What is a Fixed Tax?

Mary McMahon

A flat or fixed tax is a tax that remains the same for everyone, regardless of income and other factors, taking the form of a flat fee. Many nations use a mixture of fixed and progressive taxes, where people pay taxes on a scale depending on how much they make. For example, people may pay a progressive income tax, but a fixed tax on vehicle registration. There are costs and benefits to using a fixed tax, including concerns about the impacts of this system on people with low incomes.

A W-9 form, a type of US tax form.
A W-9 form, a type of US tax form.

Advocates for using a fixed tax believe it is more fair, because everyone pays the same amount to support public services like police, roads, and so forth. They also suggest that it encourages people to earn more money and contribute to the economy, as they do not need to worry about rising into higher tax brackets as their earnings increase, and will have more income to use to pay employees, spend on products and services, and so forth.

Some opponents think a fixed tax can take the form of a regressive tax, where people with low incomes bear a disproportionate share of taxes. They may have less disposable income, making a large flat fee particularly onerous, while wealthier people can afford to pay more. Balancing a fixed tax to keep it low enough for people to afford can cause governments to lose out on revenues from taxpayers who could pay more.

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Charging a basic, fixed tax can ensure more privacy for citizens, as they do not need to provide declarations about income, spending, and other activities because they all pay the same amount in taxes. It can also be easier to administer. Governments with multiple tax systems may take advantage of the ease of a fixed tax for small, basic tax matters, preferring progressive taxes for things like income taxes.

To make changes in the tax code, governments need the approval of the legislature. Legislators typically request a fiscal review to determine the impact of proposed changes in tax policy and may take comments from tax officials, as well as members of the public to discuss various available options and alternatives. After careful evaluation, the government can pass legislation to change tax rates or other aspects of the tax code, specifying whether it is for a single year or is intended to act as a long-term change to the handling of taxation.

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