Tax rate

[1] There are several methods used to present a tax rate: statutory, average, marginal, flat, and effective.

These rates can also be presented using different definitions applied to a tax base: inclusive and exclusive.

Flat tax rate also known as single-rate is one of the simplest taxations.

For flat is a single tax rate (same percentage) on the whole taxable amount.

A flat tax rate is used because of its simplicity, transparency, neutrality, and stability.

[6] In practice, a flat tax rate on income is used in many states of the USA, like Colorado, Illinois, Indiana, Kentucky, Massachusetts, Michigan, North Carolina, Pennsylvania, and Utah, or internationally, for example in many post-Soviet countries like Hungary, Serbia, Estonia or Ukraine, and also in Iceland or Bolivia.

[5] [7] On the other hand, it must be said that, in practice, no state has a perfectly flat income tax rate, and every state makes certain distinctions between types of income and has several discounts and reductions.

As an example, in the history of the USA, a poll tax was introduced in 1870, which was a fee paid for the right to vote.

[8] The marginal tax in these scenarios would be constant (in case of a poll tax—zero), however, these are both forms of regressive taxation and place a higher tax burden on those who are least able to cope with it, and often results in an underfunded government leading to increased deficits.

For annual income that was above the cut-off point in that higher bracket, the marginal tax rate in 2016 was 39.6%.

[9][10] The marginal tax rate on income can be expressed mathematically as follows: where t is the total tax liability and i is total income, and ∆ refers to a numerical change.

Specific tax is used in tobacco taxation because it has been proved that a high specific tax significantly enlarges the price of cigarettes and it is an effective way to reduce the consumption of goods like cigarettes.

The commonly known mixed tax rate is specific and flat at once.

In the United Kingdom, the flat tax rate is at 16.5 % of the retail price and also £ 6.33 per pack of 20.

In Generally Accepted Accounting Principles (United States), the term is used in official guidance only with respect to determining income tax expense for interim (e.g. quarterly) periods by multiplying accounting income by an "estimated annual effective tax rate", the definition of which rate varies depending on the reporting entity's circumstances.

The income tax is taken "off the top", so the individual is left with $80 in after-tax money.

Their value depends highly on the top marginal tax bracket.

For example, if we have an individual whose top marginal tax bracket is 10% then the maximum deductions from $2000 is $200.

On the other hand, if we have an individual whose top marginal tax rate is 37% then the maximum deduction from $2000 is $740.