National Review first published this opinion piece.

Ohio has just joined the rising “flat tax revolution.” Since mid-2021, six states have revised their tax codes and adopted a flat tax. When Governor Mike DeWine signed Ohio’s new budget, it became the 15th state to abandon graduated, or “progressive,” income taxes in favor of the flat-rate model. And with a 2.75 percent rate, Ohio’s flat tax will be the second-lowest in the country. The move is good for Ohio, and the movement bodes well for the nation.

A flat tax levies the same income tax rate on every household and business, regardless of income. Progressive income tax structures, by contrast, tax different income levels at different rates, subjecting higher earnings to higher taxes. The graduated, progressive model — popular predominantly among liberals — creates disincentives to earn more, since every dollar earned over an arbitrary threshold may be taxed at a higher rate. And it only gets worse.

Progressive income tax systems — like the federal income tax — encourage taxpayers, lobbyists, accounting firms, and policymakers to push for loopholes, carve-outs, and exceptions to offset the progressively higher tax rates. Those loopholes favor the well connected, and they deem government-favored businesses “more equal” than others (to borrow from Orwell), creating economic winners and losers across the tax code. Moreover, the tax loopholes and exemptions created to relieve the tax burden on a few must be paid for by the many — an unfairness that breeds contempt and stymies economic growth.

The increasingly popular flat tax model offers Ohio and other states several advantages.

Because flat tax systems do not impose marginal tax increases as earnings increase, they encourage economic activity, investment, and higher earnings. That growth generates more wealth and more savings. And that additional wealth improves schools, communities, cities, and states, making them more attractive to fed-up families and businesses tired of paying for someone else’s tax loopholes in high-tax jurisdictions like New York and California.

Fixed flat tax rates are simple and predictable. Ohio’s new flat tax is 2.75 percent, a number every taxpayer can understand without an accountant or tax attorney. No need for complicated tax estimators and calculators to track a sliding scale of complex brackets and exemptions. And every taxpayer will have a pretty good idea what his or her state income tax bill is likely to be. That predictability improves financial plans and household budgets, and it makes it easier for out-of-staters to determine (quite accurately) whether moving to Ohio would improve their finances — another competitive advantage for states looking to attract new employers and employees.

Finally, flat taxes are harder for state legislatures to raise without voter approval. With a flat tax, voting taxpayers know exactly what percentage of their earnings will be siphoned to public coffers each year, and legislators who want to raise that percentage will need to justify and explain why all taxpayers must be subject to a higher rate — without the sleights of hand and tax gimmickry and political cover provided by exemptions and loopholes. After weighing the transparent costs and purported benefits of raising the state’s flat tax rate, taxpayers may then hold their legislators accountable.

This is particularly important because the tax rates themselves — whether flat or progressive — dramatically affect economic growth and prosperity. States with low tax rates attract more business, retain more residents, and induce more investment, making them far more competitive and prosperous than states with high tax rates. High taxes slow economic growth, so even states with high flat rates, such as Illinois, struggle to compete economically against states with lower tax rates. 

Simplicity, predictability, transparency, accountability, prosperity. It isn’t hard to see why taxpayers and an increasing number of state legislatures favor the flat tax model. In the aftermath of the Covid-19 pandemic, Arizona, Iowa, Mississippi, Georgia, and Idaho converted from graduated- to single-rate income taxes to stimulate economic growth and reduce the financial strain on households and businesses. Mississippi has gone even further, passing legislation to eliminate its entire income tax. A relative latecomer to the movement, Ohio has struggled for decades to shake its Rust Belt image and revive a lagging economy encumbered by an unwieldy tax code with nine tax brackets and a top rate of nearly 6 percent. Incremental tax reforms, the consolidation of tax brackets, and the lowering of rates have helped along the way, but moving from a progressive income tax to a low-rate flat tax will be a game-changer.

State policymakers nationwide will undoubtedly need to remain vigilant and rebuff left-wing efforts — such as those in Michigan and Massachusetts — to restore the counterproductive graduated income tax. A flat tax regime is well worth defending. Greater economic growth, higher productivity, and a more competitive and transparent tax code that helps voters hold their officials accountable are immediate benefits of flat tax systems. Ohio may be just the latest to jump on the bandwagon, but there are still plenty of seats available.

Rea S. Hederman Jr. is the vice president of policy at The Buckeye Institute.