Flat tax

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A flat tax (short for flat-rate tax) is a tax with a single rate on the taxable amount, after accounting for any deductions or exemptions from the tax base. It is not necessarily a fully proportional tax. Implementations are often progressive due to exemptions, or regressive in case of a maximum taxable amount. There are various tax systems that are labeled "flat tax" even though they are significantly different. The defining characteristic is the existence of only one tax rate other than zero, as opposed to multiple non-zero rates that vary depending on the amount subject to taxation.

Contents

A flat tax system is usually discussed in the context of an income tax, where progressivity is common, but it may also apply to taxes on consumption, property or transfers.

Major categories

Flat tax proposals differ in how the subject of the tax is defined.

True flat-rate income tax

A true flat-rate tax is a system of taxation where one tax rate is applied to all personal income with no deductions.

Marginal flat tax

Where deductions are allowed, a 'flat tax' is a progressive tax with the special characteristic that, above the maximum deduction, the marginal rate on all further income is constant. Such a tax is said to be marginally flat above that point. The difference between a true flat tax and a marginally flat tax can be reconciled by recognizing that the latter simply excludes certain types of income from being defined as taxable income; hence, both kinds of tax are flat on taxable income.

Flat tax with limited deductions

Modified flat taxes have been proposed which would allow deductions for a very few items, while still eliminating the vast majority of existing deductions. Charitable deductions and home mortgage interest are the most discussed examples of deductions that would be retained, as these deductions are popular with voters and are often used. Another common theme is a single, large, fixed deduction. This large fixed deduction would compensate for the elimination of various existing deductions and would simplify taxes, having the side-effect that many (mostly low income) households will not have to file tax returns.

Hall–Rabushka flat tax

Designed by economists at the Hoover Institution, Hall–Rabushka is a flat tax on consumption. [1] Principally, Hall–Rabushka accomplishes a consumption tax effect by taxing income and then excluding investment. Robert Hall and Alvin Rabushka have consulted extensively in designing the flat tax systems in Eastern Europe.

Negative income tax

The negative income tax (NIT), which Milton Friedman proposed in his 1962 book Capitalism and Freedom , is a type of flat tax. The basic idea is the same as a flat tax with personal deductions, except that when deductions exceed income, the taxable income is allowed to become negative rather than being set to zero. The flat tax rate is then applied to the resulting "negative income," resulting in a "negative income tax" that the government would owe to the household—unlike the usual "positive" income tax, which the household owes the government.

For example, let the flat rate be 20%, and let the deductions be $20,000 per adult and $7,000 per dependent. Under such a system, a family of four making $54,000 a year would owe no tax. A family of four making $74,000 a year would owe tax amounting to 0.20 × (74,000 − 54,000) = $4,000, as would be the case under a flat tax system with deductions. Families of four earning less than $54,000 per year, however, would experience a "negative" amount of tax (that is, the family would receive money from the government instead of paying to the government). For example, if the family earned $34,000 a year, it would receive a check for $4,000. The NIT is intended to replace not just the USA's income tax, but also many benefits low income American households receive, such as food stamps and Medicaid. The NIT is designed to avoid the welfare trap—effective high marginal tax rates arising from the rules reducing benefits as market income rises. An objection to the NIT is that it is welfare without a work requirement. Those who would owe negative tax would be receiving a form of welfare without having to make an effort to obtain employment. Another objection is that the NIT subsidizes industries employing low-cost labor, but this objection can also be made against current systems of benefits for the working poor.[ according to whom? ]

Capped flat tax

A capped flat tax is one in which income is taxed at a flat rate until a specified cap amount is reached. For example, the United States Federal Insurance Contributions Act tax is 6.2% of gross compensation up to a limit (in 2022, up to $147,000 of earnings, for a maximum tax of $9,114). [2] This cap has the effect of turning a nominally flat tax into a regressive tax. [3]

Requirements for a fully defined schema

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

Defining when income occurs

Since a central tenet of the flat tax is to minimize the compartmentalization of incomes into myriad special or sheltered cases, a vexing problem is deciding when income occurs. This is demonstrated by the taxation of interest income and stock dividends. The shareholders own the company and so the company's profits belong to them. If a company is taxed on its profits, then the funds paid out as dividends have already been taxed. It's a debatable question if they should subsequently be treated as income to the shareholders and thus subject to further tax. A similar issue arises in deciding if interest paid on loans should be deductible from the taxable income since that interest is in-turn taxed as income to the loan provider. There is no universally agreed answer to what is fair. For example, in the United States, dividends are not deductible [4] but mortgage interest is deductible. [5] Thus a Flat Tax proposal is not fully defined until it differentiates new untaxed income from a pass-through of already taxed income.

