Hong Kong was the only country that had a flat rate tax system. The main reason for the lack of endorsement of flat tax rate in the US was the lack of countries that would serve as examples in their implementation. However, the flat rate tax system has been adopted in many countries since 1994. It also removes distortions, corruption, and complexity created by tax exemptions and other tax preferences.ĭick Armey proposed the flat rate tax system in early 1990s, but it was never endorsed by congress. It has also gained popularity as a means of eliminating double taxation on investments and savings. The principle is applied to charge one low rate of tax for the entire economy. The flat rate income tax system has gained much attention as a system that can enable the government raise revenue in a manner that has less destructive effects on the economy than the progressive tax system. Many policy makers did not endorse the ideas proposed by Friedman at the time, but the flat tax revolution that started taking place in Europe in the 1980s was based on the ideas presented by Friedman. Removal of tax exemptions, credits, other tax preferences would result in broadening of the tax base. It would also eliminate distortions that influence tax collection and growth in the economy. The estimates used by Friedman also showed that the flat tax rate would result in higher revenue than the graduated tax system. It was coercive and conflicted with personal freedom, according to his calculations a flat rate tax of 23.5% would yield the same amount of revenue for the government as the progressive tax rates that were applied at the time. In his opinion, redistribution of income through progressive tax was unfair. Friedman proposed the first flat rate tax on income in 1962. He wrote scholarly works on stabilization of the economy, consumption analysis, and monetary theory.
One of the most well known economists to popularize the flat tax system was Milton Friedman, who was a prominent advocate of libertarian ideas. This differs from progressive tax rate systems that charge a higher percentage of tax on people with high incomes than those with lower incomes. A flat rate tax system charges an equal proportion of tax on the income of citizens in spite of their income levels.
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