TaxProf Blog

Samuel D. Brunson (Loyola-Chicago; Academic google), Bargain basement progressivity? Constitutional fixed taxes, demogrants and progressive income taxation, 53 Law. U. Chi. LJ 683 (2022):

State and local governments collect revenue in three main ways: property taxes, sales taxes, and income taxes. Property and sales taxes tend to place a higher burden on low-income households. To ensure the fairness and progressivity of their general revenue system, states need their income tax to be sufficiently progressive.

Four states face a seemingly insurmountable barrier to progressive income taxation: Their state constitutions require that any income tax must have a fixed rate, applicable to all taxpayers. Without constitutional reform, a difficult process, they cannot adopt marginal rates that increase as income increases.

While the impediment seems insurmountable, it can, in fact, be overcome. Also, it may lead these states to adopt a more progressive income tax. By using a flat-rate income tax with a refundable tax credit, called a “demogrant,” states can enact a flat-rate income tax that is both remarkably progressive and more economically efficient than a flat-rate income tax. income with progressive marginal rates.

This type of flat rate tax with a demogrant must meet the constitutional requirements of states with mandatory flat rate taxes. But you don’t need to limit yourself to those states; While legislative inertia prevents most states from moving to a flat tax with a demogrant, the successful adoption of such a tax by a state with constitutional restrictions may encourage other states without constitutional restrictions to consider this model more efficient progressive income tax.

https://taxprof.typepad.com/taxprof_blog/2023/02/bargain-basement-progressivity-constitutional-flat-taxes-demogrants-and-progressive-income-taxation.html