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What Does Flat Tax Apply To?

Flat Tax

A flat tax is a constant tax rate which applies to an item, such as gasoline. In other words, the same tax rate is applied to the gallon of gasoline, no matter who is buying the gasoline, regardless of income and other factors. Sales tax would also be a constant tax, as the same percentage of tax is paid by everyone.

In general, a constant tax is considered a regressive tax as it takes no factors into account when an item is taxed. For example, individuals in one state may have a tax rate of seven percent on all items purchased in that state. Goods and services would have the same tax rate, no matter who was paying the tax. Constant taxes are a higher percentage of salary for those that have a lower income, thereby increasing their tax burden.

Flat taxes are applied to a variety of items, in addition to a gasoline tax and sales tax, many excise taxes are flat taxes. However, some excise taxes are applied based on the volume of an item, such as the size of a bottle of alcohol, as opposed to the total price of an item.However, it is still considered a flat tax, as everyone pays the same tax on that item.

Flat taxes are often considered unfair and many individuals feel that the wealthy are responsible for a smaller tax burden, as a percentage of their income. In contrast, others argue that the wealthy are likely to make more purchases, thereby paying more taxes.

NEXT: What is a Franchise Tax?

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