Policy administration

Taxes, in addition to providing revenue, can be potent instruments of policy. For example, it is common for governments to encourage social policy such as home insulation or low income housing with tax credits rather than constituting a ministry to implement these policies. [6] In a flat tax system with limited deductions such policy administration, mechanisms are curtailed. In addition to social policy, flat taxes can remove tools for adjusting economic policy as well. For example, in the United States, short-term capital gains are taxed at a higher rate than long-term gains as means to promote long-term investment horizons and damp speculative fluctuation. Thus, if one assumes that government should be active in policy decisions such as this, then claims that flat taxes are cheaper/simpler to administer than others are incomplete until they factor in costs for alternative policy administration.

Minimizing deductions

In general, the question of how to eliminate deductions is fundamental to the flat tax design; deductions dramatically affect the effective "flatness" in the tax rate. Perhaps the single biggest necessary deduction is for business expenses. If businesses were not allowed to deduct expenses, businesses with a profit margin below the flat tax rate could never earn any money since the tax on revenues would always exceed the earnings. For example, grocery stores typically earn pennies on every dollar of revenue; they could not pay a tax rate of 25% on revenues unless their markup exceeded 25%. Thus, corporations must be able to deduct operating expenses even if individuals cannot. A practical dilemma arises as to identifying what is an expense for a business. For example, if a peanut butter producer purchases a jar manufacturer, is that an expense (since the producer has to purchase jars somehow) or a sheltering of income through investment? Flat tax systems can differ greatly in how they accommodate such gray areas. For example, the "9-9-9" flat tax proposal would allow businesses to deduct purchases but not labor costs, which effectively taxes labor-intensive industrial revenue at a higher rate. [7] How deductions are implemented will dramatically change the effective total tax, and thus the flatness of the tax. Thus, a flat tax proposal is not fully defined unless the proposal includes a differentiation between deductible and non-deductible expenses.

Tax effects

Diminishing marginal utility

Flat tax benefits higher income brackets progressively due to decline in marginal value. [8] If a flat tax system has a large exemption, it is effectively a progressive tax. As a result, the term "flat tax" is actually a shorthand for the more proper marginally flat tax.

Administration and enforcement

One type of flat tax would be imposed on all income once; at the source of the income. Hall and Rabushka proposed an amendment to the U.S. Internal Revenue Code that would implement the variant of the flat tax they advocate. [1] This amendment, only a few pages long, would replace hundreds of pages of statutory language (although most statutory language in taxation statutes is not directed at specifying graduated tax rates).

As it now stands, the U.S. Internal Revenue Code is over several million words long, and contains many loopholes, deductions, and exemptions which, advocates of flat taxes claim, render the collection of taxes and the enforcement of tax law complicated and inefficient.

It is further argued that current tax law slows economic growth by distorting economic incentives, and by allowing, even encouraging, tax avoidance. With a flat tax, there are fewer incentives than in the current system to create tax shelters, and to engage in other forms of tax avoidance.

Flat tax critics contend that a flat tax system could be created with many loopholes, or a progressive tax system without loopholes, and that a progressive tax system could be as simple, or simpler, than a flat tax system. A simple progressive tax would also discourage tax avoidance.

Under a pure flat tax without deductions, every tax period a company would make a single payment to the government covering the taxes on the employees and the taxes on the company profit. [9] For example, suppose that in a given year, a company called ACME earns a profit of 3 million, spends 2 million in wages, and spends 1 million on other expenses that under the tax law is taxable income to recipients, such as the receipt of stock options, bonuses, and certain executive privileges. Given a flat rate of 15%, ACME would then owe the U.S. Internal Revenue Service (IRS) (3M + 2M + 1M) × 0.15 = 900,000. This payment would, in one fell swoop, settle the tax liabilities of ACME's employees as well as the corporate taxes owed by ACME. Most employees throughout the economy would never need to interact with the IRS, as all tax owed on wages, interest, dividends, royalties, etc. would be withheld at the source. The main exceptions would be employees with incomes from personal ventures. The Economist claims that such a system would reduce the number of entities required to file returns from about 130 million individuals, households, and businesses, as at present, to a mere 8 million businesses and self-employed. [10]

However, this simplicity depends on the absence of deductions of any kind being allowed (or at least no variability in the deductions of different people). Furthermore, if income of differing types are segregated (e.g., pass-through, long term cap gains, regular income, etc.) then complications ensue. For example, if realized capital gains were subject to the flat tax, the law would require brokers and mutual funds to calculate the realized capital gain on all sales and redemption. If there were a gain, a tax equal to 15% of the amount of the gain would be withheld and sent to the IRS. If there were a loss, the amount would be reported to the IRS. 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.

