With federal Tax Day now here, taxes have been on many people’s minds and have featured in a few recent public opinion studies.
A study released by Gallup this week found that Americans are more likely to say the income taxes they pay are fair, after a long downward trend since 2003.
Pew Research Center also released a study on taxes this week, but with a broader focus. It concluded that Americans are more likely now than they were 20 years ago to say they think the tax system as a whole is unfair, and that the main reason for the unfairness is that corporations and the wealthy are getting away with paying too little.
Yet in this Pew study as well, when asked about their own tax rates, respondents expressed a similar level of contentment as recorded in the Gallup study. Fifty-four percent told Pew they pay “about the right amount,” while 61 percent told Gallup the amount they pay is fair.
Taking these two studies together, Americans are more content with their own tax rates, yet tend to think the federal tax system as a whole is unfair.
Pew found that the top two irritants for Americans were that “some corporations don’t pay their fair share” (with 62 percent being bothered “a lot” by this), and that “some wealthy people don’t pay their fair share” (60 percent).
Less were bothered by the complexity of the tax system (43 percent). A similar proportion said they were not too much or not at all bothered by the amount they themselves pay (46 percent).
These are interesting insights, but in trying to relate them back to public policy, several issues crop up.
First off, “fair” is a very subjective term, and it raises a lot of questions: What would a more fair treatment of wealthy Americans and corporations look like in Americans’ minds? Higher rates? Fewer “loopholes”? (When we claim them ourselves, we call them “deductions.”) More auditing and enforcement?
And what is shaping Americans’ impressions of what is fair? Political rhetoric? Accusations of greed? An objective and informed understanding of who pays what in the U.S. tax system?
Research from The Heritage Foundation’s Center on Public Opinion suggests that it is definitely not the latter. Americans’ inaccurate understanding of who pays what taxes in this country likely drives their sense of unfairness.
When federal and state taxes are added together, the average corporate tax rate in the U.S. is 39 percent. That’s the highest corporate tax rate in the world.
A recent study conducted March 17-27 among registered voters on corporate taxes found that on average, Americans guess that the corporate rate is 30 percent—nine points lower than reality. The most common answer was 35 percent (16 percent of respondents said this).
But most Americans guessed something lower: 30 percent, 25 percent, even 20, 15, or 10 percent.
Another study conducted in December 2014 found a similar gap between reality and perception in personal income taxes.
That year, the top 10 percent of American earners making $120,000 per year or more earned 41 percent of all income, but paid 68 percent of all income taxes.
Americans were fairly accurate when it came to who earns what: They guessed on average that the top 10 percent of Americans earned 41 percent of American money, when in fact they made 45 percent of American money.
But they were pretty far off when it came to guessing the proportion of the nation’s taxes they pay. They guessed the top 10 percent pays 38 percent of all taxes, and they were off by 30 points. The top 10 percent pays 68 percent of all U.S. taxes.
The results indicate that when it comes to actually working out the numbers in their heads, Americans don’t think the tax scale is as graduated as it is. In fact, they think it’s graduated in the wrong way, with the middle class paying a higher proportion of taxes than they earn and the top 10 percent getting off easy.
Not surprisingly, Americans’ attitudes toward tax policy proposals, like raising or lowering tax rates, change when they have accurate information.
When asked after hearing the true proportions of income earned and taxes paid, the proportion of Americans saying they think the top 10 percent of earners doesn’t pay enough in taxes decreased by 31 percent.
The proportion saying they pay about the right amount increased 20 percent, and more even said that they pay too much (+11 percent).
Similarly, 50 percent of Americans think the corporate tax rate is too high, based on an average federal and state corporate tax rate of 39 percent.
And when Americans are shown comparison rates from a range of 12 different developed countries around the world, demonstrating that the U.S. corporate rate is the highest in the developed world, 67 percent think the U.S. rate is too high, further illustrating the subjectivity and fluidity of “fairness” within the tax system.
Gallup and Pew’s studies leave little doubt that Americans are concerned about the fairness of the current U.S. tax system.
When those feelings are based on false assumptions and incorrect information, the proper response is not to shape public policy around the whim of the people, but to provide accurate information about the United States’ current system, so that the American people can make an informed decision moving forward.