Final answer:
A flat tax is a proportional tax system that applies the same tax rate to all income levels but is not realistic in practice due to exemptions for lower-income earners.
Step-by-step explanation:
A flat tax imposes a single, identical tax rate on the income of all taxpayers. It is not a progressive tax, as it does not collect a greater share from those with higher incomes than those with lower incomes. In contrast, most actual tax proposals exempt lower-income households, making a purely flat tax somewhat unrealistic.
A flat tax, also known as a proportional tax, is a system where a flat percentage of income is taxed, regardless of the level of income. However, this does not make it a regressive tax, which would mean that people with higher incomes pay a smaller share of their income than those with lower incomes. While the idea of a flat tax is simple, real-world applications often include exemptions for lower-income earners, which complicates the flat tax model. Progressive taxes, on the other hand, use varying tax rates based on income levels, with higher incomes subjected to higher tax rates. Understanding the differences between these types of taxes is critical for grasping how fiscal policies can influence economic activity and address issues such as income inequality. For instance, during economic recessions, fiscal policies might be adjusted to stimulate growth or stabilize the economy.