Revenues

Russia was considered a prime case of the success of a flat tax; the real revenues from its personal income tax rose by 25.2% in the first year after the country introduced a flat tax in 2001, followed by a 24.6% increase in the second year, and a 15.2% increase in the third year. [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. [12]

In 2021, Russia ended its flat tax on personal income as it introduced a second higher tax rate. [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. Parliament approved the introduction of a 10% corporate income tax rate for 2007, to be followed by a 10% personal income tax rate the next year. 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. The year 2007 brought a huge growth of revenue from corporate income tax (by 39% compared with the previous year) and surpassed the Ministry of Finance's own forecast (27% year on year). The budget surplus rose despite considerable emergency spending at the end of the year. 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). [14]

Overall structure

Taxes other than the income tax (for example, taxes on sales and payrolls) tend to be regressive. Under such a structure, those with lower incomes tend to pay a higher proportion of their income in total taxes than the affluent do. The fraction of household income that is a return to capital (dividends, interest, royalties, profits of unincorporated businesses) is positively correlated with total household income.[ citation needed ] Hence a flat tax limited to wages would seem to leave the wealthy better off. Modifying the tax base can change the effects. A flat tax could be targeted at income (rather than wages), which could place the tax burden equally on all earners, including those who earn income primarily from returns on investment. Tax systems could utilize a flat sales tax to target all consumption, which can be modified with rebates or exemptions to remove regressive effects, such as the proposed FairTax in the United States. [15]

Border adjustable

A flat tax system and income taxes overall are not inherently border-adjustable; meaning the tax component embedded into products via taxes imposed on companies (including corporate taxes and payroll taxes) are not removed when exported to a foreign country (see Effect of taxes and subsidies on price). Taxation systems such as a sales tax or value added tax can remove the tax component when goods are exported and apply the tax component on imports. The domestic products could be at a disadvantage to foreign products (at home and abroad) that are border-adjustable, which would affect the global competitiveness of a country. However, it's possible that a flat tax system could be combined with tariffs and credits to act as border adjustments (the proposed Border Tax Equity Act in the United States attempts this). Implementing an income tax with a border adjustment tax credit is a violation of the World Trade Organization agreement. Tax exemptions (allowances) on low income wages, a component of most income tax systems could mitigate this issue for high labour content industries like textiles that compete Globally.

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.

Around the world

Most countries tax personal income at the national level using progressive rates, but some use a flat rate. Most countries that have or had a flat tax on personal income at the national level are former communist countries or islands.

In some countries, subdivisions are allowed to tax personal income in addition to the national government. Many of these subdivisions use a flat rate, even if their national government uses progressive rates. Examples are all counties and municipalities of the Nordic countries, all prefectures and municipalities of Japan, and some subdivisions of Italy and of the United States.

Jurisdictions that use flat taxes on personal income

National or single level

The table below lists jurisdictions where personal income is taxed by only one government level, using a flat rate. It includes independent countries and other autonomous jurisdictions. The tax rate listed is the one that applies to income from work, but does not include mandatory contributions to social security. In some jurisdictions, different rates (also flat) apply to other types of income, such as from investments.

