Kong: Some sources claim that Hong Kong has a flat tax,[66] though its salary tax structure has

several different rates ranging from 2% to 17% after deductions.[67] Taxes are capped at 16% of gross

income, so this rate is applied to upper income returns if taxes would exceed 16% of gross otherwise.[68]

Accordingly, Duncan B. Black of Media Matters for America, says "Hong Kong's 'flat tax' is better

described as an 'alternative maximum tax.'" [69] Alan Reynolds of the Cato Institute similarly notes that Hong

Kong's "tax on salaries is not flat but steeply progressive."[70] Hong Kong has, nevertheless, a flat profit tax

regime.

Countries that had a flat tax in the past

Czech Republic introduced a flat tax of 15% on personal income in 2008, and a second higher rate of

22% in 2013.[71]

Iceland introduced a flat tax on personal income in 2007, at a national rate of 22.75%. With the

additional municipal rate, the total tax rate was up to 36%.[72] In 2010, Iceland replaced its flat tax systemwith progressive national rates of 24.1 to 33%, for a combined (national and municipal) top rate of

46.28%.[73]

Slovakia introduced a flat tax of 19% on personal income in 2004, and a second higher rate of 25% in

2013.[71]

Countries considering a flat tax system

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

Australia: The current leader of the Australian opposition party Tony Abbott, has expressed his desire

for a tax debate that includes the implementation of a flat tax system.[74] However, the current Australian

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Countries that have flat taxes

Countries considering flat taxes

government believes that a flat tax would be detrimental to middle income earners, who would see a rise in

taxation from their current levels.[75] It is expected that Tony Abbott will unveil his positions on tax policy

early next year.[76]

Faroe Islands: The cabinet appointed in November 2011, consisting of the Union Party, People's Party,

Self-Government Party and Centre Party, defined a flat tax system as a part of its financial policy.[77] The bill

introducing the flat tax passed on 23 December 2011.[78]

Greece: There are some articles from 2005 indicating that the Greek government considered a flat tax. If

it is still on the table,[79] it apparently has not passed yet as of February 2012.[80][81]

Panama: During the 2008–2009 political campaign, presidential candidate Ricardo Martinelli has

included on his government plan the replacement of the current tax system implemented by president MartinTorrijos with a 10 or 15% flat tax rate in order to raise employment and wages.

Poland: In the 2007 elections, the Civic Platform gained 41.5% of the votes, running on a 15% flat tax

as one of the main points in the party program.[82]

Eastern Europe

Advocates of the flat tax argue that the former communist states ofEastern Europe have benefited from the adoption of a flat tax. Some ofthese nations have experienced strong economic growth of 6% and

higher in recent years[citation needed], particularly the Baltic countries,who experience exceptional GDP growth of around 10% yearly. On theother hand, these countries also include the Ukraine for example, one ofthe poorest countries in Europe and one of the lowest economic growthrates in the world 1990-2007. Serbia has an even lower economicgrowth rate over the same period of time. Some argue that other factors,primarily the advent of capitalist economic systems and rapid marketexpansion after Soviet (communist) domination explain the rapid growth.Some argue that economic growth in these countries would likely haveoccurred regardless of the chosen tax system.

Lithuania, which levies a flat tax rate of 15% (previously 20%) on

its citizens, has experienced -15.8%, +1.3%, and +5.8% change

in GDP from 2009-2011. The growth in 2011 is listed as being

high compared to other nations in the region and 46th globally. [83] The unemployment rate of 15.4% is listed

as higher than 151 other nations [83]and the inflation rate of 4.1% is greater than 103 other currencies

including that of the European Union [83]

In Estonia, which has had a flat tax since 1994 (rate is 21% since 2009, previously was 26%), studies have

shown that the significant increase in tax revenue experienced was caused partly by a disproportionately

rising VAT revenue.[84] Moreover, Estonia and Slovakia have high social contributions, pegged to wage

levels.[84] Both matters raise questions regarding the justice of the flat tax system, and thus its long-term

political sustainability.[citation needed] The Estonian economist and former chairman of his country's

