The flat tax, also called flat tax, is becoming increasingly popular. No wonder. The opaque tax system with a jungle of deductions in most countries, including the Netherlands and Belgium, invites abuse.
Flat tax much easier and more difficult to avoid
Imagine: everyone can complete their own tax return. You only have to enter what you earn per year and you immediately know how much tax you have to pay via a simple calculation. All deductions, such as the mortgage interest deduction, will disappear. The time has already come in two Eastern European countries, Poland and the Czech Republic. In many more countries, including Russia and most other Eastern European states, the flat tax is in preparation.
The flat tax means that above a tax-free rate, a fixed percentage of the income is levied as tax. In September 2005, the Economic Advisors Council proposed to introduce a flat tax of 40-44%. This should be funded by allowing fewer deductions and making people over 65 pay more tax.
Income policy becomes simple
It is also easy to make this tax less or more 'progressive'. Parties in favor of more equality will want to increase the tax-free rate and increase the tax burden, right-wing parties will want the exact opposite. Parties that want more state influence will want to both lower the tax-free rate and increase the tax. Parties that want more economic freedom will want a higher tax-free rate and less tax burden. Thus, the entire political spectrum boils down to a discussion of just two numbers: the tax rate and the tax-free rate. This also makes it easy for voters to compare election programs on this point. This also puts an end to the nonsensical mortgage relief in the Netherlands.
Can be combined with a basic benefit
If the tax-free rate is interpreted as a negative income tax, you can also help everyone to a subsistence level. This idea is further elaborated in this article. Here, too, a big advantage is the simplicity. Benefit recipients (everyone) are also given a strong incentive to work. After all: extra earnings are not taxed 100%, as with social assistance benefits, but only 40-44%. In this way, benefit recipients can easily and quickly escape from the poverty trap.
Criticism of the flat tax
According to opponents of the flat tax, it is not progressive: after all, high incomes can save more than lower incomes and pay less tax than now (in the Netherlands: 44% instead of 52% on top incomes). However, this problem is quite simple to solve: increase the tax-free rate and also the tax rate.
They also see the flat tax as much too rude. Specific income policy for certain groups is no longer possible. Proponents of the flat tax see the latter as a major advantage. In short, the state has less say about the spending habits of the population.
Experiences with the flat tax
The first country to introduce the flat tax was Estonia in 1994. The other two Baltic republics, Latvia and Lithuania, followed soon after. The taxes in these countries are low: 21% on the income. All three countries as well as Romania  reported after a long period of strong economic growth, problems with tax revenues and problems supporting the poorer segment of the population. Perhaps a solution here is a larger tax-free rate and a higher tax rate, so a 'left-wing' economic policy. Also will tax avoidance schemes, such as trusts, must be dealt with effectively. You can also think of withholding taxes, so that money cannot be diverted untaxed.
Hong Kong also has a flat tax system and there it turned out to be a great success . The system in Hong Kong does have additional tax deductions for families with children. This expansion is desirable, plus an additional tax deduction for working people. Work should always pay off. In the current system, many welfare recipients have a better life than breadwinners on the minimum wage, if you include all social provisions. They are locked up in a golden cage. Flat tax can help them escape from this cage.