Personal income taxed by:
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None
One government level, at a flat rate
One government level, at progressive rates
Multiple government levels, all at a flat rate
Multiple government levels, all at progressive rates
Multiple government levels, some at a flat rate and some at progressive rates Personal income tax progressivity.png
Personal income taxed by:
  None
  One government level, at a flat rate
  One government level, at progressive rates
  Multiple government levels, all at a flat rate
  Multiple government levels, all at progressive rates
  Multiple government levels, some at a flat rate and some at progressive rates
JurisdictionTax rate
Flag of the Republic of Abkhazia.svg  Abkhazia [16] 10%
Flag of Armenia.svg  Armenia [17] 20%
Flag of Belize.svg  Belize [18] 25%
Bandera de Bolivia (Estado).svg  Bolivia [19] 13%
Flag of Bosnia and Herzegovina.svg  Bosnia and Herzegovina [20] 10% [lower-alpha 1]
Flag of Bulgaria.svg  Bulgaria [19] 10%
Flag of East Timor.svg  East Timor [21] 10%
Flag of Estonia.svg  Estonia [19] 20%
Flag of Georgia.svg  Georgia [19] 20%
Flag of Guernsey.svg  Guernsey [19] 20% [lower-alpha 2]
Flag of Hungary.svg  Hungary [19] 15%
Flag of Jersey.svg  Jersey [19] 20%
Flag of Kazakhstan.svg  Kazakhstan [19] 10%
Flag of Kurdistan.svg  Kurdistan [19] 5% [lower-alpha 3]
Flag of Kyrgyzstan (2023).svg  Kyrgyzstan [23] 10%
Flag of Moldova.svg  Moldova [19] 12%
Flag of Nauru.svg  Nauru [24] 20%
Flag of North Macedonia.svg  North Macedonia [25] 10%
Flag of Romania.svg  Romania [19] 10%
Flag of South Ossetia.svg  South Ossetia [26] 12%
Flag of Tajikistan.svg  Tajikistan [27] 12%
Flag of Transnistria (state).svg  Transnistria [28] 15%
Flag of Turkmenistan.svg  Turkmenistan [29] 10%
Flag of Ukraine.svg  Ukraine [19] 19.5% [lower-alpha 4]
Flag of Uzbekistan.svg  Uzbekistan [19] 12%

Subnational jurisdictions

The table below lists jurisdictions where personal income is taxed by multiple government levels, and at least one level uses a flat rate. The tax rates listed are those that apply to income from work, except as otherwise noted. Where a range of rates is listed, it means that the flat rate varies by location, not progressive rates.

