Many states in the United States are exploring or have already implemented flat income tax schemes. These policies apply the same tax rate to all taxpayers, regardless of income. While advocates claim that these reforms simplify tax codes and boost economic growth, detractors argue that they disproportionately benefit the rich and threaten state revenue.
South Carolina's new proposal has made national news, ushering in a new round of the state-level flat tax debate.
South Carolina’s 3.99% Flat Tax Proposal Sparks National Attention
South Carolina is the latest state to propose a dramatic change of its income tax code. In April 2025, state legislators proposed lowering the existing top marginal rate of 6.4% to a flat 3.99% in 2027. "We're trying to send the message that South Carolina is open for business," House Speaker Murrell Smith told the Associated Press.
The measure includes provisions that would automatically cut the rate to 2.49% if state revenue predictions exceeded expectations.
Supporters in the Palmetto State argue that this will boost competitiveness with low-tax neighbors such as Florida and Tennessee, neither of which charge state income taxes. Critics, however, warn that flattening the tax structure may result in less income for public services and education.
A Broader Trend Across Red and Purple States
Other states are presently considering similar changes. Missouri lawmakers approved legislation exempting capital gains from the state income tax, which may dramatically slash state revenue. In Montana, Governor Greg Gianforte signed House Bill 337 in April 2025, which reduces the state's top income tax rate to 5.65% in 2026 and 5.4% in 2027, while increasing eligibility for lower tax bands and tripling the earned income tax credit.
Alabama legislators are proposing tax cuts, including lowering the state grocery tax from 4% to 3% by 2023. Discussions about additional tax cuts, such as a flat rate, are ongoing. indiana, which already has a flat income tax, plans to reduce its rate from 3.15% to 2.9% by 2027. Lawmakers are now discussing accelerating or making the cuts permanent.
Even Kansas, despite previous fiscal troubles as a result of former Governor Sam Brownback's strong tax-cut measures, has returned to the flat tax debate. Governor Laura Kelly vetoed a recent flat tax proposal in early 2024, but Republican lawmakers are anticipated to reintroduce a modified version during the 2026 session.
The Critics: “A Tax Cut for the Wealthy”
While supporters of the flat tax emphasize simplicity, transparency, and economic competitiveness, critics argue that the benefits are disproportionately distributed to high-income individuals.
"A flat tax may appear fair on paper, but in practice it shifts the burden downward," stated Carl Davis, research director at the Institute of Taxation and Economic Policy (ITEP), in a recent State Rundown. According to ITEP's findings, in many flat-tax states, the bottom 20% of incomes pay more in taxes than the top 1%.
This critique has developed in several states. In South Carolina, opponents of the 3.99% flat tax argue that it may take over $1 billion from the state budget over five years, potentially requiring cuts to schools, infrastructure, or Medicaid.
Flat Doesn’t Always Mean Fair or Final
Despite their growing popularity, flat tax changes come with drawbacks. Most states continue to rely largely on federal funds and sales taxes. A badly planned flat tax might make lower-income individuals worse off, especially in areas with weak safety nets.
Some politicians, such as Colorado Governor Jared Polis, have expressed openness to streamlining the tax code. Polis, in particular, emphasized the significance of acting responsibly. Polis said in a 2020 statement published by the Colorado Tax Policy Center , "A broader base taxed at a lower rate will boost economic growth with the ancillary benefit of preventing the corrosive influence of crony capitalism."
His stance mirrors a broader trend among policymakers: support for tax reform that promotes economic efficiency while guaranteeing long-term fiscal stability.
More states are expected to enter the flat tax debate as the legislative season begins in 2025. Whether or not these initiatives succeed may be determined less by philosophy than by how successfully they combine revenue needs with promises of fairness and simplicity.
But one thing is certain: the flat-tax era is no longer speculative. It's here and gaining traction.
