The voices of Tax Policy Center's researchers and staff
The newly published results of an extensive survey of public views on taxes find deep partisan divisions and a widespread lack of understanding about federal income and estate taxes. The survey also shows that people’s perceptions of how government spends revenue may have a powerful effect on their views of the tax code. The conclusion: Partisanship defines not only what people think about taxes, but how they think about taxes.
The study, by Harvard University economist Stefanie Stantcheva, was published in August by the National Bureau of Economic Research (paywall). It found fairness and distributional effects of tax policy far outweighed efficiency in the minds of most respondents. While the concept of fairness was critically important to people’s views of taxes, perceptions of what fairness means varied widely—and seemed to correlate with their political affiliation. For another perspective on tax fairness, take a look at this report by my TPC colleague Vanessa Williamson.
Stantcheva also found widespread misunderstanding of the tax code, a finding similar to those in other studies. For example, respondents thought median-income households pay twice as much tax as they really do and that top-bracket households pay slightly less than they do.
They believed that the top individual income tax bracket kicks in at $188,000 (in 2019, it really was about $612,000 for joint filers) and that it applies to 20 percent of households (the reality is less than 1 percent). At the same time, on average they thought 36 percent of decedents pay the estate tax (it is less than 0.1 percent) and that the estate tax exemption is $2 million (it is $11 million).
Self-identified Republicans generally believed that taxes are higher and more progressive than those who called themselves Democrats.
Respondents also were asked how they thought people responded to taxes. The three main ways: evasion, moving to a lower tax state, and working less and being less entrepreneurial. But they differed widely in how they’d personally respond and how they thought others would.
Overall, 80 percent believed that higher-income people were more likely to evade taxes, 43 percent said someone in a high-income household would work less, and 78 percent said wealthy taxpayers would move to a lower-tax state.
However, when asked what they personally would do, their responses were much less dramatic. Twenty-eight percent said they’d evade taxes, 33 percent said they’d work less, and 55 percent said they’d move.
But there once again was big variation by political party. Republicans believed there was a much bigger behavioral response to taxes than Democrats. With one notable exception: GOP respondents were a bit less likely than Democrats to say that high-income taxpayers would evade taxes.
Responses were similar for the estate tax. Overall, respondents felt that 88 percent of the wealthy would evade these levies. When asked about their own responses, 38 percent said they’d evade estate taxes (though in reality, almost none will ever have the chance).
What is fair?
Fairness was a major concern for those surveyed. But framing fairness in different ways generated very different responses. Most respondents thought people making the same amount of income should pay the same amount of tax, so the value of horizontal equity seemed widely shared. But if fairness was described as using the income tax to more evenly distribute money and wealth, responses were far more partisan.
More than 90 percent of surveyed Democrats said wealth and money should be more evenly distributed in the US, more than twice the percentage of Republicans. At the same time, 55 percent of Republicans said the wealthy are entitled to keep their income while only 10 percent of Democrats felt that way.
When it came to the estate tax, respondents had different views about decedents and their children. They seemed more inclined to say that people should be able to pass on all their wealth to heirs than to favor the idea that the children of the wealthy should receive all their assets.
Overall, there was a huge partisan gap in response to the question of whether people are satisfied with the current tax system: Nearly half of Republicans said they were, compared to only one-in-five Democrats. This may reflect, in part, the highly partisan nature of the Tax Cuts and Jobs Act that Congress passed in 2017.
How are taxes spent?
Most interesting, views on taxes seem affected in large part by perceptions of how government spends money.
Asked if they’d support raising taxes to help support low-income households, 80 percent of Democrats said yes while only 39 percent of Republicans agreed. But asked if they’d back taxes to support increased public investment, the gap narrowed significantly. Fifty-nine percent of Democrats agreed with that approach, as did 48 percent of Republicans.
Stantcheva surveyed nearly 2,800 adults on the income tax and about 2,400 on the estate tax. The surveys were conducted in February and May of 2019.
Many of her conclusions confirm earlier research, but her paper includes some valuable insights. It is worth reading, both by tax policy analysts and politicians.
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