Iceland Joins the Flat Tax Club

Iceland has joined a growing list of nations that have sharply cut their corporate tax rates and adopted flat-rate individual income taxes. With the expiration of a surtax last year, individuals now pay a flat rate of 22.75 percent of their taxable income to the central government. Local governments also tax income at a single rate, pushing the combined flat rate up to 36 percent.
Iceland’s system is not a pure Hall-Rabushka flat tax. Not only is the rate high, but Iceland retains some double taxation of saving and investment, as well as a few special tax preferences. Compared to other developed nations, however, Iceland has moved dramatically in the direction of a tax system that collects a given amount of revenue in a way that minimizes economic distortions.