Flat tax
A flat tax refers to a tax system where a single tax rate is applied to all levels of income. Thus people with a low income pay the same rate as the affluent.
The opposite of flat tax is a progressive tax, which means that people or companies belonging to a different income bracket are taxed differently. More specifically, progressive tax enables a more equal distribution of the tax burned between the highest and the lowest earners as people earning more are required to provide a larger tax contribution.
For example, if the tax bracket is for people earning between $1,000 and $2,000 a month, then in an environment of progressive tax a person earning $1,500 per month will be taxed 10% from their salary, whereas a person earning $2,500 could be taxed at 15%.
In an environment of a flat tax rate, everybody is taxed the same way – irrespective whether you earn $1,000 or $10,000 a month.
Benefits of flat tax
- Easier to calculate and enforce – flat tax rate is relatively straightforward, because everybody is taxed the same way it is easier to calculate the amount of tax required
- Uniform requirements – proponents of the flat tax rate system claim that this is a more egalitarian approach as people are required to pay the same fraction of their incomes.
