Some of the states in the United States have successfully adopted and imposed the proportional tax, including Colorado, Indiana, Illinois, Massachusetts, Michigan, Pennsylvania, and Utah. Tax include the poll tax, Federal Insurance Contributions Act payroll deductions, gross receipts taxes, occupational taxes, and consumption tax. A sales tax is imposed on all consumers who have bought the goods or services, and their income is not part of the equation. Generally, it is applied across all income classes, but it does exempt households whose income is below the determined poverty line.Ī sales tax is considered a type of proportional tax. A flat tax is the fixed fraction of the taxable income. One of the main reasons behind the proportional tax is to maintain equal tax incidence, irrespective of the ability to pay, without shifting the tax incidence to a high-income or low-income household.Ī proportional tax is also called a flat tax. The government can impose a proportional tax on either an individual tax base or a tax system for a single year or a lifetime. In such scenarios, the marginal tax rate frequently is equal to the average tax rate.
In some cases, the proportional tax is imposed in order to maintain the balance between the marginal tax rate and the average tax rate.
In this context, the word "proportional" is defined as a distribution effect on income or consumer spending in the scenario in which the tax rate remains constant. A proportional tax is levied across all income class households, including low-income taxpayers, middle-income taxpayers, and high-income taxpayers.