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'{{For|the term related to tax incidence regarding flat progressivity|Proportional tax}} {{Use dmy dates|date=December 2011}} {{Taxation}} A '''flat tax''' (short for '''flat tax rate''') is a [[tax]] system with a constant [[marginal tax rate|marginal rate]], usually applied to individual or corporate income. A flat tax falls under [[proportional tax]] as they allow certain deductions. There are various tax systems that are labeled "flat tax" even though they are significantly different. ==Major categories== 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 or exemptions. ===Marginal flat tax=== When deductions are allowed a 'flat tax' is a progressive tax with the special characteristic that above the maximum deduction, the rate on all further income is constant. Thus it is said to be marginally flat above that point. The conceptual difference between a true flat tax and a marginally flat tax, can be unified by recognizing that the latter simply excludes certain kinds of funds from being defined as income. Then they are both flat on "taxable" income. Go shit yourself There are many proposed marginal flat taxes systems. Specific flat tax systems enumerated at the bottom of this article 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 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. Another common theme is a single, large, fixed deduction; the concept here is that this blanket deduction rolls up a myriad of ubiquitous, fixed, living costs and has the simplifying side-effect that many (low income) people will not even have to file tax returns. ==== Hall–Rabushka flat tax ==== {{Main|Hall–Rabushka flat tax}} Designed by economists at the [[Hoover Institution]], Hall–Rabushka is flat tax on [[consumption tax|consumption]].<ref>[http://www.hoover.org/publications/books/3602666.html Hoover Institution – Books – The Flat Tax<!-- Bot generated title -->]</ref> Principally, Hall–Rabushka accomplishes a consumption tax effect by taxing income and then excluding investment. [[Robert Hall (economist)|Robert Hall]] and [[Alvin Rabushka]] have consulted extensively in designing the flat tax systems in Eastern Europe. ====Negative income tax==== {{Main|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. 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 0.20 × (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). For example, if it earned $34,000 a year, it would receive a check for $4,000. The NIT is intended to replace not just the [[United States|USA]]'s income tax, but also many benefits low income American households receive, such as [[food stamps]] and [[Medicaid]]. The NIT is designed to avoid the [[welfare trap]]—effective high marginal tax rates arising from the rules reducing benefits as market income rises. 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 an effort 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]]. ====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, in 2010, 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.<ref>[http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00003101----000-.html 26 USC 3101]</ref> Thus, someone earning $100,000 paid $7,650 (a rate of 7.65%) while someone earning $1,000,000 paid $21,122 (an effective rate of 2.11%). This cap has the effect of turning a nominally flat tax into a [[regressive tax]].<ref>[http://www.economist.com/blogs/freeexchange/2009/04/are_payroll_taxes_regressive Are Payroll Taxes Regressive] ''The Economist''.</ref> ==Requirements for a fully defined schema== In devising a flat tax system, several recurring issues must be enumerated, principally with deductions and the identification of when money is earned. ===Defining when income occurs=== Since a central tenet of the flat tax is to minimize the compartmentalization of incomes into myriad special or sheltered cases, a vexing problem is deciding when income occurs. This is demonstrated by the taxation of interest income and stock dividends. The shareholders own the company and so the company's profits belong to them. If a company is taxed on its profits, then the funds paid out as dividends have already been taxed. It's a debatable question if they should subsequently be treated as income to the shareholders and thus subject to further tax. A similar 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.<ref name="debate" /> There is no universally agreed answer to what is fair. For example, in the United States, dividends are not deductible<ref>[http://www.cfo.com/article.cfm/12260551 Dividends are deductible in rare instances]</ref> but mortgage interest is deductible.