Many years ago, an editor told the writer Matt Taibbi that Tom Friedman had a new book coming out, and that it was called The Flattening
. As it turns out, the intel was wrong: the book was The World is Flat
, a confused metaphor if there ever was one, and Taibbi eviscerated the book in a scathing review
. Today, however, there’s another and better form of flattening taking place: of state individual income taxes. Iowa is now phasing one in, and proposed reforms in other states are pushing in that direction as well.
And here’s the incredible part: we might well see as many states adopt laws transitioning from graduated to flat-rate income taxes in 2022 as we have seen in the entire history of state income taxes to date.
In six states, such a transition would be relatively easy, since top rates kick in at or under $10,000, and the maximum possible savings under the current progressive rate structure are all $222 (in Idaho) or less. In Alabama, a graduated-rate income tax only has a $40 impact on tax liability; in Mississippi it’s $50.
With a deal reached by legislative leaders today, Mississippi seems on the verge of making that transition. Georgia
lawmakers are seriously considering a flat income tax as well, and Iowa
is phasing into one under legislation adopted earlier this year, going from a graduated rate tax that not long ago topped out at 8.98 percent (with federal deductibility) to a 3.9 percent rate by 2026.
Friedman’s flat plane was not, as it turns out, quite flat: it had notches and steroids and convergences piled on top each other and, in what Taibbi identified as almost the Friedman ur-metaphor, “a set of upside-down antlers with four thousand points: the icing on your uber-steroid-flattener-cake!”
Single-rate income taxes are not quite flat, either; the rate may be flat, but the standard deduction, along with other deductions, exemptions, and exclusions, will typically provide some level of progressivity. For a state where a progressive rate structure only offers $50 or even $222 in savings, tinkering with these provisions can hold low-income taxpayers harmless or even make them better off. Georgia, Mississippi, and Oklahoma are prime candidates for a move to a flat income tax, as the table below demonstrates.