Saturday, December 29, 2012

Flat Tax Roundup December 2012

Two major events affected flat-tax countries in December 2012.


On December 4, 2013, the center-left parliament of Slovakia modified the country’s historic 19% flat-rate tax, which was introduced in 2004.  Effective January 1, 2013, the income tax rate for corporations was raised from 19% to 23%, while that on individuals earning more than €39,600 (€1=$1.30) a year was raised to 25%, thereby creating two brackets of 19% and 25%.  The top 25% rate will only apply to the top 1% of taxpayers.

To show that government officials would bear the burden of higher taxes, the prime minister, cabinet members, and all members of parliament would pay an additional 5% tax on their government salaries.

The government of Socialist Prime Minister Robert Fico, elected in March 2012 on the pledge to impose a higher tax rate on upper-income earners, claimed that the additional revenue to be raised, along with some spending cuts, was required to reduce the country’s estimated budget deficit of 4.6% below the eurozone’s target 3% ceiling.

Czech Republic

On November 7, 2012, the lower house (Chamber of Deputies) of the national parliament approved a proposal to impose a second higher rate of 22% on annual income exceeding Czech Koruna (CZK) 100,000 ($5,200) per month.  President Vaclav Klaus signed the bill on December 22, 2012, which will take effect on January 1, 2013.

As in Slovakia, the Czech Republic’s flat 15% tax rate was replaced with two rates, 15% up to CZK 100,000 per month, and 22% above that level.

Friday, September 7, 2012

Czech Parliament Maintains Flat Tax

On September 5, 2012, the Chamber of Deputies (lower house) of the Czech Parliament voted to reject Prime Minister Petr Necas’ proposal to impose a second tax rate of 26% on upper-income households, which would convert the country's 19% flat tax into a graduated tax with two rates of 19% and 26%.

The AP reported that the government (the prime minister and his cabinet) will resubmit the tax-rate increase to Parliament in three months as part of a no-confidence vote against the government.  If Parliament rejects the increase a second time, the government will fall and new elections will be called.

President Vaclav Klaus and several deputies of the ruling Civic Democratic Party stated that the tax increase was against their party’s values.

Saturday, June 30, 2012

Flat Tax Update: June 30, 2012

The first half of 2012 brought changes in the hitherto stalwart flat-tax countries of Slovakia and the Czech Republic.  The putative purpose in both is reduce budget deficits and increase progressivity in the tax code. 


Prime Minister Robert Fico’s socialist party won a landslide victory in an election in March 2012.  Shortly thereafter, in mid-May, Slovakia’s parliament approved a four-year budget that included several tax-rate increases.  In 2004, Slovakia adopted a 19% flat tax on both individuals and corporations.  If Fico’s proposed new tax rates are approved in parliament, the corporate rate will rise from 19% to 22%, and a new marginal top rate of 25% will be imposed on earnings exceeding $43,600 a year (€33,000).  As of June 30, 2012, parliament had not yet enacted the tax-rate increases, but legislation is on track for a final vote later this year.

Czech Republic

In the Czech Republic, the center-right government of Prime Minister Petr Necas (ODS, Civic Democrats) has pushed through tax changes that would undo the party’s signature 19% flat tax enacted in 2008.  Scheduled to take effect on January 1, 2013, for a limited period of three years, a 7% “solidarity tax” surcharge will be imposed on individuals with gross incomes exceeding 100,000 Czech Crowns a month ($1=18.9 Crowns), thus increasing the top individual rate from 15% to 22%.   The corporate rate would rise from 19% to 23%.  The first reading was approved in parliament on June 7, 2012.  The legislative process requires three readings of a bill before it becomes law.  A final vote is expected sometime after the summer recess.


If the current governing Social Liberal Union (USL) party wins reelection this fall, Prime Minister Victor Ponta plans to submit to parliament a draft budget that would include replacing Romania’s 16% flat tax on personal income with three rates of 8%, 12%, and 16%, to take effect on January 1, 2013.  The 8% rate would apply to those with taxable income up to Romanian New Leu (RON) 800, 12% between RON 800 and RON 1600, and 16% above that.  ($1=RON 3.6)  The 16% flat tax was implemented in 2005 by the then governing National Liberal Party, which is now part of the ruling USL.


