Under the current tax system, a housewife can enter the labor market in a minimum-wage job and be taxed at a 40 percent marginal tax rate because of her husband's earnings. Because of the tax on Social Security benefits and the Social Security earnings penalty, some elderly workers face marginal tax rates in excess of 100 percent. A dollar of corporate income is taxed at the same rate as a dollar of personal income. All income is taxed only once. Under the current system, investment income can be taxed two, three or even four times.
Income is taxed first at the corporate level.
When the remainder comes to you in the form of dividends or interest, it is taxed a second time. If you sell the business, you can be taxed a third time through a capital gains tax on income your investment is expected to generate in the future. And after you die, your investment can be taxed a fourth time through the inheritance tax. A flat tax system would tax income only once when it is earned. All income is taxed at its source.