Flat Tax - Recent and Current Proposals

Recent and Current Proposals

Flat tax proposals have made something of a "comeback" in recent years. In the United States, former House Majority Leader Dick Armey and FreedomWorks have sought 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).

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 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. 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. Albania has implemented a 10% flat tax from 2008. Bulgaria applies flat tax rate of 10% for corporate profits and personal income tax since 2008.

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 German tax system is the most complex one in the world.

On 27 September 2005, the Dutch Council of Economic Advisors recommended a flat rate of 40% for income tax in the Netherlands. Some deductions would be allowed, and persons over 65 years of age would be taxed at a lower rate.

In the United States, proposals for a flat tax at the federal level have emerged repeatedly in recent decades during various political debates. Jerry Brown, former and current Democratic Governor of California, made the adoption of a flat tax part of his platform when running for President of the United States in 1992. At the time, rival Democratic candidate Tom Harkin ridiculed the proposal as having originated with the "Flat Earth Society". Four years later, 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, dividends and capital gains as income, for example, while Steve Forbes's variant of the flat tax would apply to wages only.

In 2005, Senator Sam Brownback, a Republican from Kansas, stated he had a plan to implement a flat tax in Washington, D.C.. 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. DC Delegate Eleanor Holmes Norton's position seems unclear, however DC mayor Anthony Williams has stated he is "open" to the idea.

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." However, it was roundly rejected by Gordon Brown, then the 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".