Policy Documents

Indiana and a Progressive Tax Structure

Cecil Bohanon –
October 1, 1999

Talk of tax reform in Indiana often ends up with proposals to scrap Indiana’s proportional income tax structure and replace it with a graduated income tax. Thirty-four of the 42 states that have income taxes have tax structures that are explicitly graduated. Only five other states have a single-rate or proportional income tax system. Should Indiana move to a graduated income tax structure?

There is a long and noble history of discourse on this issue that goes back, at least, to the 1830s. This short essay does not attempt to cover all the aspects of this discussion. Rather it shall focus on two points: 1) the essential difference between a proportional (aka non-graduated or flat) income tax and a progressive or graduated income tax; and 2) analyze data that indicates how progressive income tax structures actually operate in the 34 states where they are in place.