Progressive vs. Flat Tax

This video explains the difference between a flat tax and a progressive tax, using a simple example to show how each system affects taxpayers at different income levels. Key terms covered:

• Flat tax — A constant tax rate applied to all levels of earnings, regardless of income.

Progressive tax — A tax system in which people with higher incomes pay a higher percentage of their income in tax. The U.S. and most other countries use a progressive tax system.

• Marginal tax rate — The tax rate applied to your next dollar of income; under a progressive system, this rate rises as income rises.
• Average tax rate — Total tax paid divided by total income; the effective overall rate a person actually pays.

Example used in the video: Two hypothetical taxpayers, Abe ($50,000 income) and Barry ($500,000 income), are compared under a flat tax and under the actual 2026 U.S. progressive tax system, illustrating how marginal tax rates produce different average tax rates for each.