Flat Income Tax Revival Draws Sharply Mixed Reviews

With cash cushions plump with federal pandemic relief dollars and a surge in tax revenues, state legislatures across the country have cut taxes aggressively this year. But several states went further, converting their tiered income tax structures to flat-rate systems. Arizona, Georgia, Iowa, and Mississippi have committed to the flat tax in recent weeks, and Oklahoma is likely to join the group soon. The shift away from graduated income tax structures, which tax higher incomes at higher rates, is a dramatic departure from decades of state tax policy. While the motivations in state capitols vary, flat tax proponents framed their proposals as efforts to limit outmigration and improve their state’s economic horsepower. But skeptics warned of long-term social and economic consequences. On this episode of Talking Tax, we hear two perspectives on this shift. Katherine Loughead, a senior policy analyst with the Tax Foundation, contends flat taxes are more transparent and easier to administer, and boost a state’s competitiveness in a climate where labor and capital are increasingly mobile. Kamolika Das, a state tax policy analyst with the Institute on Taxation and Economic Policy, says flat systems place unfair burdens on low- and middle-income taxpayers, and damage states' capacities to raise revenue and create sensible budgets. Do you have feedback on this episode of Talking Tax? Give us a call and leave a voicemail at 703-341-3690.