Flat tax

The term flat tax refers to the rate imposed on all entities in a given jurisdiction. As the name suggests, factors such as salary range and financial activities do not come into play with the computation of flat taxes. In more concrete terms, a millionaire and a newly-hired factory worker will have to pay the same amount of tax. Of course, at present, this does not apply to certain classifications of tax. An example of this exception is the usual arrangement for income tax payment, because this is computed for based on the income of the taxpayer.

On the other hand, an example which may be associated with a flat tax is sales tax. While there may be some exceptions, the tax paid by a student and an executive for the same kind of burger is exactly the same. While in the strict sense of the word “flat,” this may seem to fit the bill, sales taxes are usually distinguished from flat taxes. The main differentiating factor is the item on which tax is imposed. The payment of sales tax is related to the purchase of products. On the other hand, the payment of flat tax is associated with tax imposed on income.

Some economists and finance experts suggest the imposition of flat taxes in place of the gradated taxation system imposed on income tax. Progressive taxation is the more familiar system, under which the percentage of tax to be paid is determine by several factors, such as salary range. Supporters of a flat taxation system believe, however, that imposing the same percentage on all people is a good way of saving money on operating expenses and investigations, and is a more just set up, as well.