The federal government taxes a corporation's profits in a similar way. Taxable income can also depend on how much you've earned in capital gains or on specific deductions and exemptions that apply. Specifically, the current system uses margins - also known as tax brackets, or ranges of income - to determine what percentage a person pays. As it stands, Americans pay a progressive income tax - meaning that higher incomes get taxed at higher percentages than lower incomes.
To better understand how each plan would change things, we first have to know the basics of the current system and the major criticisms of it. But as you hear names thrown around and see bumper stickers promoting one or the other, you may have been confused about what exactly the differences are between the two. In the 2000 presidential campaign, Green Party candidate Ralph Nadar supported the flat tax, and in the 2008 campaign, Republican Mike Huckabee threw his favor behind the FairTax. You've probably heard talk of these plans in the media.
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