America was born in revolt over taxes, and that sentiment never faded. There was no federal income tax until 1861, when Congress set a flat rate to fund the Civil War. That didn’t generate enough revenue, so they switched to a graduated tax, requiring higher earners to pay higher rates. That’s the idea behind today’s federal tax system, which was instituted in 1913. But after a century of tinkering, it has become one of the world’s most complicated tax codes, rife with incentives and loopholes. Some argue that we need a hard reset, reverting to a flat tax. Others say that would do more harm than good. Who’s right?
Play it straight
A flat tax treats every dollar of income equally. Today’s system discourages saving and investments by charging higher earners at higher rates and double-taxing investment gains. A lower single rate would reward productivity and growth, which is how capitalism is meant to work. Even former Soviet bloc countries like Slovakia and Estonia have seen foreign investment increase and unemployment fall after adopting flat taxes in the 1990s and early 2000s. One simulation model from the Netherlands found labor participation increases when higher earners face fewer penalties.
Transparency makes it easier to file taxes and harder to game the system. “The more complex the tax system, the more avenues there are for discretion,” says Gary Hufbauer of the Peterson Institute for International Economics. In 2024, Americans spent nearly eight billion hours — worth over $400 billion — filing their returns, while an estimated $696 billion in taxes went unpaid. Streamlining that system would lift burdens on both taxpayers and the Internal Revenue Service. A 2015 American Economic Journal study found that complex codes make taxpayers less responsive to changes, and Yale’s Budget Lab estimates that closing loopholes could recover up to $560 billion.
Eliminating deductions would get politics out of the tax code. Decades of campaign promises to shield the middle class from tax hikes have only led to bigger deficits and stalled reform, according to the Urban-Brookings Tax Policy Center. Meanwhile, in 2024, more than 6,000 tax lobbyists — 11 for every member of Congress — worked mainly for corporate interests. “With a single, flat rate, politicians cannot play bracket groups against each other, picking winners and losers,” writes a Foundation for Government Accountability senior fellow.
A single, consistent tax rate drives long-term competition. The Tax Foundation estimates that a federal flat tax could raise GDP by 3 percent and expand investment by almost $2 trillion. Iowa’s recent shift to a 3.8 percent flat tax continued its rise in that organization’s state tax competitiveness ranking, from 43rd in 2020 to 17th in 2026. Fifteen states have adopted flat income taxes, including Utah, Idaho, Colorado and Arizona, with Kansas on track to join them when it hits certain fiscal conditions.
Less is just less
America needs more revenue from its wealthiest taxpayers. Simply put, a graduated tax ensures that those who benefit the most from our economy return the favor, while a flat tax collects less money overall. For example, Arizona’s revenues collapsed after the state adopted a 2.5 percent flat tax in 2021, forcing cuts to education and infrastructure. Nationally, the impact would be even broader; 71 cents of every tax dollar in 2023 went to health care, Social Security, national defense and servicing the national debt. Arizona still faces a $277 million shortfall for 2026, a $2.6 billion swing.
Flat tax systems depress consumer spending, because they lean on regressive sales and excise taxes. In 2024, the nonpartisan Institute on Taxation and Economic Policy found that state-level consumption taxes hit the bottom fifth of earners seven times harder than the top 1 percent. As Circana’s chief retail adviser told Moody’s when lower-income consumer spending stalled last spring, “When the lower income falls behind their spending power of previous years, it’s not easy to make up the difference.”
A flat tax would increase the wealth gap, which is a threat to political stability. In an essay for The New York Times titled “Tax the Rich, Like Me,” former Sen. Mitt Romney of Utah argued that increasing such taxes “would help us avoid the (debt) cliff ahead and might tend to quiet some of the anger that will surely grow as unemployed college graduates see tax-advantaged multibillionaires sailing 300-foot yachts.” A 2024 University of Chicago study identified income inequality as one of the strongest predictors of democratic erosion. The top 10 percent now hold an average of $1.9 million in wealth, a sixfold increase in 60 years; the bottom 10 percent average $450.
A flat tax won’t fix what’s broken. Instead, let’s simplify the system. The Penn Wharton Budget Model shows that reducing complex brackets and deductions could raise GDP by over 20 percent while lowering federal debt. In contrast, a flat tax would deliver under 2 percent long-term growth once transition costs are counted, according to the American Economic Review. “Without significant increases in saving and growth,” says economist William G. Gale, “it is hard to see how uprooting the entire tax system is worth the risks.”
This story appears in the April 2026 issue of Deseret Magazine. Learn more about how to subscribe.