Country or
territory
National
tax rate
Subnational
jurisdictions
Subnational
tax rate
Subnational
jurisdictions
Subnational
tax rate
Flag of Denmark.svg  Denmark [30] progressive all municipalities [lower-alpha 5] 23.36 to 26.3% [lower-alpha 6]
Flag of the Faroe Islands.svg  Faroe Islands [32] progressive all municipalities 16 to 21.5% [lower-alpha 6]
Flag of Finland.svg  Finland [33] [lower-alpha 7] progressive mainland municipalities 4.4 to 10.8% [lower-alpha 6]
Åland municipalities 16.5 to 19.7% [lower-alpha 6]
Flag of Greenland.svg  Greenland [35] 10% all municipalities 26% to 28%joint municipal tax [lower-alpha 8] 6%
unincorporated area [lower-alpha 9] 26%
Flag of Iceland.svg  Iceland [36] progressive all municipalities 12.44 to 14.74%
Flag of Italy.svg  Italy [37] [38] [lower-alpha 10] progressiveFlag of Abruzzo.svg  Abruzzo 1.73% most municipalities 0.1 to 0.8%
Flag of Valle d'Aosta.svg  Aosta Valley 1.23% some municipalities 0.15 to 0.5%
Flag of Basilicata.svg  Basilicata 1.23% most municipalities 0.1 to 0.8%
Flag of Calabria.svg  Calabria 1.73% most municipalities 0.2 to 1.2%
Flag of Sardinia.svg  Sardinia 1.23% some municipalities 0.1 to 0.8%
Flag of Sicily (revised).svg  Sicily 1.23% most municipalities 0.2 to 0.938%
Flag of Veneto.svg  Veneto 1.23% most municipalities 0.2 to 0.8%
other regions progressive most municipalities 0.08 to 1.2%
Flag of Japan.svg  Japan [39] progressive all prefectures 4% all municipalities 6%
Flag of Norway.svg  Norway [40] [lower-alpha 11] progressive all counties 2.35% all municipalities 10.95%
Flag of Sweden.svg  Sweden [19] [42] [lower-alpha 12] 20%Gotland vapen.svg Gotland County Gotland Municipality 33.6%
other counties 10.83 to 12.38% all municipalities 16.6 to 23.8%
Flag of Switzerland (Pantone).svg   Switzerland [lower-alpha 13] progressiveFlag of Canton of Obwalden.svg  Obwalden [44] 6.03% all municipalities 6.948 to 9.45% [lower-alpha 6]
Flag of Canton of Uri.svg  Uri [45] 7.1% all municipalities 6.39 to 8.52% [lower-alpha 6]
Flag of the United Kingdom.svg  United Kingdom [lower-alpha 14] progressiveFlag of Wales (1959-present).svg  Wales [46] 10%
Flag of the United States.svg  United States [lower-alpha 15] progressiveFlag of Alabama.svg  Alabama [lower-alpha 16] progressive Macon County [49] 1%
some municipalities [49] [50] 0.5 to 3%
Flag of Arizona.svg  Arizona [51] 2.5%
Flag of Colorado.svg  Colorado [52] 4.4%
Flag of Delaware.svg  Delaware [lower-alpha 17] progressive Wilmington [53] 1.25%
Flag of Georgia (U.S. state).svg  Georgia [54] 5.49%
Flag of Idaho.svg  Idaho [55] 5.8%
Flag of Illinois.svg  Illinois [56] 4.95%
Flag of Indiana.svg  Indiana [57] 3.05% all counties 0.5 to 3%
Flag of Kansas.svg  Kansas [lower-alpha 18] progressive some counties [58] 0.75% [lower-alpha 19]
some municipalities [58] 0.125 to 2.25% [lower-alpha 19]
Flag of Kentucky.svg  Kentucky [59] [lower-alpha 20] 4% most counties [60] 0.45 to 2.25%
some municipalities [60] 0.5 to 2.5%
some school districts [60] 0.5 to 0.75%
Flag of Maryland.svg  Maryland [lower-alpha 22] progressive most counties [61] [lower-alpha 21] 2.25 to 3.2%
Flag of Michigan.svg  Michigan [62] [lower-alpha 17] 4.25% some municipalities [63] 1 to 2.4%
Flag of Mississippi.svg  Mississippi [64] 4.7%
Flag of Missouri.svg  Missouri [lower-alpha 17] progressive Kansas City [65] 1%
Saint Louis [66] 1%
Flag of New Hampshire.svg  New Hampshire [67] 3% [lower-alpha 19]
Flag of North Carolina.svg  North Carolina [68] 4.5%
Flag of Ohio.svg  Ohio [lower-alpha 23] progressive most municipalities [69] 0.5 to 3%
some school districts [70] 0.25 to 2%
Flag of Oregon.svg  Oregon [lower-alpha 24] progressive Portland Metro [71] 1%
Flag of Pennsylvania.svg  Pennsylvania [72] [lower-alpha 25] 3.07% most municipalities [73] 0.312 to 3.75%
most school districts [73] 0.5 to 2.05%
Flag of Utah.svg  Utah [74] 4.65%
Flag of Washington.svg  Washington [75] 7% [lower-alpha 26]

Jurisdictions without permanent population

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

JurisdictionTax rate
Flag of the British Antarctic Territory.svg  British Antarctic Territory [76] 7%
Flag of the French Southern and Antarctic Lands.svg  French Southern and Antarctic Lands [77] 9% [lower-alpha 27]
Flag of South Georgia and the South Sandwich Islands.svg  South Georgia and the South Sandwich Islands [78] 7%

Jurisdictions reputed to have a flat tax

Jurisdictions that had a flat tax

Subnational jurisdictions

  • Flag of Alberta.svg  Alberta introduced a flat tax of 10% on personal income in 2001, and additional higher rates of 12, 13, 14 and 15% in 2016. [127] This flat tax was in addition to the progressive rates imposed by the federal government of Canada.
  • Flag of Massachusetts.svg  Massachusetts introduced a flat tax of on personal income in 1917. The general rate was initially 1.5% and was changed many times, reaching a maximum of 6.25% in 1990 and 5% in 2020. Different flat rates applied to some types of investment income. [128] In 2023, the state introduced a surtax of 4% on higher income, thus ending its flat tax system. [129] During its existence, this flat tax was in addition to the progressive rates imposed by the federal government of the United States.
  • Flag of Tennessee.svg  Tennessee introduced a flat tax on interest and dividends in 1929, at a rate of 5%. The rate was changed to 6% in 1937, 5% in 2016, 4% in 2017, 3% in 2018, 2% in 2019, 1% in 2020, and the tax was repealed in 2021. [130] [131] This flat tax was in addition to the progressive rates imposed by the federal government of the United States.