<ref>[http://www.irs.gov/publications/p936/ar02.html IRS Tax pub 936. the mortgage interest deduction]</ref> ''Thus a Flat Tax proposal is not fully defined until it differentiates ''new'' untaxed income from a pass-through of already taxed income.'' ===Policy administration=== Taxes, in addition to providing revenue, can be potent instruments of policy. For example, it is common for governments to encourage social policy such as home insulation or low income housing with tax credits rather than constituting a ministry to implement these policies.<ref>For example the [http://www.energystar.gov/index.cfm?c=tax_credits.tx_index ENERGYSTAR] tax credit</ref> In a flat tax system with limited deductions such policy administration mechanisms are curtailed. In addition to social policy, flat taxes can remove tools for adjusting economic policy as well. For example, in the United States, short-term [[capital gain]]s are taxed at a higher rate than long-term gains as means to promote long-term investment horizons and damp speculative fluctuation.<ref name="tobin">As a recent example, transaction costs to damp speculation proposed by [[James Tobin]], winner of the 1972 Nobel prize in economics, were recently (2009) proposed to the G20 by British PM Gordon brown as a way to prevent international currency speculation. [http://www.nytimes.com/2009/11/27/opinion/27krugman.html?_r=1 Krugman]</ref> ''Thus claims that flat taxes are cheaper/simpler to administer than others are incomplete until they factor in costs for alternative policy administration.'' ===Avoiding deductions=== In general, the question of how to eliminate deductions is fundamental to the flat tax design: deductions dramatically affect 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 could never earn any money since the tax on revenues would always exceed the earnings. For example, grocery stores typically earn pennies on every dollar of revenue; they could not pay a tax rate of 25% on revenues unless their markup exceeded 25%. Thus, [[corporation]]s 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.<ref>[http://www.irs.gov/businesses/small/article/0,,id=109807,00.html Deductible business expenses].</ref> For example, if peanut butter makers purchase a jar manufacturer, is that an expense (since they have to purchase jars somehow) or a sheltering of their income through investment? Flat tax systems can differ greatly in how they accommodate such gray areas. For example, the "9-9-9" flat tax proposal would allow businesses to deduct purchases but not labor costs.<ref>[http://www.hermancain.com/999plan Herman Cain's 9-9-9 flat tax variation].</ref> (This effectively taxes labor-intensive industrial revenue at a higher rate.<ref>[http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1941800 E.D> Kleinbart, An analysis of Herman Cain's 999 plan, Social Science Research Center, 2011].</ref>) How deductions are implemented will dramatically change the effective total tax and thus the flatness of the tax.<ref name="debate" /> 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 various income brackets that other tax methods also do. ===Diminishing Marginal Utility=== Flat tax benefits higher income brackets progressively due to decline in [[marginalism|marginal value]].<ref>The diminishing marginal utility means that the number of units of additional 'happiness' afforded by an extra unit of additional money, decreases as one spends more money. [http://www.daviddfriedman.com/Academic/Price_Theory/PThy_Chapter_4/PThy_Chapter_4.html]</ref> For example, if a flat tax system 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.<ref name="debate">See for example the flat tax resources at idebate.org</ref> ===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.<ref>[http://www.hoover.org/publications/books/fulltext/flattax/appendix.html Hoover Institution – Books – The Flat Tax<!-- Bot generated title -->]</ref> 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). As it now stands, the USA Revenue Code is over 9 million words long{{Citation needed|date=November 2009}} 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 than in the current system to create tax shelters and to engage in other forms of tax avoidance.{{Citation needed|date=November 2009}} Flat tax critics contend 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 tax would 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.<ref>{{cite news| url=http://www.economist.com/printedition/displayStory.cfm?Story_ID=3861190 | work=The Economist | title=The flat-tax revolution | date=14 April 2005}}</ref> For example, suppose that in a given year, ACME earns a profit of 3 million, spends 2 million in wages, and spends 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) × 0.15 = 900,000. This payment would, in one fell swoop, settle the tax liabilities of ACME's employees as well as the corporate taxes owed by ACME. 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.