It’s a conversation that plays out often—especially during tax season or election cycles:
“The rich should pay more.”
“It’s unfair that some people don’t pay anything.”
“Higher earners should shoulder a greater share of the burden.”
These comments are most commonly directed at federal taxes, where our progressive tax system means the more you earn, the higher the percentage you’re likely to pay. But here’s what’s curious: Many of those same arguments aren’t made with the same intensity—or at all—at the state level.
Take Pennsylvania, for example. The state income tax rate is a flat 3.07% for all residents, regardless of income level, from $30,000 to $3 million
Yet you rarely hear complaints that Pennsylvania’s system is unfair because higher earners aren’t paying a higher percentage of their income.
Why is that?
Flat vs. Progressive: A Quick Primer
- A flat tax means everyone pays the same percentage of their income. It’s simple, predictable, and easy to understand.
- A progressive tax means that higher income levels are taxed at higher rates. The goal is to distribute the tax burden more proportionally based on income.
Federal income taxes are progressive. State income taxes—like Pennsylvania’s—are often flat.
And while federal tax policy is frequently debated in the public square, state systems often fly under the radar.
Why the Difference?
- Scale and Visibility
Federal taxes have a bigger footprint. They fund massive national programs—defense, Medicare, Social Security, federal infrastructure, and more. The size of the bill—and the size of the government—makes people more sensitive to how it’s divided up.
By contrast, most state budgets are smaller and more focused on day-to-day operations like schools, transportation, and law enforcement. The average taxpayer may not feel the same scale of impact, even if they notice potholes and property taxes.
- Withholding Simplicity
Federal tax withholding is tiered and complex. State tax withholding (especially in flat-tax states) is straightforward, often making it feel more like a utility bill—consistent and predictable.
- Fewer Deductions and Loopholes
Federal taxes are full of deductions, credits, and complexity. State tax systems, especially in flat-tax states, typically have fewer exceptions. This simplicity may create less space for perceived unfairness—even if flat systems are, by definition, less progressive.
- Emotional Distance
The federal government is more abstract to many people. It feels distant and powerful, and its policies can feel imposed rather than local. State governments, while not always beloved, often feel closer to home. That can influence how tax policy is received.
Is a Flat Tax “Fair”?
That depends on how you define fair.
Flat taxes are often seen as fair in the sense that everyone pays the same rate. But they’re also regressive in practice—meaning lower earners give up a higher portion of their disposable income, while higher earners retain more.
Progressive federal taxes attempt to rebalance this, but that introduces complexity—and controversy.
Interestingly, people may be more willing to accept flat taxes at the state level precisely because of that simplicity. It feels transparent. Everyone understands the rate. And with fewer deductions and games to play, it feels less like a system that can be manipulated.
What This Means for Your Plan
Tax systems—state and federal—are constantly evolving. And they don’t exist in isolation. Where you live, how you earn, and how you spend all impact your overall tax exposure.
At One Financial Services, we help clients:
- Strategize across both state and federal systems
- Understand how different income types are taxed
- Plan for retirement income distributions in ways that reduce tax drag
- And make decisions with an eye toward total tax efficiency
While we can’t control tax policy, we can help you navigate it effectively.
Letting Go of Tax Myths
Let go of the idea that tax planning is only about avoiding taxes.
Let go of the assumption that “it’s all unfair” or “there’s nothing you can do.”
Let’s focus instead on understanding the system—and making it work for you.
After all, a good tax plan doesn’t rely on headlines or emotion. It relies on clarity, strategy, and proactive planning.