One of the most important decisions that must be made when designing a state personal income tax is whether to charge taxpayers a single flat rate on all their taxable income, or whether to levy a series of graduated rates that ask more of high-income taxpayers.
Most states (32 and the District of Columbia) have graduated rate structures, though these taxes vary significantly in their degree of graduation. The remaining 18 states are evenly split between those that levy flat-rate taxes (nine states) and those that do not levy broad-based income taxes (nine states). Graduated rate taxes are better equipped to offset the regressive nature of sales and excise taxes, which charge higher effective tax rates on low- and middle-income families. And during times of widening income inequality, graduated rate taxes will also generate more robust revenue growth because they ask more of affluent families who are seeing rapid growth in their incomes.
Read More: How State Personal Income Taxes Work