Head Tax

What Is a Head Tax?

A head tax, also known as a poll tax or capitation, is a flat or uniform tax levied equally on every taxpayer. Unlike an income tax, it is a fixed amount and not based on how much one earns, nor does it change based on any taxpayer circumstance or action.

The Positives and Negatives of a Head Tax

When considering the four principles of sound tax policy—simplicity, transparency, neutrality, and stability—a head tax in its purest form is simple, transparent, and stable.

Taxes should be easy for taxpayers to understand and adhere to, and for local, state, and federal governments to levy. Since head taxes are uniform and levied equally, they are a relatively simple form of taxation.

Income taxes levied progressively, like the U.S. federal income tax, may discourage work by imposing high marginal tax rates. In other words, as U.S. taxpayers earn more, the amount of tax they pay on each additional dollar goes up. A head tax, on the other hand, is a fixed amount, imposing a marginal tax rate of 0 percent. The fixed rate and simplicity of head taxes make them transparent by clearly defining what taxpayers must pay.

A downside to this form of taxation is its lack of neutrality. While a fixed rate for all taxpayers may seem neutral, the uneven burden it places on those with lower incomes favors high earners. For example, a household earning $100,000 may be able to absorb the impact of a $500 per year tax, while a household living at or near the poverty line may not.

As with many forms of taxation, stability depends in part on the consistency and predictability of the tax when it is enacted. Temporary tax laws, like tax holidays and amnesties, are examples of unstable forms of taxation.

Since a head tax is levied equally across the population and is not as affected by taxpayer behavior, shifts in the market, or economic cycle, it tends to be a more stable form of revenue. One exception is a special class of head tax referred to as “business head taxes,” where a head tax is levied on each employee hired by a business. This type of head tax is not stable since it directly impacts a business’ ability and willingness to employ more workers and is directly tied to the volatility of the business cycle.

Business vs. Individual Head Taxes and Real-World Examples

Like many tax types, the success in application of a head tax comes down to how it’s levied.

In 2018, Seattle’s city council briefly adopted a business head tax but repealed it before the tax was even enacted, due to overwhelming concern from taxpayers that it would have a negative impact on employment in the city. Head taxes also have been attempted in Chicago and California.

By targeting employees of specific businesses or industries, today’s business head taxes are more harmful and narrower than broader, individual head taxes. The impact on business’ ability to retain and hire workers creates a disproportionate economic burden for some firms and increases revenue volatility, failing to meet the principles of sound tax policy.

Just like with business head taxes, individual head taxes can be unpopular when they disproportionately impact lower-income taxpayers or those who have less of an ability to pay. For example, in 1989, a head tax based on the number of occupants residing in a home was levied in the United Kingdom to fund local government. It was widely disliked due to the perception of a shift of the tax burden from the wealthy to the poor.

For another real-world example of individual head taxes, one can look as far back as the 17th century, when both Great Britain and France levied taxes of a set dollar amount, determined by the person’s rank, class, and profession. By stratifying the tax rates based on those demographics, these head taxes may have been less regressive than a uniform amount levied on all taxpayers.

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