With the idea of a flat tax structure figuring in the campaigns of two presidential hopefuls for the Republican nomination, many people around the US are once again considering what an overhaul of the current federal tax system could bring, good and bad. Both Herman Cain and Rick Perry, candidates for the Republican party’s nomination for president in the 2012 campaign, believe that a flat tax would not only make life easier for everyone concerned, but also generate enough money to begin retiring the national deficit. The question remains whether or not a flat tax structure would actually accomplish what these two contenders claim or if there are other factors to consider.

On the surface, the idea of a flat tax seems very workable. Individuals, along with companies, would pay flat rates of income tax and sales tax, with some opportunity for tax breaks associated with certain types of purchases and expenses. At first glance, this would seem to indicate savings in several quarters. Preparing returns would be far less complex and revenue agencies could process the simpler returns much more quickly. In addition, there is no doubt this arrangement would mean less taxes for a significant number of US citizens, especially those with lower income levels.

What is not so easily discerned is the impact that a flat tax structure would have on some states, which also charge sales and income taxes and how companies in general would fare under the proposed system. Depending on which projections are presented, the flat tax arrangement would either encourage the development of new production that puts more people back to work or offers companies in certain industries little to no incentive to keep their operations based in the US.

There are examples of countries that implement some type of flat taxation into the overall mix. Denmark is a prime example; this is a country that operates a combination of gross flat taxes along with progressive taxes. This combination makes it possible for lower wage earners to enjoy breaks that are not provided for those making more money. In like manner, companies are also subject to a progressive tax regime, based on the amount of revenue they generate. Deductions are available for individuals as well as business taxpayers. Opinions on how well this is working range from very happy with the system to some indications that it may not be the best fit in terms of enticing new industry into the country. Before making any final judgement on how well a flat tax structure would work in the United States, care should be taken to look more deeply into the specifics of the plans put forward by each of these candidates and compare them with what is happening elsewhere. The effort could make it easier to determine if a flat tax would work within US culture or if some sort of hybrid, with both flat and variable taxation, might be a better option.