Only four states switched from graduated to flat rates in the first hundred years of state income taxes. A flat tax revolution has occurred since tax relief has become more critical. Five states switched their graduated-rate income taxes to single-rate systems fifteen months after Arizona, Iowa, Mississippi, Georgia, and Idaho passed a flat dollar amount in July 2021, March 2022, April 2022, and September 2022, respectively.

Even if no new flat taxes were passed in 2023, politicians in other states are contemplating this and taking similar steps. Even though the Senate and House had passed a single-rate tax scheme in 2023 and 2024, the Kansas governor vetoed it. After failing to override the veto in 2023, the legislature is anticipated to attempt again this session and may succeed.

In Oklahoma and Missouri, lawmakers have contemplated a single-rate system due to their flat brackets. Recently, twelve states have a straight tax system for individuals, whereas nine do not tax salary or wage income. Taxes are graduated in all save Iowa, which is gradually replacing its graduated-rate system with a flat tax.

History of Flat Tax Revolution

Colorado adopted a single-rate income tax in 1987, the 75th anniversary of state income taxes. A flat dollar amount was not established until 2007 in Utah. 2014, North Carolina implemented significant revisions, followed by Kentucky in 2019, with a single rate. They joined Indiana, Illinois, Michigan, Pennsylvania, and Massachusetts among flat-tax states. Note that Massachusetts' flat tax was repealed in November 2022 by a constitutional amendment imposing a four-percent surtax on income over $1 million starting January 1, 2023.

The original Wisconsin income tax, imposed in 1912, was two-rate. Massachusetts introduced the first straight tax in 1917. Virginia and Massachusetts implemented income taxes in January, joining five other states. Five years were passed between the first progressive income tax and the first flat income tax, whereas 75 years passed between the first progressive income tax and the first shift from graduated to single-rate.

Flat Tax Adoption in Major Five States

Arizona's Flat Tax Implementation

In July 2021, Arizona lawmakers passed a regulation to regularly introduce a 2.5 percent flat dollar amount for using tax triggers tied to sales availability. After a brief felony venture, the law becomes upheld, permitting the flat fee to take effect in January 2023 as soon as the revenue thresholds have been met.

Iowa's Tax Reform and Flat Rate Phase-In

In March 2022, Iowa enacted comprehensive tax reforms, phasing in a 3.9% flat tax by 2026, replacing its preceding top graduated-price tax of 8.98%. Due to financial stability, Gov. Kim Reynolds proposed expediting the flat tax, applying a 3% to 65% price retroactively to the 2024 tax year. Additionally, rules have been added to segment the character earnings straight tax entirely and enshrine the flat tax shape in the country's constitution.

Mississippi's Gradual Flat Tax Reduction

Mississippi's flat tax, which came into effect in 2023 at 5%, is scheduled for gradual discountsdropping to 4.7% in 2024, 4% in 2025, and 4. 0 percentage with the aid of 2026.

Georgia's Recent Transition to a Flat Tax

Georgia adopted its flat tax legislation in 2022, which took effect on January 1, 2024, with an initial rate of 5.49 percent. Based on tax triggers, the rate could decrease annually by 0.1 percentage points until it reaches 4.99 percent. Lawmakers have also expressed a willingness to accelerate the reduction, aligning with the trend of states with flat-income tax systems.

Idaho's Special Session Flat Tax Reform

In a 2022 special consultation, Idaho transitioned from a four-bracket machine to a 5.8 percent flat tax, which became powerful starting with the 2023 tax year, streamlining its profits tax shape.

Benefits of Moving to a Flat Tax Structure

Easy Flat Tax Structure

Flat tax supporters emphasize their simplicity. Flat taxes simplify state revenue forecasting and straight tax change projections, not just because they're simpler than various rates. Taxpayers may better anticipate their tax burden and see how it changes under different income situations, improving transparency and economic decision-making.

Tax Transparency and Economic Decision-making

Flat taxes let taxpayers grasp headline rate tax burdens. Even with equal obligations, small enterprises and individuals may prefer states with flat-income tax structures over those with a graduated-rate system. Because flat taxes apply the same rate to marginal labor and investment returns, they simplify the decision to work or invest more.

Protection Against Tax Increases

Flat-rate income taxes prevent unwarranted straight tax hikes, providing stability. A lower top marginal rate boosts economic growth because economic decisions are based on the marginal impact on the next dollar of revenue. Flat taxes are more burdensome to raise than steeply graduated taxes, which can be targeted. States that adopted flat taxes before 2023 have reduced rates by 0.5 to 1.05 percentage points.

Flat Taxes and Economic Reform

In 15 months in 2021 and 2022, more states converted graduated-rate individual income tax structures to single-rate straight tax structures than in the previous 108 years. Lawmakers in numerous states are working to maintain this trend. Changing from a graduated rate to a single-rate individual income tax structure and lowering the top marginal rate is one of the best tax reforms for states that want to boost upward mobility, business investment, long-term economic growth, and competitiveness.