Flat Tax

With flat tax (short for flat rate tax ) or unit control a single-step income tax rate is referred to. The marginal tax rate is constant, thus the input and top tax rate are identical. Without basic allowance so there is no tax progression. A flat tax with a basic allowance calculation leads to an indirect Progression: While the marginal tax rate remains the same, the average tax rate increases with income and approximates the marginal tax rate.

The concept of flat- rate tax was proposed in 1920 by Dennis Milner. In our time, Robert E. Hall and Alvin Rabushka again have a flat tax proposed. The flat tax is usually associated conceptually with the extensive elimination of subsidies and tax breaks in order to achieve sufficient tax revenues at low tax rate.

• 3.1 Arguments for the control unit
• 3.2 Arguments against the unit control

Redistributive impact

In the pure flat tax with no tax-free allowance, there is no redistribution. All income will be taxed at the same average tax rate, which is identical to the marginal tax rate. However, in the case of a flat tax model with basic allowance of the average tax rate is progressive, which can be interpreted as a redistribution of income. Whether this is higher or lower than a reference compared with their redistribution, only the measurement results in specific cases: for the income distributions are to be compared before and after taxation inequality measures calculated. Not necessarily from the nature of progression, but only from the comparison of inequality measures, there is the degree of attenuation of income disparities.

Compared to other tax rates, the unit can control lead to both a lower but also to a higher approximation of income disparities. That depends on marginal tax rate and basic allowance of unit control and the compared with their tax rates. Is both the basic personal amount and the top tax rate at one to compare progressive tax scale identical to the flat tax, then the redistributive impact of the flat tax is less in any case. If, however, the basic allowance of the flat tax is significantly higher than in the reference tariff, then the redistribution effect in the same top tax rate may be higher. The differences play out from here in the transition region between zero zone and uppermost Einkommenseckwert comparison rate. If the top tax rate lower than the comparison rate, then abolished in return subsidies must be included in the analysis, so that a general statement is hardly possible here.

Without limiting the average tax rate on positive values ​​of the basic allowance affects income below this allowance as a negative income tax as proposed, for example, Milton Friedman in his book Capitalism and Freedom. There are therefore two types of control unit with basic allowance: The unit has control with negative control at the same level of basic allowance a higher leveling effect than a flat tax with a restriction on the average tax rate on the positive region.

Countries with flat tax

• Flat Tax
• No Income Tax

• Already consisting
• Planned introduction

Example Slovakia

Under the then Finance Minister Ivan Miklos, Slovakia 2004, a flat tax with a tax rate of 19%. This refers to the income tax, corporation tax and VAT. Tax privileges and virtually all legal exceptions were deleted, the reduced VAT rate of 14% was abolished. The result was that even basic food, medicine, electricity, coal, etc., were taxed at the ordinary tax rate of 19 %. Furthermore, various fees, excise taxes and social security contributions were increased.

Due to the unit control almost all Slovak taxpayers were relieved from income tax: the low income earners through increased tax allowances, the higher income of the lowered tax rates. The middle income earners were seen relatively the least relieved in the first year. In some middle-income areas, the reform has led to a greater load.

In the VAT, the load increased, since the reduced tax rate was abolished by 14 %, so shall be the uniform tax rate of 19 % on all products and services. Since the reduced rate, among other things for food, books and medicine was his abolition increased the cost of living significantly. In many articles that concerned the VAT increase, consumption has declined.

Contrary to many predictions, the income tax revenue declined only slightly. However, Slovakia had already before the Tax Reform strong growth on what tax revenue increased regardless of the tax reform. The success of the reform is a since 2004, significantly higher interest of foreign investors in Slovakia. However, this is also due to join the EU in the same year and the relatively low wage levels.

The 2006 elections the opposition won with the promise to make reforms to reverse, but this was only partially implemented. In 2012, the flat tax was again abolished and replaced by a progressive income tax.

Example Czech Republic

In the Czech Republic the introduction of a flat tax has meant that the social and health insurance contributions must be taxed both the employee and the employer by the employee (Super gross income ). Consequently, the tax base among workers is 135 % of gross salary. As a consequence, the income does not match the nominal rate ( the 2008 was 15 % lower ), but real taxed significantly higher ( according to expert assessment in 2008 with 23.1 %).

