Flat tax

A flat tax is a system that taxes all entities in a class (typically either citizens or corporations) at the same rate, as opposed to a graduated[?] scheme. It should not be confused with a poll tax which may levy the same tax impost on all entities to which it applies. A flat tax will, by its nature, be either progressive[?] or neutral, depending on whether the flat rate is combined with a significant threshold. The term 'flat tax' is most often discussed in the context of income taxes.

Advocates of a flat tax claim that it will end unfair discrimination. They also argue that flat taxes are easier (and cheaper) to administer and comply with than complex, graduated taxes. Most political parties that advocate the introduction of a flat tax are on the right of the political spectrum.

Those who oppose a flat tax claim that it will benefit the rich at the expense of the poor. This argument can be made by looking upon the value of money to various groups and not simply the rate of taxation. While the monetary value of a dollar (or other unit of currency) is the same for everyone, it is clearly 'worth' a lot more to someone who is struggling to afford food than to a millionaire. Taxing everyone at the same rate ignores the fact that richer people can give up more of their income without ill effects.

The amount of income the government receives from a flat tax depends entirely on the level of the tax. Usually flat taxes are advocated by parties that also believe in a tax cutting agenda, but a flat tax can also be used to increase government revenue by simply raising the tax rate.

An example of a flat tax proposal is that advocated by Canada's right wing Canadian Alliance party. The party's policy calls for the elimination of Canada's three separate tax brackets for low, medium, and high incomes with a single 17% income tax on everyone. (This was not in fact a pure flat tax as the very poor were in a separate bracket where they had to pay no taxes.) This new tax structure would have greatly reduced average tax burden of Canadians and also shrunk government revenues considerably. The proposed flat tax turned out to be unpopular among Canadians, however, and the party dropped it at the beginning of the 2000 general election.

There are other tax system changes that are often proposed with a flat tax. A common one is leaving few if any deductions, credits, or other means of avoiding the tax. This purports to avoid having millionaires with good accountants pay little or no income tax; however, it also reduces the deliberate use of tax deductions by governments to promote other desired ends.

Flat taxes are also often combined with guaranteed minimum income[?] programs. A typical scheme might be that each person gets an allowance of 15,000 (dollars, pounds or whatever), Everything above that level is taxed at 30%. Some would argue that this is really not a flat tax as in practice it creates a graduated system of taxes.

Most developed countries do not have a flat tax for income taxes. On the other hand, sales taxes are almost always applied at the same level irrespective of income. For this reason they are regressive[?] and form a case for income tax to be progressive in order that the tax system as a whole can approach neutrality.