Business Glossary

one in which the income tax rate is the same for all income levels. It is a proportional tax. A pure flat tax would eliminate all deductions, exemptions, and loopholes, and tax all income at the same low tax rate. The tax would also make the tax system less complex and more equitable.

tax applied at the same rate to all levels of income. It is often discussed as an alternative to the progressive tax . Proponents of a flat tax argue that people able to retain larger portions of higher income would have an added incentive to earn, thus stimulating the economy. Advocates also note its simplicity. Opponents argue it is a regressive tax in effect, comparing it to the sales tax, a uniform tax that puts a greater burden on households with lower incomes. The tax reform act of 1986 instituted a modified flat tax system-a progressive tax with fewer tax brackets and lower rates. However, the trend towards a flat tax was reversed with the revenue reconciliation act of 1993 , which added another tax bracket and a tax surcharge to the income tax system.

See also consumption tax

tax applied at the same rate to all levels of income. It is often discussed as an alternative to the progressive tax . Proponents of a flat tax argue that people able to retain larger portions of higher income would have added incentive to earn, thus stimulating the economy.