Proportional Tax


DEFINITION of 'Proportional Tax'

A tax system that requires the same percentage of income from all taxpayers, regardless of their earnings. A proportional tax applies the same tax rate across low-, middle- and high-income taxpayers. The proportional tax is in contrast to a progressive tax, where taxpayers with higher incomes pay higher tax rates than taxpayers with lower incomes.

A proportional tax is also called a flat tax.

BREAKING DOWN 'Proportional Tax'

For example, in a proportional tax system, all taxpayers may be required to pay 10% of income in taxes. A sales tax can be considered a type of proportional tax since all consumers, regardless of earnings, are required to pay the same fixed rate.

Supporters claim that proportional tax systems are fair and that they may encourage people to earn more money because they would not have to pay higher tax rates. Opponents believe that proportional taxes are similar to regressive tax (where the tax rate drops as the amount subject to taxation rises), placing a greater tax burden on low-income individuals. For a $1,000 purchase, for instance, consumers might pay $80 in sales tax (assuming an 8% sales tax rate). This $80 tax burden would be a higher percentage of income for low-income earners than it would be for high-income earners.

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  2. Income Tax

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  3. Vertical Equity

    A method of collecting income tax in which the taxes paid increase ...
  4. Regressive Tax

    A tax that takes a larger percentage from low-income people than ...
  5. Tax Rate

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  6. Progressive Tax

    A tax that takes a larger percentage from the income of high-income ...
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  1. What is the difference between a regressive tax and proportional tax?

    There are generally three major ways that U.S. taxpayers pay taxes: regressive tax, progressive tax and proportional tax. Proportional ... Read Full Answer >>
  2. What's the difference between regressive and progressive taxes?

    The U.S. federal tax system and local and state tax systems are complex in that they combine progressive, regressive and ... Read Full Answer >>
  3. What are the differences between regressive, proportional and progressive taxes?

    Tax systems fall into three main categories within the tax code: regressive, proportional and progressive taxes. Regressive ... Read Full Answer >>
  4. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
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    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
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