Uploaded September 2026 | Updated September 2026, 5 days ago
Flat Tax vs. Progressive Tax: What's the Difference?
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.
For more on how marginal tax rates work, see our related Econ Dictionary video: youtube.com/watch?v=CATAfwj8Ing
Teachers: this video is part of our FREE Fiscal Policy unit plan: pages.mru.org/lesson-plans/fiscal-policy-unit
Learners: explore our full Principles of Macroeconomics course: youtube.com/playlist?list=PL-uRhZ_p-BM52EbMG1NR1ZfG9tEvcxE4u
Flat Tax vs. Progressive Tax: What's the Difference?
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.
For more on how marginal tax rates work, see our related Econ Dictionary video: youtube.com/watch?v=CATAfwj8Ing
Teachers: this video is part of our FREE Fiscal Policy unit plan: pages.mru.org/lesson-plans/fiscal-policy-unit
Learners: explore our full Principles of Macroeconomics course: youtube.com/playlist?list=PL-uRhZ_p-BM52EbMG1NR1ZfG9tEvcxE4u
