States that have a flat tax rate have higher GDP growth. Higher tax rates are correlated with decreases in GDP and outcomes on the state and federal level, as often shown from prior research and in my working paper, “Graduated vs. Flat Personal Income Taxes: State Level Estimates on Output”.
States that enact flat personal income tax structures tend to have lower rates that incentivize more economic activity. When residents expect to retain more of their take home income they increase their consumption and savings rates.
The same applies to small businesses that file under personal income tax. As businesses expect to retain more, they reinvest their revenue into new projects, R&D, franchises, and hiring employees.
These lower rates foster an environment of productivity and growth for their state economy.
Flat taxes are often simpler and allow for far more ease in tax compliance. Taxpayers can feel more confident as they file with certainty about their rates. Those who often find evasive measures to resist paying their full amount in taxes find a harder time under a flat tax system as less loopholes and preferences are available.
These states with lower and simpler tax codes also have higher rates of migration as people search for an economic environment and tax system that suits their needs. Utah, Tennessee, and Indiana are ranked top three in ALEC’s Laffer State Economic Outlook Rankings for 2025. These flat and no income tax states have significant rates of in-migration along with being the highest ranked for economic prosperity.
Research like my own and many others continue to support that flat tax states that harness the power of lower rates and a simpler tax structure will continue to see better economic outcomes, as they foster growth and productivity.
