Is a Progressive Tax More Fair Than a Flat Tax?

Progressive tax benefits versus flat tax benefits are an ongoing debate, with both systems having proponents and critics. In the United States, the historical favorite is the progressive tax. Progressive tax systems have tiered tax rates that charge higher income individuals higher percentages of their income and offer the lowest rates to those with the lowest incomes. Flat tax plans generally assign one tax rate to all taxpayers. No one pays more or less than anyone else under a flat tax system.

Both of these systems may be considered "fair" in the sense that they are consistent and apply a rational approach to taxation. They differ, however, in their treatment of wealth, and each system may be called "unfair" according to who benefits or is treated differently.

Progressive Tax Benefits vs. Flat Tax Benefits

Progressive Tax Benefits
  • Tiered tax rates based on individual income

  • Lower earners pay a lower percentage of their income in taxes than higher earners

  • It reduces the tax burden on those with the least income

  • Gives lower earners more income to pay for housing and other essentials

  • Helps reduce income inequality

Flat Tax Benefits
  • One tax rate for all, regardless of income

  • Lower and higher earners pay the same percentage of their income in taxes

  • It doesn't put a higher tax burden on those with a higher income

  • Gives everyone the same percentage of their income to spend

  • Encourages individuals to earn more without fear of tax repercussions

Progressive Tax

Supporters of the progressive system claim that higher salaries enable affluent people to pay higher taxes and that this is the fairest system because it lessens the tax burden of the poor. Since the poor have the smallest disposable incomes and spend a higher proportion of their money on basic survival needs, such as housing, this system allows them to keep more of their money. Affluent taxpayers are better able to provide for their physical needs and therefore are charged more. A flat tax would ignore the differences between rich and poor taxpayers. Some argue that flat taxes are unfair for this reason. Progressive taxes, however, treat the rich and poor differently, which is also unfair.

Flat Tax

Flat tax has one tax rate. Everyone carries the same responsibility, and no one is unequally burdened, rich or poor. Taxes do not discourage high earners from earning more, and the low tax rate encourages the poor to strive to earn more. This reduces the potential deadweight loss of taxation and encourages good work ethics. This system does, however, risk taking too much money away from the poorest citizens.

Both tax policies have significant advantages and disadvantages that may prevent them from perfect fairness.

Advisor Insight

Ronald Mesler, JD
We Protect Doctors LLC, Boise, ID

This may be more of a social or political question than a financial question. The key issue you raise is one of "fairness." The concept of a progressive tax is fundamentally a simple one: The more you earn, the more taxes you pay, with the tax rate increasing incrementally as your income does. However, as the saying goes, "the devil is in the details"—at least in the details of the U.S. tax code, which has gotten so bloated and complicated that the system has lost its simplicity. This seems to be one of the key popularity drivers of a simple flat tax system: The progressive model may be fairer in theory, but the real fairness, or lack thereof, is how the system is implemented. Of course, there's always the concern that if a flat tax were adopted, how long would it remain simple?