<ref>{{cite news| url=http://www.economist.com/node/3860731 | work=The Economist | title=The case for flat taxes | date=14 April 2005}}</ref> However this simplicity relies on there being no deductions of any kind allowed (or at least no variability in the deductions of different people). Furthermore, if income of differing types are segregated (e.g., pass-thru, long term cap gains, regular income, etc.) then complications ensue. For example, if realized capital gains were subject to the flat tax, the law would require brokers and mutual funds to calculate the realized capital gain on all sales and redemption. 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. Lacking deductions this scheme cannot be used to implement economic and social policy indirectly by tax credits, and thus, as noted above, the simplifications to the government's revenue collection apparatus may be 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 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.<ref name="rabushka">[http://www.russianeconomy.org/comments/042604.html The Flat Tax at Work in Russia: Year Three], Alvin Rabushka, Hoover Institution Public Policy Inquiry, www.russianeconomy.org, 26 April 2004</ref> The [[Laffer curve]] predicts such an outcome, attributing the primary reason for the greater revenue to higher levels of economic growth stemming from the introduction of the flat tax. The Russian example is often used as proof of the validity of this analysis, despite an [[International Monetary Fund]] study 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.<ref>[http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf The "Flat Tax(es)": Principles and Evidence]</ref> ===Overall structure=== 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 tax|regressive]] overall tax structure. 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.{{Citation needed|date=November 2007}} 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.S.<ref name="fairtaxbook">{{cite book | first=Neal | last=Boortz | coauthors=Linder, John | year=2006 | title=[[The FairTax Book]] | edition=Paperback | publisher=[[Regan Books]]|isbn=0-06-087549-6 }}</ref>). ===Border adjustable=== A flat tax system and income taxes overall are not inherently border-adjustable; meaning the tax component embedded into products via taxes imposed on companies (including [[corporate tax]]es and [[payroll tax]]es) are not removed when exported to a foreign country ''(see [[Effect of taxes and subsidies on price]])''. Taxation systems such as a [[sales tax]] or [[value added tax]] can remove the tax component when goods are exported and apply the tax component on imports. The domestic products could be at a disadvantage to foreign products (at home and abroad) that are border-adjustable, which would impact the global competitiveness of a country. However, it's possible that a flat tax system could be combined with tariffs and credits to act as border adjustments (the proposed ''Border Tax Equity Act'' in the U.S. attempts this). Implementing an income tax with a border adjustment tax credit is a violation of the [[World Trade Organization]] agreement. Tax exemptions (allowances) on low income wages, a component of most income tax systems could mitigate this issue for high labour content industries like textiles that compete Globally. In a subsequent section, various proposals for flat tax-like schemes are discussed, these differ mainly on how they approach with the following issues of deductions, defining income, and policy implementation. ==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]]<ref>{{cite news| url=http://online.wsj.com/article/SB121090164137297527.html | work=The Wall Street Journal | first=Michael M. | last=Phillips | title=Mortgage Bailout Infuriates Tenants (And Steve Forbes) | date=16 May 2008}}</ref> 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 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).<ref name="bartlett">[http://www.nationalreview.com/nrof_bartlett/bartlett200311100918.asp Flat-Tax Comeback] Bruce Bartlett, ''National Review'', 10 November 2003</ref> The countries that have recently reintroduced flat taxes have done so largely in the hope of boosting economic growth. The [[Baltic countries]] of [[Estonia]], [[Latvia]] and [[Lithuania]] have had flat taxes of 24%, 25% and 33% respectively with a [[tax exemption|tax exempt]] amount, since the mid-1990s. On 1 January 2001, a 13% flat tax on personal income took effect in [[Russia]]. [[Ukraine]] followed Russia with a 13% flat tax in 2003, which later increased to 15% in 2007. [[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 on 1 January 2005. [[Republic of Macedonia|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.<ref>http://www.investinmacedonia.org/news.aspx?news=35</ref> Albania has implemented a 10% flat tax from 2008.