Italy’s Flat Tax Is a Mounting Fiscal Gamble the US Has Mirrored

Italy’s recent move to raise its existing flat tax on future wealthy residents reveals the limits of its plan and is a cautionary tale for US tax policy: When governments prioritize short-term relief for the wealthy, they create structural deficits that must eventually be backfilled through temporary sources of revenue.

Starting in 2026, the flat tax that wealthy new residents pay on foreign income in Italy could jump from 200,000 euros ($232,000) to 300,000 euros. This isn’t happening because the solution failed, per se. It’s happening because it “worked,” on paper and for a little while. Now the bill is coming due.

The flat tax was always going to be a short-term play to attract the ultrarich, juice the real estate market, and grab a bit of revenue without scaring anyone off. But like all short-term tax policies designed to lure wealth rather than enhance tax equity, it created a gap.

Italy is finding the next group of newcomers willing to pay a bit more rather than reforming its tax base. It’s an instructive moment for global tax policy, especially here in the US, where the Trump administration’s massive tax and spending package doubled down on essentially the same logic.

Instead of the usual cycle of cuts followed by ad-hoc fixes, governments should implement automatic sunset provisions for all preferential income-based tax breaks. Such provisions could phase out benefits in the presence of revenue shortfalls or worsening inequity metrics. After all, good tax policy should be about using the tax code as a stabilizer when economic winds shift, not handing out benefits to a preferred income bracket and hoping things work out.

Automatic provisions could tie directly to concrete metrics to take the dirty work out of politicians’ hands. For instance, when tax revenue as a percentage of GDP falls below a rolling 10-year average for two consecutive years, preferential rates and wealth-chasing programs like Italy’s should be jettisoned in favor of stabilization policies. Alternatively, if the Gini coefficient rises above a predetermined threshold, tax preferences for incomes above a set threshold—say 500,000 euros—could be phased out until it ratchets back down.

When revenue deficits widen or inequity metrics start flashing red, the system should automatically tighten—we should build policy that adjusts when the fiscal math stops mathing. The longer a government relies on onetime payments or deferred reckoning, the more its tax code starts to look like a tax policy scheme in search of the next sucker.

Like Italy’s flat-tax experiment, the US tax and spending package enacted in July offers generous relief today with no clear plan to cover the tab tomorrow.

Photographer: Matteo Bastianelli/Bloomberg via Getty Images

Italy’s annual payment ploy sets off all the same alarm bells as an investment scam. In 2017, Italy introduced a bold offer to wealthy foreigners: Move here and you can opt out of taxes on foreign income, gifts, and inheritances for up to 15 years in exchange for a flat 100,000-euro annual payment. Thousands of high-net-worth individuals moved to Milan, and local luxury markets surged.

But the change didn’t generate scalable, long-term revenue, and Rome was forced to move the annual payment to 200,000 euros soon after. It’s a tax system built on an ever-increasing cover charge. The more Italy relies on that model, the more it needs new arrivals to overpay for the privilege of entering an increasingly fragile fiscal situation marked by low output and an aging population.

The US isn’t just watching this playbook unfold; it has embarked on its own version. The Trump administration’s tax and spending package permanently extended the individual business and tax cuts from the 2017 Tax Cuts and Jobs Act. But like Italy’s flat-tax experiment, it offers generous relief today with no clear plan to cover the tab tomorrow.

The TCJA was never designed to be fiscally neutral. It added more than $2 trillion to the deficit over a decade with promises of increased growth providing an offset. The necessary levels never came. This year’s law now locks in those cuts and goes further, adding new carveouts for high earners and pass-through income.

The political appeal is clear—you cut taxes, delay consequences, and kick the hard decisions to the future. But structurally, it’s just a more complicated way of creating a revenue gap that can only be filled by a future patchwork of either temporary inflows or regressive burden-shifting.

Italy’s flat tax is at least honest in its desperation. The country needs money, so it’s hiking the annual fee wealthy newcomers pay to join the club. The US is playing the same game, just with more opacity and more optimistic projections. If Italy’s flat tax is a Ponzi scheme with a cover charge, the US version is a shell game with somewhat better marketing.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social

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