In a country report published in January 2012, the IMF recommended that Hungary revisit its flat tax to increase revenue and reduce the “regressive mix of tax and spending policies.”  Prime Minister Victor Orban, in bailout talks with the European Commission and the International Monetary Fund, has thus far refused to debate any changes in the country’s flat tax.

Tuesday, April 10, 2012

U.S. Public Opinion on the Flat Tax

In April 2012, the American Enterprise Institute released its updated list of public opinion polls and responses on taxes, compiled by Karlyn Bowman and Andrew Rugg, spanning 1937 to today.  All survey questions and results on the flat tax appear on pages 38-45.

Forty-four questions asked if one or another form of a flat tax was a good or bad idea; thirteen how it would affect different economic classes (the respondent’s opinion, not based on any statistical analysis, and therefore largely excluded from this post); and four if it would be simpler or fairer.

The largest batch of 44 questions on whether the flat tax is a good or bad idea fell into several categories.  The results that appear below represent a majority of those polled in each of the surveys that included the specific question, or a clear plurality when including “don’t know” replies.

1.  Do you have a favorable or unfavorable impression of a simple flat tax with little or no deductions.  Results: 10 favorable, 4 unfavorable, 3 about even.

2.  Favorable or unfavorable if all or some current deductions eliminated?  Results: 4 favorable, 6 unfavorable.

3.  Favorable or unfavorable with preferential low rate for capital gains?  Results: 1 unfavorable.

4.  Favor or oppose Herman Cain and Jerry Brown’s specific flat tax proposals?  Results: 3 oppose.

5.  Prefer graduated to flat tax or flat to graduated tax?  Results:  8 prefer graduated tax, 5 prefer flat tax, 1 even.

6.  Simpler (1 yes); fairer (1 flat tax, 1 graduated tax, 1 even).

The surveys were taken between 1992, when Jerry Brown sought the Democrat Party nomination for president, through 2011.  Many were taken during Steve Forbes campaign for the Republican Party nomination during 1995-96 in which a flat tax was his chief economic proposal.

To summarize, a majority of surveys show that the American people favor a broad-based, low-rate, simple flat tax.  However, the public is opposed to preferential treatment for capital gains, and, by a small margin, want to retain popular deductions, despite a majority favoring a flat tax without deductions.  To further muddy the water, more surveys revealed support for a graduated over a flat tax.  In those surveys asking respondents to opine on how different economic classes would benefit from a flat tax, most stated that the wealthy would receive the largest benefit.

Barring a major surprise, Governor Mitt Romney will be the Republican nominee.  This means that the flat tax will not be an issue in the 2012 presidential election.

Tuesday, March 20, 2012

A Flat Tax on Personal Income is Under Consideration in Thailand

The Bangkok Post edition of March 20, 2012, reported that Thailand is reviewing the pros and cons of a flat-rate tax on personal income as a possible replacement for the current four-bracket system of 10%, 20%, 30%, and 37%.  The goal is to eliminate loopholes, broaden the tax base, simplify the system, and in so doing collect more revenue than the current personal income tax.

Wednesday, January 18, 2012

Book Citations: Flat Tax vs. Progressive Tax

Google's ngram viewer allows a comparison of the frequency among two or words or phrases between selected years.

The following graph plots the frequency of "flat tax" vs. "progressive tax" during 1960-2008. (Click on link) It shows that "flat tax" took off around 1980 with the publication of the Hall-Rabushka plan that was the basis for many of the flat-tax bills proposed in Congress during 1982-86.  It faded somewhat after passage of the Tax Reform Act of 1986, which resulted in two rates of 15% and 28%.

The frequency of the words "flat tax" accelerated again in the early 1990s with proposals from House Majority Leader Dick Armey and Republican presidential candidate Steve Forbes.  The early 1990s also witnessed first wave of flat-tax legislation in the Baltic states of Estonia, Latvia, and Lithuania.

Its frequency in books declined again after 1998, but remains comfortably ahead of "progressive tax" through 2008, the latest year for which Google books data has been compiled.