Sociology Index

FLAT TAX

Proportional Taxation

Flat tax or flat rate tax is a constant rate tax system. Flat tax refers to income being taxed at one marginal rate, in contrast with Progressive Taxation. Flat tax would simplify tax law and the completion of a tax return but would make income tax regressive taxation.

Flat tax structure has gained significant public support in North America. Flat tax structure in which all citizens would pay the same flat percentage of taxation on their income.

Flat tax has been criticised: "The millionaire to pay exactly the same tax rate as the young nurse, the home help, the worker on the minimum wage". - Gordon Brown's speech to the Labour party conference September 26, 2005.

The Bush 35 Percent Flat Tax on Distributions from Public Corporations
Calvin H. Johnson, University of Texas at Austin School of Law
Abstract: Corporate dividends now bear tax at both the corporate and the shareholder levels, Professor Johnson argues, yielding rates as high as 61 percent.

The Bush administration has proposed to exclude dividends from shareholder tax, but only to the extent that the corporation has paid the 35 percent corporate tax. The 35 percent corporate tax would be paid whether shareholders would pay more or less than 35 percent tax, but private corporations, not publicly traded, would be able to elect a passthrough regime instead.
Professor Johnson begins by describing the policy judgments underlying the proposals.

Flat Taxes, Dual Taxes, Smart Taxes: Making the Best Choices
Jonathan R. Kesselman, "Policy Matters," November 2000
A surprising degree of commonality is found among the principal elements of the tax proposals of the Alliance, Conservatives, and governing Liberals´┐Żalthough the relative emphases and speed of implementation vary. The most distinctive part of the original Alliance scheme was its proposed single tax rate for all income levels. This flat tax plan was later shifted, transitionally, to a dual rate tax which brought the Alliance tax package even closer to the mainstream of Canadian tax policy discourse. 
The equity and distributional aspects of tax policies have been a central focus in recent public discourse. The progressivity of the Alliance´┐Żs flat and dual tax plans is examined using numerical and micro-simulation analyses. The flat tax is found to carry significant shifts in the tax burden away from those at the lowest and particularly those at the highest incomes, with large tax savings at very high incomes. The dual tax considerably moderates the shifts in tax burdens that would arise with a flat tax. The study examines the assumptions that must be made to reach various views about equity on this issue. It finds that even if one accepts the view that one- and two-earner families with the same total incomes should pay the same tax, this can equally well be achieved by introducing income-splitting or joint filing as by adopting a flat rate tax. The alternative approach would maintain tax progressivity, unlike the flat tax. Most of the related claims for simplicity made by proponents of the flat tax are found to be overstated, and the dual tax would further reduce any such benefits.