See also

Notes

  1. The national government does not tax income, but all three subdivisions (Federation of Bosnia and Herzegovina, Republika Srpska and Brčko District) tax income using the same flat rate. [20]
  2. Applies to Guernsey and Alderney. [19] Sark does not tax income, but taxes assets at a flat rate with minimum and maximum amounts. [22]
  3. The autonomous region of Kurdistan taxes personal income at a flat rate instead of the progressive rates set by the federal government of Iraq. [19]
  4. Composed of a regular tax rate of 18% and a military tax of 1.5%. [19]
  5. In Ertholmene, which is not part of a municipality, there is no municipal tax. [31]
  6. 1 2 3 4 5 6 Plus church tax for members of certain religions, also at a flat rate.
  7. Welfare services are financed by the national government in mainland Finland and by the municipalities in Åland. Accordingly, in Åland the national tax rates are reduced by 12.64pp, [34] and the municipal tax rates are higher than in mainland Finland. For comparison with mainland Finland, if this reduction applied to the municipal tax rates in Åland, they would be 3.86 to 7.06%.
  8. Collected by the national government and distributed to the municipalities.
  9. Set by the national government for the area.
  10. Most municipalities tax income, most using a flat rate but some use progressive rates. [38]
  11. Also applies to other Norwegian territories except Svalbard. [41]
  12. Although every government level uses a flat tax rate, the national tax has a much higher exemption, so the combined tax by all levels is progressive. [19]

    The combined county and municipal tax rate ranges from 28.98 to 35.3%. [42] In Gotland, the only municipality handles county and municipal functions, so the county does not tax income and the municipality uses a tax rate similar to the combined county and municipal rate in other municipalities.

  13. All other cantons and municipalities use progressive rates. [43]
  14. The national progressive rates apply to England and Northern Ireland without modifications. They are reduced in Wales, whose government adds a flat rate. [46] Scotland replaces the national rates with its own progressive rates. [47]
  15. All other states, counties and municipalities either use progressive rates or do not tax income.
  16. Most counties and most municipalities in this state do not tax income, [48] and all those that do use a flat rate. Where a county or municipal tax exists, the combined rate ranges from 0.5 to 4% depending on the location.
  17. 1 2 3 Most municipalities in this state do not tax income. All those that do use a flat rate.
  18. No counties or municipalities in this state tax income from work, but some tax interest and dividends, all using a flat rate. Where a county or municipal tax exists, the combined rate ranges from 0.5 to 3% depending on the location. [58]
  19. 1 2 3 Only applies to interest and dividends. This jurisdiction does not tax income from work.
  20. Most counties, some municipalities and some school districts in this state tax income, most using a flat rate but some using regressive rates. Where a county, municipal or school district tax exists, the combined rate ranges from 0.45 to 3.75% depending on the location. [60]
  21. 1 2 Including the city of Baltimore, which is equivalent to a county.
  22. All counties in this state tax income. [lower-alpha 21] Most use a flat rate, but some use progressive rates.
  23. Most municipalities and some school districts in this state tax income, all using a flat rate. Where a municipal or school district tax exists, the combined rate ranges from 0.25 to 4.5% depending on the location. [69] [70]
  24. Most counties and municipalities in this state do not tax income. Of those that do, some use a flat rate, and some use progressive rates. [71]
  25. Most municipalities and most school districts in this state tax income, all using a flat rate. Where a municipal or school district tax exists, the combined rate ranges from 0.312 to 3.75% depending on the location. [73]
  26. Only applies to some types of capital gains. This jurisdiction does not tax income from work.
  27. 6.3% for residents of Réunion. [77]

Related Research Articles

A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer by a governmental organization in order to collectively fund government spending, public expenditures, or as a way to regulate and reduce negative externalities. Tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation took place in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as its labor equivalent.

An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them. Income tax generally is computed as the product of a tax rate times the taxable income. Taxation rates may vary by type or characteristics of the taxpayer and the type of income.

A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate.

<span class="mw-page-title-main">Progressive tax</span> Form of tax

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term progressive refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. The term can be applied to individual taxes or to a tax system as a whole. Progressive taxes are imposed in an attempt to reduce the tax incidence of people with a lower ability to pay, as such taxes shift the incidence increasingly to those with a higher ability-to-pay. The opposite of a progressive tax is a regressive tax, such as a sales tax, where the poor pay a larger proportion of their income compared to the rich.

Tax reform is the process of changing the way taxes are collected or managed by the government and is usually undertaken to improve tax administration or to provide economic or social benefits. Tax reform can include reducing the level of taxation of all people by the government, making the tax system more progressive or less progressive, or simplifying the tax system and making the system more understandable or more accountable.

