Financial Glossary: Proportional Tax


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Proportional Tax

Proportional Tax

An income Tax that takes the same percentage of income from everyone regardless of how much (or little) an individual earns.

The US and Canada do not use this system. It is quite controversial and certainly debatable whether or not this is a fair system. The term "proportional Tax" describes a Distribution effect, which can be applied to any type of Tax system (income or consumption) that meets the definition. The term proportional refers to the way the rate remains consistent and does not progress from "Low to High" or "High to Low" as income or consumption changes. A progressive Tax is a Tax imposed so that the Tax rate increases as the amount to which the rate is applied increases.

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