The flat tax is becoming like the Salerno-Reggio Calabria: an inevitable campaign promise. Except that every time, always from the center-right deployment, different versions are proposed. After the race to the bottom on the rates – 23 percent for Forza Italia, 15 percent for the Lega – the “summary” of the center-right program arrived, which reads: “Extension of the flat tax for VAT numbers up to one hundred thousand euros of turnover, flat tax on income increase compared to previous years, with the prospect of further expansion for families and businesses “. Therefore, the extension of the flat tax to all Irpef taxpayers, including employees, is postponed to an unspecified “perspective”, while the extension of the existing flat tax system for flat-rate VAT numbers would be immediate.
The limitation of the proposal, if on the one hand it reduces its impact on the public coffers – which would be enormous in the case of a generalized flat tax, around 58-60 billion euros a year – rewards only a category of taxpayers, already positively discriminated by the existing regime. Nonetheless, it is assumed that everyone likes the “flat and easy” tax. But why and who should like it? Let’s try to make some flat and easy accounts, based on the information available (not much, as detailed schedules have not been published so far).
A necessary premise
A flat tax on income in Italy already exists. It is that of the flat-rate scheme for self-employed workers, who pay a rate of 15 percent on their income if they earn less than 65 thousand euros during the year. There are not a few: looking at the latest Irpef declarations, the mass of taxpayers – almost 97 percent – is below that threshold. But the same income is taxed differently depending on whether it is dependent or self-employed: in the first case, progressive rates are applied for income brackets; in the second, the flat tax of 15 per cent. For example, an employee who earned 28 thousand euros in 2021 had to pay a tax rate of 23 percent on the first 15 thousand euros earned, and 27 percent on the remaining part (from 15 thousand to 28 thousand); a self-employed person who declared the same amount paid only 15 per cent.
And the difference grows as income increases: over 28 thousand euros and up to 55 thousand euros, our employee enters the bracket with a rate of 38 percent, while the self-employed remains at 15 percent. So there is a consistent and growing inequality of treatment, not justified either by the income-producing expenses of the self-employed – since the scheme is flat-rate, we know nothing of these expenses, they can be enormous or not at all – nor by principles general taxation rules set out in the constitution (article 53, first paragraph: “Everyone is required to contribute to public expenses by reason of their ability to pay”).
This injustice would be magnified with the increase of the ceiling to one hundred thousand euros: if the proposal of the center-right were implemented, an executive (employee) who earns one hundred thousand euros would pay around 35 thousand euros in tax (including deductions), a freelancer who earns the the same amount would pay 15 thousand.
The proposals of the parties
This is a downsizing, compared to the slogans of Lega and Forza Italia, which had proposed to generalize the flat tax by extending it to everyone, more or less gradually. Forza Italia proposes a single rate of 23 percent, the Lega 15 percent. From what is known, on the basis of the programs presented in 2018, Forza Italia thinks of a deduction of 12 thousand euros, the League of three thousand (that is to say, nothing is paid below that figure). According to the calculations made by the two economists Massimo Baldini and Leonzio Rizzo, the cost for public finances would be similar: around 58-60 billion euros per year. This is a very high figure, and it is not clear how these lower revenues would be covered: both parties are counting on the fact that the reduction in rates will bring out the black, stimulate the economy and in so doing increase the revenue.
Another possibility is to “finance” the tax cut by cutting public spending, but this is not said in the election campaign; yet another is to resort to public debt, thus shifting the burden on who will have to repay it in the future and exposing oneself to the present risk of a collapse of the markets on which the Italian state is financed.
Who gains and who loses
With the flat tax we would pass from a progressive income taxation system (in which the rate increases as income increases: that is to say, if you earn more you have to give to the tax authorities a higher share of one’s income) to a proportional one (everyone pays the same rate: that is to say, as income increases the amount of the sum that is paid increases, but the percentage share is the same). It would be a violation of the constitutional provision (article 53 of the constitution, second paragraph: “The tax system is based on progressive criteria”), unless progressiveness is guaranteed by other taxes, for example a property tax.
Who would gain from it? The same article by Baldini and Rizzo does the math on the basis of the Lega’s proposal. Crossing their calculations with the distribution of Irpef taxpayers by total income classes, it turns out that the annual savings are close to zero or laughable for the lowest incomes: the first decile of income, around 3,300 euros per year, does not earn nothing with the flat tax. This is about 15 percent of taxpayers, according to the latest tax returns. We go up a step. Taxpayers who are in the second decile of income, ie around 10-11 thousand euros per year (about 21 percent of the total) would save just over one hundred euros a year. A coffee every three days.
Those who are around 15-16 thousand euros (another 13 percent of Italians), would have a tax saving of 120 euros. The income bracket of twenty thousand euros per year (in which about 15 percent of taxpayers live) would save 318 euros. Earnings are consistent only in the last two highest deciles of income: for those who are above fifty thousand euros per year (average savings of four thousand euros), or above eighty thousand (12 thousand euros less in tax). From the data of the tax returns, it appears that 5 percent of taxpayers belong to these income brackets. Therefore the flat tax may also please many (or give this impression), but it benefits few.
The incremental flat tax
The proposal of the Brothers of Italy was different, which is the one that ended up in black and white in the program: “Flat tax on income increase compared to previous years”. So while the self-employed with VAT number would pay 15 percent on all income, all the others would have this lower rate only for salary increases. With another obvious inequality: with the same income there would be a different taxation depending on the year in which that salary was reached, and paradoxically, those who earned would be taxed less than those who lost. And even in this case, in spite of progressiveness.
For an unfair taxman
In addition to being unfair from a distribution point of view, these proposals also risk being heavily distorting from an economic point of view. For example, pushing companies even more to propose VAT contracts, saving on the gross to get the same net to the workers. Or, for the incremental flat tax, to increase overtime (income increase, taxed at 15 percent) instead of hiring other employees who would be taxed at at least 23 percent.
One wonders why the majority of taxpayers and voters should reward a tax program that benefits a minority. Maybe because they don’t know him enough. Or because they are attracted to the general message: we will reduce taxes, somehow (but we have to see to whom). Or from another piece of the same program, always under the chapter “for a fair tax”: “fiscal peace e balance and excerpt“. The eternal return, under an acceptable technical name, of another great classic of the Italian tax authorities: the amnesty of tax evaders.