This includes 11 states that have flat rate personal income taxes in effect today and two more that are scheduled to join them within the next few years due to recently enacted legislation. In total, one-third of the 41 states with income taxes have opted for a flat rate. In some states, however, lawmakers have recently chosen to switch to flat rate personal income tax structures. And graduated rate taxes remain the norm at the state level as well. Our graduated rate structure has persisted under the leadership of both parties, suggesting that most lawmakers are in step with the American public in preferring a graduated income tax where families with high incomes pay more. But the idea has not taken off federally.

Under the new tax brackets approved by Massachusetts voters last year, for example, most families will pay a marginal income tax rate of 5 percent while wealthy families will pay that 5 percent rate on their first million dollars of taxable income and see anything over a million dollars taxed at 9 percent instead.Ī desire to transition away from this system and toward one more favorable to the wealthy has long had proponents-most prominently Steve Forbes during his third-party presidential runs in the 1990s. Under a graduated tax, different portions of one’s income can be taxed at different rates, with high-income families seeing more of their income taxed at higher rates than other families. Much of the progressivity in federal and state income tax law comes from graduated rate structures. Income taxes offer an important counterbalance as they tend to be progressive, which means that they ask more of families with a greater ability to pay. Most taxes levied by state and local governments are regressive, meaning that they charge higher rates, relative to income, for low- and middle-income taxpayers than for wealthy families. Critically, a flat tax guarantees that wealthy families’ totalstate and local tax bill will be a lower share of their income than that paid by families of more modest means. Flat taxes have some surface appeal but come with significant disadvantages.

In short: A flat tax is one where each taxpayer pays the same percentage of their income whereas a graduated tax applies higher rates to higher incomes. What’s the difference? And are states well served by the transition? While most states have a graduated rate income tax, some state lawmakers have recently become enamored with the idea of moving toward flat rate taxes instead.

Flat tax arguments