States Embrace Structural Shift With Flat Tax, Retiree Tax Cuts

As tax-cut fever continues to race through state capitols, two surging, related themes with long-term implications for state finances are emerging: flat taxes and targeted tax relief on retirement income.

Arizona, Georgia, Iowa, and Mississippi have all committed to flat income tax systems in recent weeks, and Oklahoma is likely to join the club soon. Meanwhile, at least seven states took steps to reduce income tax burdens on retirees, paring back taxes applied to income from Social Security, pensions, 401(k) plans and Individual Retirement Accounts, or IRAs.

Both developments reflect a unique moment in state tax policy. Working from $350 ...