<ref>[http://www.setimes.com/cocoon/setimes/xhtml/en_GB/features/setimes/features/2007/04/06/feature-02 Albanian government to implement flat tax (SETimes.com)<!-- Bot generated title -->]</ref> Bulgaria applies flat tax rate of 10% for corporate profits and personal income tax since 2008.<ref>http://www.investnet.bg/bulgarian-economy/InvestmentIncentives/why-invest-in-bulgaria.aspx</ref> 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. [[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 2001, which sparked widespread controversy. Some claim the [[Taxation in Germany|German tax system]] is the most complex one in the world.{{Citation needed|date=May 2007}} On 27 September 2005, the Dutch Council of Economic Advisors recommended a flat rate of 40% for income tax in the [[Netherlands]].{{Citation needed|date=May 2007}} 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 and current [[United States Democratic Party|Democratic]] [[Governor of California]], made the adoption of a flat tax part of his platform when running for [[President of the United States]] in [[U.S. presidential election, 1992|1992]]. At the time, rival Democratic candidate [[Tom Harkin]] ridiculed the proposal as having originated with the "[[Flat Earth Society]]". Four years later, [[United States Republican Party|Republican]] candidate [[Steve Forbes]] proposed a similar idea as part of his core platform. 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]], [[dividend]]s and [[capital gains]] as income, for example, while [[Steve Forbes]]'s variant of the flat tax would apply to wages only.<ref>J. Fred Giertz and Timothy R. Watts, "The Flat Tax and the 1996 Presidential Campaign," ''Illinois Business Review'', 52,1 (1995)</ref> In 2005, [[United States Senate|Senator]] [[Sam Brownback]], a [[Republican Party (United States)|Republican]] from [[Kansas]], stated he had a plan to implement a flat tax in [[Washington, D.C.]].<ref name="brownback">[http://www.nysun.com/national/dc-may-be-flat-tax-laboratory/23696/]</ref> 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.{{Citation needed|date=April 2011}} DC Delegate [[Eleanor Holmes Norton]]'s position seems unclear, however DC mayor [[Anthony A. Williams|Anthony Williams]] has stated he is "open" to the idea.{{Citation needed|date=April 2011}} Flat taxes have also been considered in the United Kingdom by the [[Conservative Party (UK)|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."<ref>[http://news.bbc.co.uk/1/hi/4220838.stm "Osborne urges simpler tax system"], BBC News, 7 September 2005</ref> However, it was roundly rejected by [[Gordon Brown]], then the [[Labour Party (UK)|Labour]] [[Chancellor of the Exchequer]], 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".<ref name="gordon">[http://politics.guardian.co.uk/labour2005/story/0,16394,1578857,00.html Gordon Brown's speech to the Labour party conference] 26 September 2005</ref> ==Around the world== {{Main|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 tax systems that are commonly described in the media and the professional economics literature as a flat tax. In some countries different rates apply to different kinds of income, the main rate for personal income is shown below. [[Image:Flat personal income tax.png|thumb|400px|right|{{legend|#00FF00|No personal income tax}} {{legend|#008000|Flat personal income tax}}]] <!------------------------------------------------------------------ Please try to keep these in alphabetical order. Alvin Rabushka tends to write a little article every time the flat tax is adopted in a country, and his articles are reliable sources, but it is a good idea to also find other sources. In particular, if a country has adopted a system of which it is debatable whether it is truly a flat tax, we should include some discussion of the particular features of that country's system. You can find flag templates for all countries and minor jurisdictions on [[Wikipedia:Inline templates linking countries]] IMPORTANT: IF YOU DON'T HAVE SOURCES, OR THE FLATNESS IS DEBATABLE, STICK THE COUNTRY IN THE "MAYBE" SECTION. -------------------------------------------------------------------> {|class="wikitable sortable" !Country or territory !! Flat tax rate |- |{{flag|Abkhazia}}<ref>[http://www.therepublicofabkhazia.org/pages/our-economy/tax-policies.shtml Tax Policies], Republic of Abkhazia.</ref> || 10% |- |{{flag|Albania}}<ref>Daniel Mitchell. "Albania Joins the Flat Tax Club." Cato at Liberty, 9 April 2007. [http://www.cato-at-liberty.org/2007/04/09/albania-joins-the-flat-tax-club/]</ref><ref>Jonilda Koci. "Albanian government approves 10% flat tax". Southeast European Times, 4 June 2007. [http://www.balkantimes.com/cocoon/setimes/xhtml/en_GB/features/setimes/features/2007/06/04/feature-03]</ref><ref name="globalexecutive">[http://www.ey.com/Publication/vwLUAssets/2011_global_executive_guide/$FILE/2011_global_executive_guide.pdf The 2011 global executive], Ernst & Young, August 2011.