Flat tax

Implementations are often progressive due to exemptions, or regressive in case of a maximum taxable amount.

Robert Hall and Alvin Rabushka have consulted extensively in designing the flat tax systems in Eastern Europe.

The NIT is designed to avoid the welfare trap—effective high marginal tax rates arising from the rules reducing benefits as market income rises.

Those who would owe negative tax would be receiving a form of welfare without having to make an effort to obtain employment.

[3] In devising a flat tax system, several recurring issues must be enumerated, principally with deductions and the identification of when money is earned.

[6] In a flat tax system with limited deductions such policy administration, mechanisms are curtailed.

Flat tax systems can differ greatly in how they accommodate such gray areas.

Flat tax benefits higher income brackets progressively due to decline in marginal value.

Hall and Rabushka proposed an amendment to the U.S. Internal Revenue Code that would implement the variant of the flat tax they advocate.

Given a flat rate of 15%, ACME would then owe the U.S. Internal Revenue Service (IRS) (3M + 2M + 1M) × 0.15 = 900,000.

Most employees throughout the economy would never need to interact with the IRS, as all tax owed on wages, interest, dividends, royalties, etc.

The loss would offset gains, and then the IRS would 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 might be offset by new government ministries required to administer those policies.

[11] 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.

[13] Bulgaria's entry into the EU in 2007 was marked by a spur of reforms aimed at reducing the large share of informal economic activity, estimated at 43% in 2006.

The IMF was wary of this reform, arguing that the simplified tax system would lower the budget surplus and encourage a larger current account deficit.

At the time of these discussions, however, the Bulgarian government did not need external financing and proceeded with its reform plans.

There were several reasons for this beneficial effect: (i) the tax rate limited the incentives for tax evasion, (ii) the optimism at the beginning of the country's EU membership, (iii) and the increase in foreign direct investment, which reached an all-time annual record of €9 billion (about 11% of GDP).

[citation needed] Hence a flat tax limited to wages would seem to leave the wealthy better off.

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.

In some countries, subdivisions are allowed to tax personal income in addition to the national government.

The table below lists jurisdictions where personal income is taxed by only one government level, using a flat rate.

The tax rate listed is the one that applies to income from work, but does not include mandatory contributions to social security.

The tax rates listed are those that apply to income from work, except as otherwise noted.

Despite not having a permanent population, some jurisdictions tax the local income of temporary workers, using a flat rate.