If I earn, say, $200 a week, and my basic living expenses come to $100 a week, at 25% tax, I've got $50/week disposable income - an effective tax rate on my disposable income of 50%.
If, on the other hand, I earn $400 a week, and my basic living expenses are still $100 a week, at 25% tax, I've got $200/week disposable income - an effective tax rate of 33%.
So if you tax everyone on a flat rate, those that earn less bear a larger relative tax burden than those that earn more. If you're barely earning enough to pay rent, tax can be crippling, while if you're earning more, all it does is eat into a bit of your disposable income. |