</ref> || 10% |- |{{flag|Andorra}}<ref>[http://www.tax-news.com/news/Andorra_Undertakes_First_Phase_Of_Tax_Regime_Overhaul____49056.html Andorra Undertakes First Phase Of Tax Regime Overhaul], Tax-News.com, April 29, 2011.</ref> || 10% |- |{{flag|Anguilla}}<ref>[http://www.gov.ai/documents/Vol%2038%20Monday%207th%20March%202010%20No4.pdf Interim Stabilisation Levy Act], Government of Anguilla, March 7, 2011.</ref> || 3% |- |{{flag|Belarus}}<ref name="globalexecutive" /> || 12% |- |{{flag|Belize}}<ref>[http://www.taxrates.cc/html/belize-tax-rates.html Belize Tax Rates], TaxRates.cc.</ref> || 25% |- |{{flag|Bolivia}}<ref name="globalexecutive" /> || 13% |- |{{flag|Bosnia and Herzegovina}}<ref>[http://www.fmf.gov.ba/download.php?id=budzet-08/Zakon%20o%20porezu%20na%20dohodak%20(bosanski%20jezik).pdf Law on income tax], [[Federation of Bosnia and Herzegovina]]. {{bs icon}}, {{hr icon}}, {{sr icon}}</ref><ref>[http://www.taxrates.cc/html/bosnia-herzegovina-tax-rates.html Bosnia and Herzegovina Tax Rates], TaxRates.cc.</ref> || 10% |- |{{flag|Bulgaria}}<ref name="globalexecutive" /><ref>[http://www.iht.com/articles/ap/2007/12/20/business/EU-FIN-ECO-Bulgaria-Budget.php Bulgarian parliament approves 2008 budget that foresees record 3 percent surplus], The Associated Press.</ref> || 10% |- |{{flag|East Timor}}<ref>[http://www.mof.gov.tl/wp-content/uploads/2010/07/G5_Iincome_Tax_Guide_2008_Final_Eng.pdf A guide for income taxpayers], Ministry of Finance of East Timor, June 30, 1905.</ref> || 10% |- |{{flag|Estonia}}<ref name="globalexecutive" /><ref>Alvin Rabushka. "Estonia Plans to Reduce its Flat-Tax Rate." 26 March 2007. [http://www.hoover.org/research/russianecon/essays/6711412.html]</ref><ref>Toby Harnden. "Pioneer of the 'flat tax' taught the East to thrive." ''Telegraph,'' 9 April 2005.[http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2005/09/04/nflat104.xml&sSheet=/news/2005/09/04/ixhome.html]</ref><ref name="imf-report">Michael Keen, Yitae Kim, and Ricardo Varsano. "The 'Flat Tax(es)': Principles and Evidence." IMF Working Paper WP/06/218.[http://www.imf.org/external/pubs/ft/wp/2006/wp06218.pdf]</ref> || 21% |- |{{flag|Georgia}}<ref name="globalexecutive" /><ref name="imf-report"/><ref>[http://www.hoover.org/news/daily-report/25265 Alvin Rabushka. "The Flat Tax Spreads to Georgia." 3 January 2005]</ref> || 20% |- |{{flag|Greenland}}<ref>[http://uk.nanoq.gl/~/media/018c30ddd63e44b1bdc3a612e8facd0f.ashx Invest in Greenland], Branding Greenland, July 1, 1905.</ref> || 37 to 46% <small>(depending on the [[municipalities of Greenland|municipality]])</small> |- |{{flag|Grenada}}<ref>[http://www.taxrates.cc/html/grenada-tax-rates.html Grenada Tax Rates], TaxRates.cc.</ref> || 30% |- |{{flag|Guernsey}}<ref name="globalexecutive" /><ref name="flat-and-flatter"/> || 20% |- |{{flag|Guyana}}<ref>[http://www.taxrates.cc/html/guyana-tax-rates.html Guyana Tax Rates], TaxRates.cc.</ref> || 33.33% |- |{{flag|Hungary}}<ref name="globalexecutive" /> || 16% |- |{{flag|Jamaica}}<ref name="globalexecutive" /> || 25% |- |{{flag|Jersey}}<ref name="globalexecutive" /><ref>http://ec.europa.eu/economy_finance/publications/publication415_en.pdf</ref> || 20% |- |{{flag|Kazakhstan}}<ref name="globalexecutive" /><ref>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%." [http://www.economist.com/countries/Kazakhstan/profile.cfm?folder=Profile-FactSheet]</ref> || 10% |- |{{flag|Kyrgyzstan}}<ref name="flat-and-flatter">Alvin Rabushka. "Flat and Flatter Taxes Continue to Spread Around the Globe." 16 January 2007.[http://www.hoover.org/research/russianecon/essays/5222856.html]</ref><ref>[http://www.timesca.com/index.php/free-news-letter/legal-opinion/5988-what-should-a-foreigner-know-about-kyrgyzstans-tax-system What should a foreigner know about Kyrgyzstan's tax system], The Times of Central Asia.</ref> || 10% |- |{{flag|Latvia}}<ref name="globalexecutive" /><ref name="imf-report"/> || 25% |- |{{flag|Lithuania}}<ref name="globalexecutive" /><ref name="imf-report"/><ref>Alvin Rabushka. "A Competitive Flat Tax Spreads to Lithuania." 2 November 2005.[http://www.hoover.org/news/daily-report/25142]</ref> || 15% |- |{{flag|Macedonia}}<ref name="globalexecutive" /><ref name="flat-and-flatter"/><ref>"The lowest flat corporate and personal income tax rates." ''Invest Macedonia'' government web site. Retrieved 6 June 2007. [http://www.investinmacedonia.org/news.aspx?news=35]</ref> || 10% |- |{{flag|Madagascar}}<ref name="globalexecutive" /> || 22% |- |{{flag|Mauritius}}<ref name="globalexecutive" /><ref name="flat-and-flatter" /> || 15% |- |{{flag|Mongolia}}<ref>[http://www.hoover.org/research/russianecon/essays/5471761.html Alvin Rabushka. "The Flat Tax Spreads to Mongolia." 