SEE ALSO: What is Tax-Deferred? Definition, Overview, and How it Works Examples Of A Flat tax Critics argue that a progressive tax is fairer than a flat tax. Flat tax opponents claim the system unfairly burdens low-wage earners to decrease tax rates for the rich. Flat tax supporters claim it encourages taxpayers to earn more because they are not penalized by higher tax brackets. Most flat tax plans exempt dividends, distributions, capital gains, and other investment income. No deductions or exemptions are allowed under a flat tax, but some politicians have suggested flat tax schemes that will enable limited deductions. There is no tax bracket in a flat tax system. ![]() ![]() However, some people say that a flat tax rate is unfair to low-income earners because they have less money to keep up with their standard of living. In a flat tax system, there is no fear that you will be punished for having a high income, as there is with a progressive tax system. This means that people who make a lot of money are taxed at the same rate as people who make little money.
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