A flat tax is a tax which is assessed at the same percentage to all taxpayers (for example, a 10% flat income tax). Flat taxes are a controversial but increasingly popular alternative to traditional progressive tax systems in Western countries. Advocates argue that they are simpler to administer and much fairer to middle- and upper-class taxpayers, who should not be punished for being financially successful. Critics argue that a progressive tax system is better at directing the bulk of society’s costs onto the shoulders of those people with the greatest ability to pay.
– About Taxation and the Flat Tax –
In practice, governments can tax their citizens in one of four ways. First, they can simply demand an equal sum, or fee, from every citizen, regardless of their income (say, $10,000 per year). Second, they can charge a regressive tax, a tax which decreases in proportion as income increases (for instance, charging 25% to a person earning $40,000 a year, but only 10% to a person earning $200,000 per year). In practice, the fixed fee tax is a form of regressive tax because the fee is a smaller portion of a wealthier person’s income than a poor person’s income. In practice, most Western governmnets adopt the opposite approach, at least to some extent, and charge increasing proportions of taxes to people with higher incomes. This is known as a progressive tax system, and typically takes the familiar form of income tax “brackets,” or steps, with progressively higher and higher tax rates charged to higher incomes.
The alternative to either system, however, is simply to levy a single percentage tax to all taxpayers. This alternative is known as a “flat tax,” and many advocates pick a simple percentage number for the tax, like 10%. Progressive tax advocates argue that their system is fair because it calls upon the wealthiest members of society, those with the greatest ability to pay, to pay the greatest amount of the overall tax bill. In contrast, advocates of a flat tax argue that it is much simpler to administrate than the typically very complicated progressive tax codes, and also is much fairer to people who are financially successful for legal reasons and therefore should not be punished simply for being successful. To the extent that it is simpler, flat tax advocates note, it could reduce tax evasion (either legal manipulation of loopholes in the tax code, or illegal tax fraud) and therefore increase government revenue.
– Examples of Flat Taxes –
Despite growing popularity, especially in small-government conservative circles, few North American jurisdictions have adopted flat taxes, and neither the Canadian nor American federal government has a flat tax. However, Lithuania, Estonia, and some other Eastern European countries have adopted flat tax systems with some success. Russia, Mauritius, and Mongolia also have flat taxes today. Several American states (including Illinois, Colorado, and Massachusetts) and one Canadian province (Alberta) currently charge a flat tax.