Flat Tax


DEFINITION of 'Flat Tax'

A system that applies the same tax rate to every taxpayer regardless of income bracket. A flat tax applies the same tax rate to all taxpayers, with no deductions or exemptions allowed. Supporters of a flat tax system propose that it would give taxpayers incentive to earn more because they would not be penalized with a higher tax bracket. In addition, supporters argue that a flat tax system is fairer because it imposed the tax on all taxpayers regardless of income.


In the United States, a progressive-rate tax system is used. In 2010, for example, people who earned up to $8,375 fell into the 10% tax bracket; people who earned greater than $373,650 fell into the 35% tax bracket.

In a progressive tax system, individuals who make more money are taxed at a higher rate. Many of the countries that have imposed a flat tax rate system on individuals and businesses, including Estonia, Lithuania and Latvia, have experienced economic growth since adopting flat tax rate policies.

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  1. Is a progressive tax more fair than a flat tax?

    Progressive taxation versus flat taxation inspires ongoing debate, and both have proponents and critics. In the United States, ... Read Full Answer >>
  2. In what types of economies are regressive taxes common?

    Regressive taxation systems are more likely to be found in developing countries or emerging market economies than in the ... Read Full Answer >>
  3. Are Cafeteria plans taxable?

    Whether the benefits you receive through your employer-sponsored cafeteria plan are taxable depends entirely on which benefits ... Read Full Answer >>
  4. Why is the Cayman Islands considered a tax haven?

    The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
  5. Why is Panama considered a tax haven?

    The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
  6. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>

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