30 January 2007]</ref> || 10% |- |{{flag|Montenegro}}<ref name="globalexecutive" /><ref>[http://www.hoover.org/research/russianecon/essays/7019202.html Alvin Rabushka. "The Flat Tax Spreads to Montenegro." 13 April 2007]</ref> || 9% |- |{{flag|Nagorno-Karabakh}}<ref>[http://www.csmonitor.com/2007/0530/p20s01-woeu.html The wannabe nation of Nagorno-Karabakh], The Christian Science Monitor, May 30, 2007.</ref> || 5% |- |{{flag|Romania}}<ref name="globalexecutive" /><ref name="imf-report"/> || 16% |- |{{flag|Russia}}<ref name="globalexecutive" /><ref name="imf-report"/><ref>[http://www.russiaeconomy.org/comments/072600.html Alvin Rabushka. "Russia adopts 13% flat tax." 26 July 2000]</ref> || 13% |- |{{flag|Saint Helena}}<ref>[http://www.sainthelena.gov.sh/data/files/resources/688/Income-Tax-Ordinance.pdf Income Tax Ordinance], Government of Saint Helena, April 1, 2012.</ref> || 25% |- |{{flag|Saudi Arabia}}<ref name="globalexecutive" /> || 2.5% [[zakat]] <small>(citizens of [[Gulf Cooperation Council|GCC]] countries)</small><br>20% income tax <small>(foreigners)</small> |- |{{flag|Serbia}}<ref name="globalexecutive" /><ref>[http://www.russiaeconomy.org/comments/032304.html Alvin Rabushka. "The Flat Tax Spreads to Serbia." 23 March 2004]</ref> || 12% |- |{{flag|Seychelles}}<ref name="globalexecutive" /> || 15% |- |{{flag|South Ossetia}}<ref>[http://www.nalog-rso.ru/zakon/zakon9.php Law on the income tax on individuals], Committee on Taxes and Duties of the Republic of South Ossetia. {{ru icon}}</ref> || 12% |- |{{flag|Transnistria}}<ref>[http://flattaxes.blogspot.com/2008/11/low-flat-tax-has-been-adopted-in.html A Low Flat Tax Has Been Adopted in Pridnestrovie], Alvin Rabushka, August 17, 2007.</ref> || 10% |- |{{flag|Trinidad and Tobago}}<ref name="globalexecutive" /> || 25% |- |{{flag|Turkmenistan}}<ref>[http://www.cabc-global.com/uploads/turkmenistan_tax_and_legal_overview_2009.pdf Lega and tax aspects of doing business in Turkmenistan 2009], Central Asia Business Consultants, August 13, 2009.</ref> || 10% |- |{{flag|Tuvalu}}<ref>[http://www.paclii.org/tv/legis/num_act/ita1992116/ Income Tax Act 1992], Pacific Islands Legal Information Institute.</ref> || 30% |- |{{flag|Ukraine}}<ref name="globalexecutive" /><ref name="imf-report"/><ref>[http://www.russiaeconomy.org/comments/052703.html Alvin Rabushka. "The Flat Tax Spreads to Ukraine." 27 May 2003]</ref> || 15% |} ====At the state or provincial level==== At the federal level, [[Taxation in Canada|Canada]] and the [[Taxation in the United States|United States]] tax personal income at progressive rates. In addition to the federal income tax, most [[State income tax|states]], provinces and territories in these countries also tax income. Most of them also use progressive rates, but some use a flat tax rate. {|class="wikitable sortable" !State or province !! Flat tax rate |- |{{flag|Alberta}}<ref>[http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html What are the income tax rates in Canada?], [[Canada Revenue Agency]], 2012.</ref> || 10% |- |{{flag|Colorado}}<ref name="states">[http://taxfoundation.org/sites/taxfoundation.org/files/docs/state_individualincome_rates-2000-2012-20120216_july12.pdf State Individual Income Tax Rates], [[Tax Foundation]], 2011-2012.</ref> || 4.63% |- |{{flag|Illinois}}<ref name="states" /> || 5% |- |{{flag|Indiana}}<ref name="states" /><ref name="local">[http://taxfoundation.org/sites/taxfoundation.org/files/docs/local-incometax-rates_by_jurisdictions-2011-20110831.pdf Local Income Tax Rates by Jurisdiction], [[Tax Foundation]], 2011-2012.</ref> || 3.4 to 6.53% <small>(depending on the [[List of counties in Indiana|county]])</small> |- |{{flag|Massachusetts}}<ref name="states" /> || 5.3% |- |{{flag|Michigan}}<ref name="states" /><ref name="local" /> || 4.35 to 6.85% <small>(depending on the [[List of cities in Michigan|city]])</small> |- |{{flag|New Hampshire}}<ref name="states" /> || 5% <small>on dividend and interest income</small> |- |{{flag|Pennsylvania}}<ref name="states" /><ref name="local" /> || 3.07 to 6.998% <small>(depending on the [[List of municipalities in Pennsylvania|municipality]])</small> |- |{{flag|Tennessee}}<ref name="states" /> || [[Hall income tax|6% <small>on dividend and interest income</small>]] |- |{{flag|Utah}}<ref name="states" /> || 5% |} === Countries reputed to have a flat tax === *{{flag|Hong Kong}}: Some sources claim that Hong Kong has a flat tax,<ref name="broken">Daniel Mitchell. "Fixing a Broken Tax System with a Flat Tax." ''Capitalism Magazine,'' 23 April 2004.[http://www.capmag.com/article.asp?ID=3636]</ref> though its salary tax structure has several different rates ranging from 2% to 17% after deductions.