It’s 2025, and America’s tax landscape is undergoing a quiet revolution. Across the country, more states are flirting with—or outright embracing—a flat income tax model. One rate, one rule. Simple, right? But as with most things in the world of taxes, the devil’s in the deductions.
Let’s unpack what’s happening—especially in South Carolina—and what it means for high-net-worth individuals, small business owners, and anyone watching their bottom line.
South Carolina’s Flat Tax Proposal: The 3.99% Shockwave
South Carolina recently made waves with a proposal to flatten its income tax system. By 2027, the state aims to replace its current top marginal rate of 6.4% with a uniform 3.99% flat rate. That number could go even lower—to 2.49%—if state revenues outperform projections.
This move isn’t just about simplification. House Speaker Murrell Smith summed it up best: “We’re trying to send a message that South Carolina is open for business.”
Translation? This isn’t just tax policy—it’s economic branding. By positioning itself alongside income tax-free states like Florida and Tennessee, South Carolina wants to attract both residents and corporations. But there’s a cost to playing the game.
Critics argue the flat tax will siphon close to $1 billion from the state’s coffers over five years. That’s money that could otherwise go to schools, infrastructure, or Medicaid.
Flat Taxes: A Growing Trend, Especially in Red and Purple States
South Carolina isn’t alone. In fact, it’s riding a red wave of state-level tax flattening:
- Missouri has removed capital gains from its state income tax.
- Montana passed a law to gradually drop its top income tax rate to 5.4% by 2027 and expanded the earned income tax credit.
- Oklahoma is on a slow march toward eliminating income tax entirely by consolidating brackets and reducing rates.
- Indiana, already flat, is pushing its 3.15% rate down to 2.9%.
- Alabama has trimmed grocery taxes and is eyeing further reforms.
- Kansas, famously scarred by its 2012 flat tax experiment, may try again with a revised plan in 2026.
Clearly, the idea of “one rate for all” is gaining steam.
The Argument: Simplicity vs. Equity
Flat tax advocates often tout three core benefits:
- Simplicity – No more complex brackets or calculations.
- Transparency – Easier to understand how much you owe.
- Competitiveness – Lower taxes attract businesses and high earners.
But opponents see a different picture. Carl Davis of the Institute on Taxation and Economic Policy warns that “a flat tax might seem fair on paper, but in practice it shifts the burden downward.” In many flat-tax states, the poorest 20% of earners pay a larger share of their income in taxes than the top 1%.
That’s because income taxes are only one piece of the pie. When flat taxes cut top rates, they often require states to increase reliance on regressive taxes—like sales or gas taxes—to make up for lost revenue.
What This Means for JS Morlu Clients
If you’re a high-net-worth individual, a business owner, or managing a complex financial portfolio, here’s what you need to watch:
🧾 Your State Residency Matters More Than Ever
Flat or zero-income tax states are becoming tax havens—especially for retirees, remote workers, and LLC owners. But shifting residency isn’t as easy as renting a beach house. You need a clear strategy (and documentation) to avoid audits.
💼 Small Business? Know Your Brackets
For entrepreneurs, especially in pass-through entities, these changes could significantly impact your take-home pay. Flat taxes often lower your effective rate, but at the cost of deductions or credits you might otherwise leverage.
📊 Tax Planning Just Got Trickier
With states like South Carolina and Kansas changing rules every legislative session, your long-term tax strategy needs to stay agile. That’s where proactive planning (yes, the kind JS Morlu does best) becomes a game-changer.
Flat ≠ Final: Why This Isn’t the End of the Tax Debate
Let’s be clear: the rise of flat taxes doesn’t mean we’re entering an era of tax utopia. Most states still rely on federal aid and volatile sales tax revenue. That’s a risky base if a recession hits or spending needs spike.
Even flat-tax-friendly politicians—like Colorado’s Governor Jared Polis—acknowledge the need for balance. Polis has advocated for broadening the tax base while lowering rates but emphasizes safeguarding against crony capitalism and revenue shortfalls.
The takeaway? Flat taxes are here, but they’re not one-size-fits-all. And they definitely aren’t immune to politics, budget gaps, or unintended consequences.
Final Thoughts: Opportunity or Overreach?
For JS Morlu clients, these developments offer both opportunity and caution. A flat tax might save you money—but only if it aligns with a broader, personalized strategy that considers estate planning, capital gains, charitable giving, and business income.
Our advice? Treat tax policy like a chess game, not checkers. The board is changing quickly. We’re here to help you make the smartest moves.
📞 Want to review how these changes affect your situation? Schedule a consultation with one of our expert CPAs today.