A flat income tax system in its purest form is one in which all taxpayers are subject to the same tax rate regardless of their income. This type of tax system is somewhat controversial. Supporters argue that it is more fair and encourages wealth creation because top earners are not punished with higher tax rates. Opponents argue that it places an undue burden on low income taxpayers. Another argument against it is that the limited deductions and credits in a flat tax system offer fewer opportunities to encourage specific investing or saving activities through tax breaks.
The seven states with flat tax systems, and their tax rates, are:
- Colorado: 4.63%
- Illinois: 3%
- Indiana: 3.4%
- Massachusetts: 5.3%
- Michigan: 4.35%
- Pennsylvania: 3.07%
- Utah: 5%