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parliamentary budget committee Olev Raju, stated in September 2005 that "income disparities are rising and

calls for a progressive system of taxation are getting louder – this could put an end to the flat tax after the

next election".[85] However, this did not happen, since after the 2007 elections a right-wing coalition was

formed which has stated its will to keep the flat tax in existence. However, critics argue that the tax rates

these countries have are actually more progressive than flat.[86]

Hungary introduced a flax tax at 16% on 1 January 2011.[87]

According to a 2010 study[88] published in the Brussels newspaper L'Anglophone, the tax burden for typicalworkers in Central and Eastern Europe's "flat tax" countries is slightly higher (40.3% versus 40.2% of the

total cost of employment) than that of the progressive systems elsewhere in the EU. "Slovakia has a “flat tax”

rate of 19%," wrote the authors,[89] "but its employers pay a 35.2% contribution to social security (higher

than the 34.8% in Belgium) and, in addition to the flat income tax, employees have 13.4% deducted forsocial security (also higher than the 13.07% in Belgium)," adding that a typical Slovak worker's Tax

Freedom Day is a day later than a Finnish worker's. Slovakia reintroduced progressive tax rates in 2013.[71]

See also

Economic Concepts

Fiscal drag (also known as Bracket creep)Taxable income elasticity (also known as Laffer Curve)

Tax Systems

Consumption taxFairTax

Income taxKemp CommissionNegative income tax

Progressive taxRegressive tax

Sales taxValue added tax

9–9–9 Plan

Notes

1. ^ Hoover Institution – Books – The Flat Tax (http://www.hoover.org/publications/books/3602666.html)

2. ^ 26 USC 3101 (http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00003101----000-.html)

3. ^ Are Payroll Taxes Regressive(http://www.economist.com/blogs/freeexchange/2009/04/are_payroll_taxes_regressive) The Economist.

4. ̂a b c See for example the flat tax resources at idebate.org ]

5. ^ Dividends are deductible in rare instances (http://www.cfo.com/article.cfm/12260551)

6. ^ IRS Tax pub 936. the mortgage interest deduction (http://www.irs.gov/publications/p936/ar02.html)

7. ^ For example the ENERGYSTAR (http://www.energystar.gov/index.cfm?c=tax_credits.tx_index) tax credit

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7. ^ For example the ENERGYSTAR (http://www.energystar.gov/index.cfm?c=tax_credits.tx_index) tax credit

8. ^ As a recent example, transaction costs to damp speculation proposed by James Tobin, winner of the 1972 Nobelprize in economics, were recently (2009) proposed to the G20 by British PM Gordon brown as a way to preventinternational currency speculation. Krugman (http://www.nytimes.com/2009/11/27/opinion/27krugman.html?_r=1)

9. ^ Deductible business expenses (http://www.irs.gov/businesses/small/article/0,,id=109807,00.html) .

10. ^ Herman Cain's 9-9-9 flat tax variation (http://www.hermancain.com/999plan) .

11. ^ E.D> Kleinbart, An analysis of Herman Cain's 999 plan, Social Science Research Center, 2011(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1941800) .

12. ^ The diminishing marginal utility means that the number of units of additional 'happiness' afforded by an extra unitof additional money, decreases as one spends more money. [1](http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_4/PThy_Chapter_4.html)

13. ^ Hoover Institution – Books – The Flat Tax(http://www.hoover.org/publications/books/fulltext/flattax/appendix.html)

14. ^ "The flat-tax revolution" (http://www.economist.com/printedition/displayStory.cfm?Story_ID=3861190) . TheEconomist. 14 April 2005.

15. ^ "The case for flat taxes" (http://www.economist.com/node/3860731) . The Economist. 14 April 2005.

