Critically, a flat tax guarantees that wealthy families’ totalstate and local tax bill will be a lower share of their income than that paid by families of more modest means. Flat taxes have some surface appeal but come with significant disadvantages. In short: A flat tax is one where each taxpayer pays the same percentage of their income whereas a graduated tax applies higher rates to higher incomes. ![]() What’s the difference? And are states well served by the transition? Assuming that more commonly used deductions are eliminated, the tax burden could shift dramatically to the lower and middle classes.While most states have a graduated rate income tax, some state lawmakers have recently become enamored with the idea of moving toward flat rate taxes instead. Tax rates range from 10% to 37%, depending on income. Shift tax burden to lower and middle classes: A flat tax system could greatly reduce taxes on the richest Americans.A flat tax could also eliminate altogether some taxes that wealthier individuals tend to pay, such as capital gains, dividends, and interest income taxes. ![]() The rate could end up being higher than is politically acceptable if a flat-rate tax system were to replace that revenue. Federal revenue totaled $1.52 trillion in the first four months of the fiscal year 2022, and more than two-thirds of that came from personal income taxes, including taxes on capital gains, dividends, and interest.
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