Flat Tax

A flat tax levies one statutory rate on a defined base—most commonly personal or corporate income—regardless of how large the base is. It is contrasted with progressive taxation, in which marginal rates increase across income brackets, and with regressive taxation, where the effective rate falls as income rises. In practice, most "flat" systems include a basic personal allowance or exemption threshold, which makes the effective (average) rate mildly progressive even though the marginal rate is constant.

The modern intellectual case for the flat tax is most associated with economists Robert Hall and Alvin Rabushka, whose 1981 Wall Street Journal article and 1985 book The Flat Tax proposed a single-rate consumption-style tax on wages and business cash flow, with investment income taxed once at the firm level. Proponents argue flat taxes simplify compliance, reduce avoidance and shelter activity, lower the cost of capital, and shrink deadweight loss. Critics counter that a single rate shifts the tax burden away from high earners, weakens vertical equity, and can erode revenue unless paired with a broad base and minimal deductions.

Flat income taxes spread widely across Central and Eastern Europe in the 2000s. Estonia adopted a flat personal income tax in 1994; Lithuania, Latvia, Russia (13% from 2001), Slovakia, Romania, Georgia, and others followed. Several have since partially retreated: Slovakia reintroduced a second bracket in 2013, and Russia added a higher rate on incomes above 5 million rubles in 2021. Outside Europe, Hong Kong's "standard rate" option functions as a de facto flat alternative.

In US debate, flat-tax proposals have surfaced repeatedly in presidential campaigns—Steve Forbes in 1996 and 2000, Rick Perry and Herman Cain (the "9-9-9 plan") in 2012, and Ted Cruz and Rand Paul in 2016. None has been enacted federally, though several US states (e.g., Illinois, Massachusetts, Utah) levy flat state income taxes.