Flat-rate FTTs vs Conventional Income Taxes

One comment that I sometimes get when I propose the idea of replacing the current set of taxes (VAT, income tax, corporation tax...) with a flat rate FTT is that it is not sufficiently "progressive". It appears that many people like the idea that people on very low incomes pay no income tax, those slightly further up the scale get taxed at (say) 20%, while the top earners get taxed at the highest rates (40% in France, 50% in the UK, 35% in the USA). While on the face of it, this seems reasonable, in reality it seems likely that the amount of income tax paid does not increase monotonically with income. In the USA, nearly half of all households pay no federal income tax at all, and a similar proportion applies in France. But it is difficult to know whether this proportion corresponds just to the people with the lowest incomes, or whether it includes a substantial proportion of people who although earning a lot, are able to avoid paying taxes by taking advantage of the many loopholes. Notable cases include Sir Philip Green, whose wife received £1.2 billion from his Acadia business empire in 2005, but paid no tax because she was resident in Monaco.

But even if the main source of revenues for governments came from a single flat rate financial transaction tax applied at the same rate to all, this does not mean that the system could not be redistributive. For that, it would be enough to use a substantial part of the nation's tax revenue to pay for public services that benefit all members of society. Currently, nearly all school children in France go to schools that are fully financed by the state - unlike the UK, where some 615,000 children (7%) are now educated in independent schools where fees average more than £12,000 a year. Similarly, providing universal health care is another way of redistributing the resources so that the poorest benefit most. But there are many other things that allow redistribution, including the provision of comprehensive social services, libraries, culture and so forth - all things that are currently being squeezed in the UK. Other options could include the provision of free public transport within cities and subsidising travel in rural areas.

However, it is important to realize that such choices are political decisions that are completely independent of the way in which the taxes are applied. That is why I think it is fair to say that the idea of a Flat-rate FTT is politically neutral - it could just as easily appeal to those on the right or on the left. So, who is going to take up the idea?