A corporate tax, also called corporation tax or company tax, is a type of direct tax levied on the income or capital of corporations and other similar legal entities. The tax is usually imposed at the national level, but it may also be imposed at state or local levels in some countries. Corporate taxes may be referred to as income tax or capital tax, depending on the nature of the tax.

<span class="mw-page-title-main">State income tax</span> Form of taxation in the United States

In addition to federal income tax collected by the United States, most individual U.S. states collect a state income tax. Some local governments also impose an income tax, often based on state income tax calculations. Forty-two states and many localities in the United States impose an income tax on individuals. Eight states impose no state income tax, and a ninth, New Hampshire, imposes an individual income tax on dividends and interest income but not other forms of income. Forty-seven states and many localities impose a tax on the income of corporations.

A consumption tax is a tax levied on consumption spending on goods and services. The tax base of such a tax is the money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value-added tax. However, a consumption tax can also be structured as a form of direct, personal taxation, such as the Hall–Rabushka flat tax.

<span class="mw-page-title-main">Income tax in the United States</span> Form of taxation in the United States

The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. Most business expenses are deductible. Individuals may deduct certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits, and an Alternative Minimum Tax (AMT) applies at the federal and some state levels.

Income taxes in Canada constitute the majority of the annual revenues of the Government of Canada, and of the governments of the Provinces of Canada. In the fiscal year ending March 31, 2018, the federal government collected just over three times more revenue from personal income taxes than it did from corporate income taxes.

Income taxes are the most significant form of taxation in Australia, and collected by the federal government through the Australian Taxation Office. Australian GST revenue is collected by the Federal government, and then paid to the states under a distribution formula determined by the Commonwealth Grants Commission.

The Russian Tax Code is the primary tax law for the Russian Federation. The Code was created, adopted and implemented in three stages.

<span class="mw-page-title-main">Taxation in Sweden</span>

Taxation in Sweden on salaries for an employee involves contributing to three different levels of government: the municipality, the county council, and the central government. Social security contributions are paid to finance the social security system.

Taxation in Denmark consists of a comprehensive system of direct and indirect taxes. Ever since the income tax was introduced in Denmark via a fundamental tax reform in 1903, it has been a fundamental pillar in the Danish tax system. Today various personal and corporate income taxes yield around two thirds of the total Danish tax revenues, indirect taxes being responsible for the last third. The state personal income tax is a progressive tax while the municipal income tax is a proportional tax above a certain income level.

Taxes in Iceland are levied by the state and the municipalities. Property rights are strong and Iceland is one of the few countries where they are applied to fishery management. Taxpayers pay various subsidies to each other, similar to European countries that are welfare states, but the spending is less than in most European countries. Despite low tax rates in relation to European welfare states, overall taxation and consumption is still much higher than in countries such as Ireland. Employment regulations are relatively flexible. The tax is collected by Skatturinn, the Iceland Revenue and Customs Agency and is due in March each year.

Taxation in Norway is levied by the central government, the county municipality and the municipality. In 2012 the total tax revenue was 42.2% of the gross domestic product (GDP). Many direct and indirect taxes exist. The most important taxes – in terms of revenue – are VAT, income tax in the petroleum sector, employers' social security contributions and tax on "ordinary income" for persons. Most direct taxes are collected by the Norwegian Tax Administration and most indirect taxes are collected by the Norwegian Customs and Excise Authorities.

Taxes in Germany are levied by the federal government, the states (Länder) as well as the municipalities (Städte/Gemeinden). Many direct and indirect taxes exist in Germany; income tax and VAT are the most significant.

<span class="mw-page-title-main">Taxation in South Africa</span>

Taxation may involve payments to a minimum of two different levels of government: central government through SARS or to local government. Prior to 2001 the South African tax system was "source-based", where in income is taxed in the country where it originates. Since January 2001, the tax system was changed to "residence-based" wherein taxpayers residing in South Africa are taxed on their income irrespective of its source. Non residents are only subject to domestic taxes.

The Abgeltungsteuer is a flat tax on private income from capital. It is used in Germany, Austria, and Luxembourg.

Taxation in Belgium consists of taxes that are collected on both state and local level. The most important taxes are collected on federal level, these taxes include an income tax, social security, corporate taxes and value added tax. At the local level, property taxes as well as communal taxes are collected. Tax revenue stood at 48% of GDP in 2012.

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