16. ^ The Flat Tax at Work in Russia: Year Three (http://www.russianeconomy.org/comments/042604.html) , AlvinRabushka, Hoover Institution Public Policy Inquiry, www.russianeconomy.org, 26 April 2004

17. ^ The "Flat Tax(es)": Principles and Evidence (http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf)

18. ^ Boortz, Neal; Linder, John (2006). The FairTax Book (Paperback ed.). Regan Books. ISBN 0-06-087549-6.

19. ^ Phillips, Michael M. (16 May 2008). "Mortgage Bailout Infuriates Tenants (And Steve Forbes)"(http://online.wsj.com/article/SB121090164137297527.html) . The Wall Street Journal.

20. ^ Flat-Tax Comeback (http://www.nationalreview.com/nrof_bartlett/bartlett200311100918.asp) Bruce Bartlett,National Review, 10 November 2003

21. ^ http://www.investinmacedonia.org/news.aspx?news=35

22. ^ Albanian government to implement flat tax (SETimes.com)(http://www.setimes.com/cocoon/setimes/xhtml/en_GB/features/setimes/features/2007/04/06/feature-02)

23. ^ http://www.investnet.bg/bulgarian-economy/InvestmentIncentives/why-invest-in-bulgaria.aspx

24. ^ J. Fred Giertz and Timothy R. Watts, "The Flat Tax and the 1996 Presidential Campaign," Illinois BusinessReview, 52,1 (1995)

25. ^ [2] (http://www.nysun.com/national/dc-may-be-flat-tax-laboratory/23696/)

26. ^ "Osborne urges simpler tax system" (http://news.bbc.co.uk/1/hi/4220838.stm) , BBC News, 7 September 2005

27. ^ Gordon Brown's speech to the Labour party conference(http://politics.guardian.co.uk/labour2005/story/0,16394,1578857,00.html) 26 September 2005

28. ^ Tax Policies (http://www.therepublicofabkhazia.org/pages/our-economy/tax-policies.shtml) , Republic ofAbkhazia.

29. ^ Daniel Mitchell. "Albania Joins the Flat Tax Club." Cato at Liberty, 9 April 2007. [3] (http://www.cato-at-liberty.org/2007/04/09/albania-joins-the-flat-tax-club/)

30. ^ Jonilda Koci. "Albanian government approves 10% flat tax". Southeast European Times, 4 June 2007. [4](http://www.balkantimes.com/cocoon/setimes/xhtml/en_GB/features/setimes/features/2007/06/04/feature-03)

31. ̂a b c d e f g h i j k l m n o p q r s t u v w x The 2011 global executive(http://www.ey.com/Publication/vwLUAssets/2011_global_executive_guide/$FILE/2011_global_executive_guide.pdf) , Ernst & Young, August 2011.

32. ^ Andorra Undertakes First Phase Of Tax Regime Overhaul (http://www.tax-news.com/news/Andorra_Undertakes_First_Phase_Of_Tax_Regime_Overhaul____49056.html) , Tax-News.com,April 29, 2011.

33. ^ Interim Stabilisation Levy Act(http://www.gov.ai/documents/Vol%2038%20Monday%207th%20March%202010%20No4.pdf) , Government ofAnguilla, March 7, 2011.

34. ^ Belize Tax Rates (http://www.taxrates.cc/html/belize-tax-rates.html) , TaxRates.cc.

35. ^ Law on income tax (http://www.fmf.gov.ba/download.php?id=budzet-08/Zakon%20o%20porezu%20na%20dohodak%20(bosanski%20jezik).pdf) , Federation of Bosnia and

Herzegovina. (Bosnian), (Croatian), (Serbian)

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Herzegovina. (Bosnian), (Croatian), (Serbian)

36. ^ Bosnia and Herzegovina Tax Rates (http://www.taxrates.cc/html/bosnia-herzegovina-tax-rates.html) ,TaxRates.cc.

37. ^ Bulgarian parliament approves 2008 budget that foresees record 3 percent surplus(http://www.iht.com/articles/ap/2007/12/20/business/EU-FIN-ECO-Bulgaria-Budget.php) , The Associated Press.

