In 1987, in full heyday of economic liberalism under the presidency of Ronald Reaganthe state of Colorado eliminated the brackets of your Income Tax and converted it to a flat rate system or flat tax, with a single type for all taxpayers. From then until today, said territory has maintained the same model, greatly simplifying everything related to state taxation of income obtained by taxpayers, who are still subject to the progressive model that prevails at the federal level, but face a much simpler framework in regarding your state taxes.
From then until today, other US demarcations have followed the same path, replacing the old progressive systems to adopt a model of flat tax. Twenty years following Colorado reform, Utah moved tab. Then came the change in North Carolina. And since then, the list has continued to grow, to also include Illinois, Indiana, Michigan, Pennsylvania y Massachusetts. The most recent reform has been in Kentuckywhich since 2019 has been applying a single rate of 5% to its Income Tax.
The year 2022 has led to many movements in the same direction:
– Iowa It had been applying a system under which 9% was required from taxpayers, but between 2023 and 2026 it will have consolidated the shift to a model under which only a flat rate of 3.9% will be applied.
– Mississippi will introduce the flat tax next year and will gradually reduce it until it is set at 4% at the end of the legislature that begins in January.
– Georgia it will start with a single rate of 5.49% in 2023 and will leave it at 4.99% in the middle of this decade.
– Idaho It has already eliminated its four tranches and is going to limit the state income tax to a single rate of 5.8%.
– Arizona it will be even more aggressive, since its rate will be barely 2.5%.
The list can continue to grow, because in Missouri there are some legislative proposals that move in this direction and in Oklahoma changes in this regard might be announced over the next year. In Alabama There have been no major movements, but its system is relatively simple, since it barely has three sections, so there are already some voices advocating for this type of reform.
The following map from the Tax Foundation details the current landscape:
As can be seen, not only is there a strong advance in the flat tax, but there is also eight US territories where personal income tax is not even applied at the state level, as in the case of Texas, Florida, Nevada, New Hampshire, Tennessee, Washington, Wyoming o Dakota del Sur. The taxpayers of these territories pay only the federal portion of the tax and their governments are financed only with the income that generates taxes equivalent to VAT or IBI.
So, while Joe Biden insists on raising taxes at the federal level, there is a long list of state territories that explore the opposite path and reduce their personal income tax until it becomes a flat tax or directly eliminate this lien entirely.