Flat Tax

What is 'Flat Tax'

Flat tax is 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.

BREAKING DOWN 'Flat Tax'

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.

RELATED TERMS
  1. Proportional Tax

    A tax system that requires the same percentage of income from ...
  2. Tax Break

    A tax break is a savings on a taxpayer's liability. A tax break ...
  3. Tax Benefit

    A tax benefit is an allowable deduction on a tax return intended ...
  4. Direct Tax

    A tax that is paid directly by an individual or organization ...
  5. American Taxpayer Relief Act Of ...

    A U.S. bill signed by President Obama on January 2, 2013, that ...
  6. IRS Publication 514

    A document published by the Internal Revenue Service that provides ...
Related Articles
  1. Taxes

    Why Your Tax Bracket Is Not the Tax Rate You Pay

    Understanding how federal and state tax brackets work is important for tax planning – and for making sense of the political conversation around tax reform.
  2. Taxes

    8 Tax Cuts Set To Expire In 2011

    Find out what the expiration of the Bush tax cuts in 2011 would mean for you.
  3. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  4. Economics

    Comparing Regressive, Proportional and Progressive Taxes

    Learn about the basic differences between three common tax systems.
  5. Personal Finance

    What's a Marginal Tax Rate?

    The marginal tax rate is based on a progressive tax system, where tax rates for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon ...
  6. Taxes

    Could The Fair Tax Movement Ever Replace The IRS?

    Although many taxpayers would love to see the IRS abolished, only a handful of thinkers have come up with any sort of viable replacement plan. The Fair Tax is one such idea that has continued ...
  7. Taxes

    Capital Gains Tax Cuts For Middle Income Investors

    Find out how TIPRA plans to slash taxes for those in the 10-15% tax bracket.
  8. Taxes

    Taxes: Who Pays And How Much?

    When it comes to taxes, the debate is endless on who pays what, especially in Congress. With no new initiatives in sight, let's take a look at who is paying now.
  9. Taxes

    How The Wealthy Slash Their Income Tax Bills

    Many of these tax-minimization strategies can be used by anyone. Find out how you can pay taxes like a millionaire.
  10. Taxes

    Use Tax Vs. Internet Sales Tax: How Are They Different?

    Learn about the differences between a use tax and an Internet sales tax. Find out about transactions in which the taxes apply, and to whom they apply.
RELATED FAQS
  1. What's the difference between the marginal tax rate system and a flat tax?

    Find out about the difference between marginal tax rates and flat taxes. Gain insights on both systems and the arguments ... Read Answer >>
  2. What's the difference between a tax rate and a tax bracket?

    These two terms are often incorrectly used interchangeably. Find out the difference between your tax rate and your tax bracket. ... Read Answer >>
  3. Can moving to a higher tax bracket cause me to have a lower net income?

    Many people think that when their income increases by enough to push them into a higher tax bracket, their overall take-home ... Read Answer >>
  4. Are tax brackets adjusted for inflation?

    Learn about U.S. tax brackets and how the U.S. Internal Revenue Service (IRS) makes annual inflation-based adjustments for ... Read Answer >>
  5. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  6. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center