Control unit in the discussion

Arguments for the control unit

• The flat tax is allowed to tax income to a greater extent than previously concluded at source ( withholding tax, withholding tax ). Wage income, capital income and pensions could be completely and definitively taxed by withholding at source; an income tax return and investment would be in the case of a pure source control without allowances no longer required ( = flat tax ).
• The incentive to shift income between persons or taxation sections is reduced. It does not matter, this supplement is assigned which year or which person, because the tax rate is always the same.
• The income splitting does not matter if there are no personal allowances are taken into account as each spouse, the tax rate is then equal. If tax-free allowances for each spouse considered the related problem also occurs in the unit controller. Since the effect of Ehegattensplitting then but may be desirable again, this could also be seen as an argument against the flat tax.
• The division into classes payroll tax is unnecessary and hence the criticism of the alleged discriminatory effect of the tax class V ( in Germany ).
• The flat tax could solve the problem of linking income tax and corporation tax to a legal form of neutral taxation of corporate profits. If the tax base of corporate and personal income tax is unified, then all corporate profits are taxed equally in the event of a unit tax rate.
• A flat tax could create a simplification in the income tax law and thus lead to a simpler tax return. However, a simplification depends less with the collective history as with the legal aspect of the tax base. While the introduction of a flat tax in Slovakia has led to a simplification of the tax returns, the introduction in Russia has not led to a simplification.
• The hidden tax increase by the " cold progression " can be avoided by the introduction of a flat tax.
• The capital steering capacity of the state, (eg in renewable energy, shipbuilding or closed-end funds ) to focus on tax incentives investments are difficult. According to some economists such government incentive effects would almost always negative effects, so this is an advantage.

Arguments against the flat tax

• If a unit tax on the same income tax revenue should lead as the relevant law and the basic allowance is not increased, the uniform tax rate is well above the previous tax rate and below the previous top rate. This means in comparison to a direct- progressive income tax scale, in which the average tax burden to the top tax rate almost linearly increases and then flatten begins, a higher load is lower and a lower burden on higher incomes. The control unit of the average tax rate initially increases steeply and then flattens out early. Thereby would have to bear a higher tax burden and middle income earners without additional allowances.

• The concept of the unit tax is politically difficult to explain, because the media, the public and a part of the political spectrum usually associate the concept of progression with increasing marginal tax rates and thus proceed on a uniform marginal tax rate of an abandonment of the principle of income tax progression.
• While a flat tax is not necessarily linked to a broadening of the tax base. To make their introduction more popular, but is often required a relatively low tax rate, the resulting loss of revenue will be offset by a broadening of the tax base. The abolition of exemptions may, however - despite a low marginal tax rate - tax increases lead to individual, depending on the tax rate and deduction.
• The smaller difference between marginal tax rates and average tax rates could increase pressure on wages in collective bargaining and therefore cost jobs.
• Ideally, the tax rate is based on the utility functions of taxpayers and also contains a redistributive component. With a flat tax, the legislature establishes a certain progression curve, which can not be derived mathematically from utility functions plus redistribution default. In other words: Specific assumptions about the utility functions as well as precisely defined specifications of the striven for through the tax scale redistribution can make progression courses required, which are not accessible with a single marginal tax rate.
• In Germany, the contributions to the statutory health and nursing care to the income threshold measured in spite of income independent consideration in proportion to the ( labor) income. Above the contribution ceiling contributions remain constant, ie, the marginal costs of social security is for higher-income zero. Increasing marginal tax rates of the income tax represent a certain balance, which would fall at a flat tax.
• A flat tax would not change the fact that - as in the present tax system - influential lobby groups can enforce specific rules.

Discussion in Germany

The principle of uniform taxation on the performance is currently ensured in Germany by personal allowances and a linear sliding scale. The Federal Constitutional Court has ruled that a progressive taxation is a constitutional requirement of equal treatment ( Article 3 para 1 GG) is: . " In contrast to this would contradict the principle of equality in the area of ​​tax law is a formal equality between rich and poor by using the same tax rate required here justice, in the sense that the relative equality of economic More efficient to pay a higher percentage of their income as tax than the economically weaker (see already Article 134 WRV ). "

Here, however, it remains unclear whether this is also a progressive course the marginal tax rate is constitutionally required. The leading tax lawyer Klaus Tipke believes: "Under the justice aspect of the linear- progressive tariff is preferable to a tariff containing the hump or cracks .... And probably it will not be possible to lower the top tax rate as far as the reform plans provide. fortiori is a low flat tax rate of the question. ". After his legal opinion a non- running progression violated the principle of equality. Unlike Klaus Tipke Michael Elicker believes that above the basic allowance alone a constant marginal tax rate is consistent with the ability to pay principle.

In Germany the unit control was in the federal election campaign of 2005 to increase given attention. The former Constitutional Court judge Paul Kirchhof, a member of the so-called expert teams of the CDU, had proposed a uniform income tax rate of 25 % (see Income Tax Code ). However, in the course of the discussion he advanced for the lower income groups depend on again and suggested control levels with marginal tax rates of 15 %, 20 % and 25 %.