<ref>[http://www.gov.hk/en/residents/taxes/taxfiling/taxrates/salariesrates.htm GOVHK: Tax Rates of Salaries Tax & Personal Assessment]</ref> 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.<ref>Pricewaterhouse Coopers: [http://web.archive.org/web/20070302005702/http://www.pwchk.com/home/eng/hktax_rates_card_2004.html 2004/2005 Hong Kong Budget Tax Rates Card].</ref> Accordingly, Duncan B. Black of ''Media Matters for America,'' says "Hong Kong's 'flat tax' is better described as an 'alternative maximum tax.'" <ref>Duncan B. Black. "Fund wrong on Hong Kong 'flat tax'." ''Media Matters'', 28 Feb 2005. [http://mediamatters.org/items/200502280004]</ref> Alan Reynolds of the Cato Institute similarly notes that Hong Kong's "tax on salaries is not flat but steeply progressive."<ref>Alan Reynolds. "Hong Kong's Excellent Taxes." ''townhall.com'', but the column was syndicated. 6 June 2005. [http://www.cato.org/pub_display.php?pub_id=3793]</ref> Hong Kong has, nevertheless, a flat profit tax regime. ===Countries that had a flat tax in the past=== *{{flag|Czech Republic}} introduced a flat tax of 15% on personal income in 2008, and a second higher rate of 22% in 2013.<ref name="dec2012">[http://flattaxes.blogspot.com/2012/12/flat-tax-roundup-december-2012.html Flat tax roundup December 2012], Alvin Rabushka, December 29, 2012.</ref> *{{flag|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%.<ref>[http://www.cato.org/publications/commentary/iceland-comes-cold-flat-tax-revolution Iceland Comes in From the Cold With Flat Tax Revolution], The Business, March 21, 2007.</ref> In 2010, Iceland replaced its flat tax system with progressive national rates of 24.1 to 33%, for a combined (national and municipal) top rate of 46.28%.<ref>[http://flattaxes.blogspot.com/2010/03/iceland-abandons-flat-tax.html Iceland abandons the flat tax], Alvin Rabushka, March 16, 2010.</ref> *{{flag|Slovakia}} introduced a flat tax of 19% on personal income in 2004, and a second higher rate of 25% in 2013.<ref name="dec2012" /> ===Countries considering a flat tax system=== These are countries where concrete flat tax proposals are currently being considered by influential politicians or political parties. *{{flag|Australia}}: The current leader of the [[Liberal Party of Australia|Liberal Party]] and now [[Prime Minister of Australia|Prime Minister]] [[Tony Abbott]], has expressed his desire for a tax debate that includes the implementation of a flat tax system.<ref>"[http://www.abc.net.au/lateline/content/2010/s3052580.htm Abbott floats tax idea]", Australian Broadcasting Corporation</ref> However, the then [[Australian Labor Party]] government believes that a flat tax would be detrimental to middle income earners, who would see a rise in taxation from their current levels.<ref>"[http://www.abc.net.au/news/stories/2010/10/29/3052379.htm Abbott's flat tax reform 'unfair']", Australian broadcasting corporation</ref> It is expected that Tony Abbott will unveil his positions on tax policy early next year.<ref>"[http://news.smh.com.au/breaking-news-national/abbott-promises-voter-conversation-20101201-18ggz.html Abbott promises voter 'conversation]", Sydney Morning Herald</ref>{{update inline|date=May 2013}} *{{flag|Faroe Islands}}: The cabinet appointed in November 2011, consisting of the [[Union Party (Faroe Islands)|Union Party]], [[People's Party (Faroe Islands)|People's Party]], [[Self-Government Party (Faroe Islands)|Self-Government Party]] and [[Centre Party (Faroe Islands)|Centre Party]], defined a flat tax system as a part of its financial policy.<ref>"[http://tinganes.fo/Files/Filer/fylgiskjoel%20til%20tidndi/Samgonguskjal%20ABDH.pdf Samgonguskjal millum Sambandsflokkin, Fólkaflokkin, Miðflokkin og Sjálvstýrisflokkin]", Prime Minister's Office. 2011.</ref> The bill introducing the flat tax passed on 23 December 2011.<ref>http://www.nordlysid.fo/Default.aspx?ID=42&Action=1&NewsId=10490&PID=3773</ref> *{{flag|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 [[Martin Torrijos]] with a 10 or 15% flat tax rate in order to raise employment and wages. *{{flag|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.<ref>"[http://www.adamsmith.org/blog-archive/001120.php Poland brings in flat tax]", Adam Smith Institute</ref> ===Eastern Europe=== {{Disputed|In the wake of the economic crisis and to save the economy and public sector, Iceland had to abandon the flat taxation. Both images are incorrect.