38. ^ A guide for income taxpayers (http://www.mof.gov.tl/wp-content/uploads/2010/07/G5_Iincome_Tax_Guide_2008_Final_Eng.pdf) , Ministry of Finance of East Timor, June30, 1905.

39. ^ Alvin Rabushka. "Estonia Plans to Reduce its Flat-Tax Rate." 26 March 2007. [5](http://www.hoover.org/research/russianecon/essays/6711412.html)

40. ^ Toby Harnden. "Pioneer of the 'flat tax' taught the East to thrive." Telegraph, 9 April 2005.[6](http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2005/09/04/nflat104.xml&sSheet=/news/2005/09/04/ixhome.html)

41. ̂a b c d e f g Michael Keen, Yitae Kim, and Ricardo Varsano. "The 'Flat Tax(es)': Principles and Evidence." IMFWorking Paper WP/06/218.[7] (http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf)

42. ^ Alvin Rabushka. "The Flat Tax Spreads to Georgia." 3 January 2005(http://www.russiaeconomy.org/comments/010305.html)

43. ^ Invest in Greenland (http://uk.nanoq.gl/~/media/018c30ddd63e44b1bdc3a612e8facd0f.ashx) , BrandingGreenland, July 1, 1905.

44. ^ Grenada Tax Rates (http://www.taxrates.cc/html/grenada-tax-rates.html) , TaxRates.cc.

45. ̂a b c d Alvin Rabushka. "Flat and Flatter Taxes Continue to Spread Around the Globe." 16 January 2007.[8](http://www.hoover.org/research/russianecon/essays/5222856.html)

46. ^ Guyana Tax Rates (http://www.taxrates.cc/html/guyana-tax-rates.html) , TaxRates.cc.

47. ^ http://ec.europa.eu/economy_finance/publications/publication415_en.pdf

48. ^ The Economist Intelligence Unit, Kazakhstan fact sheet. "In 2007 Kazakhstan introduced several changes to thetaxation system. The flat-rate VAT on all goods was reduced from 15% to 14%, and a flat rate of income tax of10% was introduced, in place of the previous progressive range of 5–20%." [9](http://www.economist.com/countries/Kazakhstan/profile.cfm?folder=Profile-FactSheet)

49. ^ What should a foreigner know about Kyrgyzstan's tax system (http://www.timesca.com/index.php/free-news-letter/legal-opinion/5988-what-should-a-foreigner-know-about-kyrgyzstans-tax-system) , The Times of CentralAsia.

50. ^ Alvin Rabushka. "A Competitive Flat Tax Spreads to Lithuania." 2 November 2005.[10](http://www.russianeconomy.org/comments/110205.html)

51. ^ "The lowest flat corporate and personal income tax rates." Invest Macedonia government web site. Retrieved 6June 2007. [11] (http://www.investinmacedonia.org/news.aspx?news=35)

52. ^ Alvin Rabushka. "The Flat Tax Spreads to Mongolia." 30 January 2007(http://www.hoover.org/research/russianecon/essays/5471761.html)

53. ^ Alvin Rabushka. "The Flat Tax Spreads to Montenegro." 13 April 2007(http://www.hoover.org/research/russianecon/essays/7019202.html)

54. ^ The wannabe nation of Nagorno-Karabakh (http://www.csmonitor.com/2007/0530/p20s01-woeu.html) , TheChristian Science Monitor, May 30, 2007.

55. ^ Alvin Rabushka. "Russia adopts 13% flat tax." 26 July 2000(http://www.russiaeconomy.org/comments/072600.html)

56. ^ Income Tax Ordinance (http://www.sainthelena.gov.sh/data/files/resources/688/Income-Tax-Ordinance.pdf) ,Government of Saint Helena, April 1, 2012.

