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Arguments against

  • Flat rate taxes are no longer progressive (at least as far as the 'marginal' rates are concerned) and so the distribution of income will become more unequal – certainly in the short and medium term.
  • Flat rate taxes tend to favour the wealthy at the expense of the poor because the wealthy are no longer taxed at high rates on their savings, their dividend incomes and their inheritance wealth.
  • Flat taxes can form part of a “race to the bottom” with governments competing with each other to offer the lowest rates of tax to entice inward investment and skilled workers. The result is a widening gap between the wealthy and the poor and less revenue for the government to commit to social welfare spending.
  • There is no guarantee that people will look to work more if tax rates are lower, indeed some people may choose to work less because they can earn the same income from working fewer hours.
  • There is no guarantee that businesses will engage in more investment and R&D if company taxes are lower – they may simply offer more in the way of dividends to their shareholders!
  • Tax reforms such as flat taxes are not the only key factor in determining flows of foreign investment around the world economy. John Chambers CEO of Cisco Systems has been quoted as saying that “Jobs are going to go where the best-educated workforce is with the most competitive infrastructure and environment for creativity and supportive government.” In addition people living in those respective countries do not want to see a reduction in spending on their services at the benefit of reduced taxation.

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