What's a flat tax? - Oct. 24, 2011

What's a flat tax? - Oct. 24, 2011

One tax rate: What makes a flat-tax system "flat" is that there is only one tax rate, whereas today's system has a series of rates.

And a flat tax includes an exemption based on family size -- similar to today's standard deduction -- that everyone can take.

In a pure flat-tax system, that exemption would be the only tax break anyone gets. Today's tax code, of course, has a complex array of tax credits, deductions and exemptions.

Flat-tax proposals can differ from one another in several ways: how high they set the rate; how big they make the exemption, how many other tax breaks they allow and whether they eliminate the payroll tax and the estate tax.

But the more taxes a flat-tax system seeks to replace and the more tax breaks it allows, the higher the rate must be to generate enough revenue.

84% would pay more under Cain's 9-9-9 plan

Tax-free return on savings: Another key difference between a flat tax and today's income tax is how the two treat savings.

In a flat-tax system, interest, capital gains and dividends are in essence tax-free. The goal is to only tax money once -- either when it is initially earned or when it is withdrawn after being deposited or invested.