57. ^ Alvin Rabushka. "The Flat Tax Spreads to Serbia." 23 March 2004(http://www.russiaeconomy.org/comments/032304.html)

58. ^ Law on the income tax on individuals (http://www.nalog-rso.ru/zakon/zakon9.php) , Committee on Taxes and

Duties of the Republic of South Ossetia. (Russian)

59. ^ A Low Flat Tax Has Been Adopted in Pridnestrovie (http://flattaxes.blogspot.com/2008/11/low-flat-tax-has-been-adopted-in.html) , Alvin Rabushka, August 17, 2007.

60. ^ Lega and tax aspects of doing business in Turkmenistan 2009 (http://www.cabc-global.com/uploads/turkmenistan_tax_and_legal_overview_2009.pdf) , Central Asia Business Consultants, August13, 2009.

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61. ^ Income Tax Act 1992 (http://www.paclii.org/tv/legis/num_act/ita1992116/) , Pacific Islands Legal InformationInstitute.

62. ^ Alvin Rabushka. "The Flat Tax Spreads to Ukraine." 27 May 2003(http://www.russiaeconomy.org/comments/052703.html)

63. ^ What are the income tax rates in Canada? (http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html) , CanadaRevenue Agency, 2012.

64. ̂a b c d e f g h i State Individual Income Tax Rates(http://taxfoundation.org/sites/taxfoundation.org/files/docs/state_individualincome_rates-2000-2012-20120216_july12.pdf) , Tax Foundation, 2011-2012.

65. ̂a b c Local Income Tax Rates by Jurisdiction (http://taxfoundation.org/sites/taxfoundation.org/files/docs/local-incometax-rates_by_jurisdictions-2011-20110831.pdf) , Tax Foundation, 2011-2012.

66. ^ Daniel Mitchell. "Fixing a Broken Tax System with a Flat Tax." Capitalism Magazine, 23 April 2004.[12](http://www.capmag.com/article.asp?ID=3636)

67. ^ GOVHK: Tax Rates of Salaries Tax & Personal Assessment(http://www.gov.hk/en/residents/taxes/taxfiling/taxrates/salariesrates.htm)

68. ^ Pricewaterhouse Coopers: 2004/2005 Hong Kong Budget Tax Rates Card(http://web.archive.org/web/20070302005702/http://www.pwchk.com/home/eng/hktax_rates_card_2004.html) .

69. ^ Duncan B. Black. "Fund wrong on Hong Kong 'flat tax'." Media Matters, 28 Feb 2005. [13](http://mediamatters.org/items/200502280004)

70. ^ Alan Reynolds. "Hong Kong's Excellent Taxes." townhall.com, but the column was syndicated. 6 June 2005.[14] (http://www.cato.org/pub_display.php?pub_id=3793)

71. ̂a b c Flat tax roundup December 2012 (http://flattaxes.blogspot.com/2012/12/flat-tax-roundup-december-2012.html) , Alvin Rabushka, December 29, 2012.

72. ^ Iceland Comes in From the Cold With Flat Tax Revolution(http://www.cato.org/publications/commentary/iceland-comes-cold-flat-tax-revolution) , The Business, March 21,2007.

73. ^ Iceland abandons the flat tax (http://flattaxes.blogspot.com/2010/03/iceland-abandons-flat-tax.html) , AlvinRabushka, March 16, 2010.

74. ^ "Abbott floats tax idea (http://www.abc.net.au/lateline/content/2010/s3052580.htm) ", Australian BroadcastingCorporation

75. ^ "Abbott's flat tax reform 'unfair' (http://www.abc.net.au/news/stories/2010/10/29/3052379.htm) ", Australianbroadcasting corporation

76. ^ "Abbott promises voter 'conversation (http://news.smh.com.au/breaking-news-national/abbott-promises-voter-conversation-20101201-18ggz.html) ", Sydney Morning Herald

77. ^ "Samgonguskjal millum Sambandsflokkin, Fólkaflokkin, Miðflokkin og Sjálvstýrisflokkin(http://tinganes.fo/Files/Filer/fylgiskjoel%20til%20tidndi/Samgonguskjal%20ABDH.pdf) ", Prime Minister's Office.2011.

