(NewsNation) — While most states employ graduated income tax systems, a growing number of state lawmakers are pushing for flat-rate taxes instead, according to a report from the Institute on Taxation and Economic Policy (ITEP).
The study, published in January, found that flat taxes — where all taxpayers pay the same percentage of income regardless of how much they earn — create inequitable tax burdens that disproportionately affect middle- and low-income families.
“A flat tax guarantees that wealthy families’ total state and local tax bill will be a lower share of their income than that paid by families of more modest means,” the report said.
Which states have a flat tax rate?
Currently, 14 states have adopted flat-rate personal income tax structures, though graduated systems remain more common. Those states include:
- Arizona
- Colorado
- Georgia
- Idaho
- Illinois
- Indiana
- Iowa
- Kentucky
- Louisiana
- Michigan
- Mississippi
- North Carolina
- Pennsylvania
- Utah
Under graduated tax systems, like the one recently approved by Massachusetts voters, different levels of income are taxed at different rates, with higher-income taxpayers paying higher rates on income above certain thresholds.
Most state and local taxes — including sales, excise and property taxes — are regressive, meaning they consume a larger percentage of income from low- and middle-income households than from wealthy ones.
Income taxes with graduated rates help counter this effect.
“For states to meet even the barest standard of tax fairness, they must have a progressive income tax that counteracts the regressive effects of other taxes,” the report stated.
Flat tax transitions
In recent flat tax transitions, like Arizona’s, the benefits have been heavily skewed toward the wealthy. While the average family in the top 1% received nearly $16,000 in annual tax cuts, typical middle-income earners saw just $58 in savings, per the report.
“Flat taxes are out of step with public concern about inequality,” the report concluded. “Enacting one all but abandons even the possibility of an equitable tax system.”