Are the Flat Tax Folks Winning — or Have They Already Won?

What makes an income tax “fair”? Right-wing lawmakers the nation over have a ready answer. To be fair, they tell us, an income tax needs to be “flat.” Their core claim: In an evenhanded tax system with no axe to grind, everyone would pay tax at the same rate. What approach, flat taxers argue, could possibly be any fairer?

These flat taxers, not surprisingly, ignore the answer our income tax history makes patently plain: All of us share a comparable tax burden only when we have a graduated tax in effect, a levy that applies higher tax rates to income that sits in higher income brackets.

Flat taxes, by contrast, give our richest what amounts to a free ride at tax time.

Suppose, for instance, that a 5 percent flat tax on income became the law of our land. In this flat-tax America, families earning $70,000 a year would feel a far greater squeeze at tax time than families making $700,000 a year. For households pulling down even more in annual income, say $7 million, a mere 5 percent outlay to Uncle Sam would rate as little more than a financial hiccup.

And that reality neatly explains why our nation’s rich people-friendly think tanks and politicos have of late been investing so much financial and political capital in advancing flat tax plans, especially at the state level. Early in in our current 2020s, this state-first strategy seemed to be working just fine.

As analysts at the flat tax-friendly Tax Foundation gushed earlier this year: “In 2021 and 2022 alone, within the span of 15 months, more states enacted laws converting graduated-rate individual income tax structures into single-rate income tax structures than did so in the whole 108-year history of state income taxation up until that point.”

But then came Kansas. In 2023 and 2024, lawmakers leaning the flat tax way could not gather enough votes to overturn a gubernatorial veto of a bill that would have, notes the Institute on Taxation and Economic Policy, “replaced Kansas’ graduated income tax brackets with a single flat rate of 5.25 percent.”

If that flat tax had become law, the Institute added, the biggest beneficiary probably would have been Kansas billionaire Charles Koch. His likely state tax savings: about $875,000 a year, 12 times as much as a typical Kansas household earns annually.

In Wisconsin, a similar story has unfolded. That state’s lawmakers have for two straight years dumped onto the governor’s desk legislation that significantly flattens the tax rates that impact Wisconsin’s wealthiest. For two straight years, the governor has vetoed that legislation.

The 2024 version of this Wisconsin legislation, if signed into law, would have saved households making $45,000 a year an average $78. Households making $674,300 annually would have saved 38 times more.

Have the latest tax battles in Kansas and Wisconsin seriously stalled the right-wing’s let’s-not-tax-the-rich momentum? At one level, most certainly yes. But stepping back and taking a broader view paints a more discouraging picture. And analysts at the Institute on Taxation and Economic Policy take that broader view in a just-released report, Who Pays Taxes in America in 2024.

This new research takes all the taxes Americans pay — federal, state, and local — into consideration. The progressivity of America’s tax system writ large, ITEP concludes, has almost all disappeared.

The share of all taxes the rich pay, the Institute’s analysts note, “only slightly exceeds the share of total income they receive.” In 2024, these analysts calculate, “the share of all taxes paid by the richest 1 percent of Americans” will only “be slightly higher than the share of all income going to this group.”

“And many individuals within the richest 1 percent, especially the richest in the group,” are paying “far less” than the top 1 percent average, the new ITEP report adds, thanks to assorted special tax breaks and loopholes.

“Our tax system should require the richest Americans to pay much more in taxes than they do now,” the Institute on Taxation and Economic Policy analysis concludes, “to support the public investments that make their fortunes possible.”

Americans, the latest polling data show, in no way support the rich people-friendly tax reality the new ITEP research so devastatingly details. One recent national poll — from the National Women’s Law Center and MomsRising — has found that a healthy majority of Americans support raising taxes on our richest to help people in need.

Some two-thirds of voters “across party lines,” this new polling shows, want Congress to wipe away the massive tax cut for America’s wealthy that Donald Trump signed into law in 2017. An even greater share of the American public — nearly 80 percent — would like to see Congress increase investments in the nation’s care-giving agenda by raising taxes on the wealthiest and the corporations they run.

Amid this widespread support for upping taxes on the richest among us, how can these rich be paying as little in taxes as they currently do? The simple answer: These rich have enough wealth and power to get our nation’s lawmakers to swallow the bogus narrative at the heart of the flat-tax flim-flam.

Any jurisdictions that choose to seriously tax the rich, this flim-flam posits, will lose their richest taxpayers to other jurisdictions — and end up collecting less, not more, in taxes.

Tax expert Brian Galle, a law professor at Georgetown University, likes to call this argument the “myth of the mobile millionaire.” But this notion, Galle explains in a new Atlantic magazine analysis, mostly amounts to pure fiction.

The easiest way to expose this fiction? Just look, Galle suggests, at the small number of states — California, New Jersey, and New York among them — that do at present tax the rich at rates appreciably higher than the national state tax average.

“If the conventional wisdom were accurate, you would expect those states to be devoid of wealthy people,” Galle notes. “Instead, they are among the richest in the country.”

But the myth of the mobile millionaire continues to hold sway, even among Democrats elected in deeply blue states. In 2022, as the Lever’s David Sirota points out, voters in Massachusetts passed a ballot measure that put in place a special surtax on millionaires. The state’s horrified Democratic governor then successfully pressed for a tax cut that included savings for her state’s wealthiest.

The result? A $1 billion state budget shortfall that the governor now says justifies big cuts for Medicaid.

In New Jersey, New York, and Colorado, similar stories. Democratic Party governors are shying away from taxing their richest and demanding budget cutbacks for programs that help people of modest means.

But hope does spring eternal, even in the struggle over taxing the rich. The latest ray of hope comes from the pressure for a more equal world now coming from Brazil, the nation currently chairing the G20, the international grouping that encompasses 20 of the world’s largest economies.

Just this past week, the Brazilian finance minister, backed by his French counterpart, called for an annual tax of at least 2 percent on the wealth of the world’s billionaires. Brazil and France are hoping to see this call gain the approval of G20 finance ministers when they meet this July.

Making that sort of move has become essential, notes Abigail Disney, the granddaughter of the Walt Disney entertainment empire’s co-founder and a tax-the-rich activist with Patriotic Millionaires. In our “increasingly interconnected” global economy, she lays out, our world’s ultra-wealthy find it “easier than ever” to move their money around to sidestep paying taxes.

That ease has to end.

‘The need to tax rich people like me,” Disney asks us to see, “has never been so dire.”

Sam Pizzigati, an Institute for Policy Studies associate fellow, co-edits Inequality.org. His latest books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.