78. ^ http://www.nordlysid.fo/Default.aspx?ID=42&Action=1&NewsId=10490&PID=3773

79. ^ "Στο 15% η φορολογία των επιχειρήσεων" (http://www.naftemporiki.gr/news/cstory.asp?id=2141801) (inGreek). www.naftemporiki.gr. 24 February 2012. Retrieved 24 February 2012.

80. ^ Trefgarne, George (15 August 2005). "Greece joins the flat rate tax bandwagon"(http://www.telegraph.co.uk/finance/2920635/Greece-joins-the-flat-rate-tax-bandwagon.html) . The Telegraph.Retrieved 24 February 2012.

81. ^ "Flat tax rate on the cards." Kathimerini. 11 July 2005(http://www.ekathimerini.com/4dcgi/_w_articles_politics_100005_11/07/2005_58468)

82. ^ "Poland brings in flat tax (http://www.adamsmith.org/blog-archive/001120.php) ", Adam Smith Institute

83. ̂a b c [15] (https://www.cia.gov/library/publications/the-world-factbook/geos/lh.html)

84. ̂a b Niedrige Steuer für alle: Osteuropa: Einige Länder haben die Einheitssteuer. Doch sie ist umstritten | ZEITonline (http://www.zeit.de/2005/36/Osteuropa)

85. ^ Tenbrock, Christian (1 September 2005). "Niedrige Steuer für alle. Osteuropa: Einige Länder haben dieEinheitssteuer. Doch sie ist umstritten" (http://www.zeit.de/2005/36/Osteuropa) (in German). http://www.zeit.de.Retrieved 2 February 2012.

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86. ^ Central Eastern Europe and the “Flat” Tax – a follow up(http://transitioneconomies.blogspot.com/2006/11/central-eastern-europe-and-flat-tax.html)

87. ^ [16] (http://www.mfa.gov.hu/NR/rdonlyres/68F5E85D-7062-4001-8FD8-7946055579B3/0/Hungaryflatratepersonalincometax.pdf)

88. ^ Wages and Taxes for the "Average Joe" in the EU 27(http://www.langlophone.com/20100526_edition/20100526_EU27_data_table_flipped.pdf)

89. ^ Belgian Workers’ Wages are Highest-Taxed in Western Europe. Flat tax? Read the Fine Print(http://www.langlophone.com/fullbn.php?id=419)

References

Steve Forbes, 2005. Flat Tax Revolution. Washington: Regnery Publishing. ISBN 0-89526-040-9Robert Hall and Alvin Rabushka, 1995 (1985). The Flat Tax (http://www-hoover.stanford.edu/publications/books/flattax.html) . Hoover Institution Press.

Richard Parncutt, 2006–2010. Free enterprise without poverty: Effectively progressive income tax.[17](http://www.uni-graz.at/~parncutt/BIFT2.html) .

Anthony J. Evans, "Ideas and Interests: The Flat Tax(http://www.openrepublic.org/open_republic/20050701_vol1_no1/articles/20050619_ft.htm) " Open

Republic 1(1), 2005

External links

The Laffer Curve: Past, Present and Future (http://www.heritage.org/Research/Taxes/bg1765.cfm) : A

detailed examination of the theory behind the Laffer curve, and many case studies of tax cuts on governmentrevenue in the United StatesPodcast of Rabushka discussing the flat tax

(http://www.econtalk.org/archives/2007/04/rabushka_on_the.html) Alvin Rabushka discusses the flat taxwith Russ Roberts on EconTalk.

Podcast of Rabushka discussing the flat tax (http://politalkshow.com/2010/09/20/episode-96-the-flat-tax/)Alvin Rabushka discusses the flat tax on PoliTalk (http://politalkshow.com/) .

The Flat Tax: How it Works and Why it is Good for America(http://freedomandprosperity.org/2010/videos/the-flat-tax-how-it-works-and-why-it-is-good-for-america/)

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