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Flat Tax Fever? States Ramp Up 2025 Income Tax Overhauls

Many U.S. states are considering or implementing flat income tax systems. These policies apply a single tax rate to all taxpayers regardless of income. While supporters say these reforms simplify tax codes and spur economic growth, critics argue they disproportionately benefit the wealthy and jeopardize state revenue. 

With South Carolina making national headlines with its new proposal, the state-level flat tax conversation has entered a new phase.

South Carolina’s 3.99% Flat Tax Proposal Sparks National Attention

South Carolina is the latest state to float a major overhaul to its income tax structure. In April 2025, state lawmakers advanced a proposal to reduce the current top marginal rate of 6.4% to a flat 3.99% by 2027. “We’re trying to send a message that South Carolina is open for business,” House Speaker Murrell Smith told the Associated Press. The bill includes provisions to automatically lower the rate further—down to 2.49%—if state revenue projections exceed expectations.

Supporters in the Palmetto State say this will increase competitiveness with low-tax neighbors like Florida and Tennessee, neither of which imposes state income taxes. Critics, however, caution that flattening the tax code could mean less revenue for public services and education.

A Broader Trend Across Red and Purple States

Other states are currently mulling similar transitions. In Missouri, lawmakers passed legislation exempting capital gains from the state income tax, a move that could significantly reduce state revenue. In Montana, Governor Greg Gianforte signed House Bill 337 in April 2025, which lowers the state's top income tax rate to 5.65% in 2026 and 5.4% in 2027, while expanding eligibility for lower tax brackets and doubling the earned income tax credit.

Oklahoma Governor Kevin Stitt and legislative leaders announced a budget agreement that includes a 0.25% cut to the state income tax and a consolidation of income tax brackets, setting a path toward potential elimination of the income tax. 

In Alabama, legislators are considering tax reforms, including reducing the state grocery tax from 4% to 3% in 2023. Discussions about further tax relief measures, including a flat rate, are ongoing. Indiana, which already has a flat income tax, is in the process of reducing its rate from 3.15% to 2.9% by 2027. Lawmakers are now considering accelerating those cuts or making them permanent.

Even Kansas, despite past fiscal struggles after former Governor Sam Brownback’s aggressive tax-cut policies, reentered the flat tax conversation. A recent flat tax proposal was vetoed by Governor Laura Kelly in early 2024, but Republican lawmakers are expected to revive a modified version for the 2026 session.

The Critics: “A Tax Cut for the Wealthy”

While flat tax proponents cite simplicity, transparency, and economic competitiveness, critics argue that the benefits largely accrue to high-income earners.

“A flat tax might seem fair on paper, but in practice it shifts the burden downward,” said Carl Davis, research director at the Institute on Taxation and Economic Policy (ITEP), in a recent State Rundown. ITEP's analysis shows that in many flat tax states, the bottom 20% of earners pay a greater share of their income in taxes than the top 1%.

This criticism has emerged in multiple states. In South Carolina, opponents of the 3.99% flat tax say it could drain nearly $1 billion from the state budget over five years, forcing potential cuts to schools, infrastructure, or Medicaid.

Flat Doesn’t Always Mean Fair or Final

Despite the surge in popularity, flat tax reforms come with caveats. Most states still rely heavily on federal funding and sales taxes. A poorly designed flat tax could leave lower-income residents worse off, particularly in states without strong safety nets.

Some politicians, like Colorado Governor Jared Polis, have shown openness to the idea of simplifying the tax code. Polis, in particular, though, noted the importance of doing so responsibly. In a 2020 statement published by the Colorado Tax Policy Center, Polis said, “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 position reflects a wider trend among some policymakers: support for tax reform that encourages economic efficiency while ensuring long-term fiscal sustainability.

Heading into the 2025 legislative season, more states are expected to join the flat tax debate. Whether or not these proposals succeed may depend less on ideology and more on how well they balance revenue needs with promises of fairness and simplicity.

But one thing is clear: the flat tax era is no longer theoretical. It's here, and gaining momentum.

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