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What is the difference between a flat tax and a fair tax?

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Quick Answer

According to About.com, a flat tax refers to a proposed income tax system in which everyone pays the same "flat" tax rate regardless of income level. Meanwhile, a fair tax refers to a proposal that seeks to tax money that is spent rather than money that is earned by establishing a national sales tax and abolishing federal income and corporate taxes. This latter idea is delineated on FairTax.org.

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What is the difference between a flat tax and a fair tax?
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Full Answer

Both the flat tax and fair tax systems involve several other components in addition to the primary tax structures mentioned above, as detailed on HowStuffWorks.com. Under the flat tax income tax system, earned income is all that is taxed. Any money an individual gains from dividends, interest on investments and savings, or capital gains would not be taxed. Many supporters of a flat tax system claim that this system is fair because everyone pays the same tax rate, and because it prevents double taxation.

As described on FairTax.org, supporters of the fair tax system claim that a flat tax system is actually unfair because it puts much more of a financial burden on those who earn a lower income than those who earn much higher incomes. The fair tax proposal thus seeks to abolish federal income tax altogether by replacing it with a national sales tax on all new goods and services of 23 percent. In order to prevent those with lower incomes from suffering under this increased sales tax, supporters of the fair tax system would require the government to send a monthly check to lower-income families in order to cover the cost of necessities. This monthly check is referred to as a "prebate."

Both the flat tax and fair tax systems are proposed to replace the tax structure currently in place in the United States.

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