|date=January 2012}} [[Image:Flat tax in Europe.svg|thumb|right|{{legend|#245423|Countries that have flat taxes}} {{legend|#49A844|Countries considering flat taxes}}]] Advocates of the flat tax argue that the former [[communist state]]s of [[Eastern Europe]] have benefited from the adoption of a flat tax. Some of these nations have experienced strong economic growth of 6% and higher in recent years{{When|date=September 2011}}{{Citation needed|date=September 2011}}, particularly the [[Baltic countries]], who experience [[Baltic Tiger|exceptional GDP growth]] of around 10% yearly. Some argue that other factors, primarily the advent of capitalist economic systems and rapid market expansion after Soviet (communist) domination explain the rapid growth. Some argue that economic growth in these countries would likely have occurred 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.<ref name="CIA Factbook: Lithuania">[https://www.cia.gov/library/publications/the-world-factbook/geos/lh.html]</ref> The unemployment rate of 15.4% is listed as higher than 151 other nations <ref name="CIA Factbook: Lithuania"/> and the inflation rate of 4.1% is greater than 103 other currencies including that of the European Union <ref name="CIA Factbook: Lithuania"/> *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 [[Value added tax|VAT]] revenue.<ref name="osteuropa">[http://www.zeit.de/2005/36/Osteuropa Niedrige Steuer für alle: Osteuropa: Einige Länder haben die Einheitssteuer. Doch sie ist umstritten | ZEIT online<!-- Bot generated title -->]</ref> Moreover, Estonia and Slovakia have high social contributions, pegged to wage levels.<ref name="osteuropa"/> Both matters raise questions regarding the justice of the flat tax system, and thus its long-term political sustainability.{{Citation needed|date=January 2011}} The Estonian economist and former chairman of his country's 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".<ref>{{cite web|url=http://www.zeit.de/2005/36/Osteuropa|title=Niedrige Steuer für alle. Osteuropa: Einige Länder haben die Einheitssteuer. Doch sie ist umstritten|last=Tenbrock|first=Christian|date=1 September 2005|publisher=http://www.zeit.de|language=German|accessdate=2 February 2012}}</ref> 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.<ref>[http://transitioneconomies.blogspot.com/2006/11/central-eastern-europe-and-flat-tax.html Central Eastern Europe and the “Flat” Tax – a follow up]</ref> * [[Hungary]] introduced a flat tax at 16% on 1 January 2011.<ref>[http://www.mfa.gov.hu/NR/rdonlyres/68F5E85D-7062-4001-8FD8-7946055579B3/0/Hungaryflatratepersonalincometax.pdf]</ref> * According to a 2010 study<ref>[http://www.langlophone.com/20100526_edition/20100526_EU27_data_table_flipped.pdf Wages and Taxes for the "Average Joe" in the EU 27]</ref> published in the Brussels newspaper L'Anglophone, the [[tax burden]] for typical workers 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,<ref>[http://www.langlophone.com/fullbn.php?id=419 Belgian Workers’ Wages are Highest-Taxed in Western Europe. Flat tax? Read the Fine Print]</ref> "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 for social 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.<ref name="dec2012" /> ==See also== ''Economic Concepts'' *[[Fiscal drag]] (also known as Bracket creep) *[[Taxable income elasticity]] (also known as Laffer Curve) ''Tax Systems'' *[[Consumption tax]] *[[FairTax]] *[[Income tax]] *[[Kemp Commission]] *[[Negative income tax]] *[[Progressive tax]] *[[Regressive tax]] *[[Sales tax]] *[[Value added tax]] *[[9–9–9 Plan]] ==Notes== {{Reflist|colwidth=30em}} ==References== *[[Steve Forbes]], 2005. ''Flat Tax Revolution''. Washington: Regnery Publishing. ISBN 0-89526-040-9 *[[Robert Hall (economist)|Robert Hall]] and [[Alvin Rabushka]], 1995 (1985). ''[http://www-hoover.stanford.edu/publications/books/flattax.html The Flat Tax]''. Hoover Institution Press. *Richard Parncutt, 2006–2010. Free enterprise without poverty: Effectively progressive income tax.''[http://www.uni-graz.at/~parncutt/BIFT2.html]''. *Anthony J. Evans, "[http://www.openrepublic.org/open_republic/20050701_vol1_no1/articles/20050619_ft.htm Ideas and Interests: The Flat Tax]" ''Open Republic'' 1(1), 2005 ==External links== {{wikiquote|Taxation}} *[http://www.heritage.org/Research/Taxes/bg1765.cfm The Laffer Curve: Past, Present and Future]: A detailed examination of the theory behind the Laffer curve, and many case studies of tax cuts on government revenue in the United States *[http://www.econtalk.org/archives/2007/04/rabushka_on_the.html Podcast of Rabushka discussing the flat tax] Alvin Rabushka discusses the flat tax with [[Russell Roberts (economist)|Russ Roberts]] on [[EconTalk]]. *[http://politalkshow.com/2010/09/20/episode-96-the-flat-tax/ Podcast of Rabushka discussing the flat tax] Alvin Rabushka discusses the flat tax on [http://politalkshow.com/ PoliTalk]. * [http://freedomandprosperity.org/2010/videos/the-flat-tax-how-it-works-and-why-it-is-good-for-america/ The Flat Tax: How it Works and Why it is Good for America] {{DEFAULTSORT:Flat Tax}} [[Category:Tax reform]] [[Category:Taxation and redistribution]]'