Americans feel pretty good about their tax bills. You wouldn't know it from all the talk in Washington and on the campaign trail about overhauling the tax code, slashing rates on personal income, or creating a flatter tax system.
They feel so pleased, in fact, that a slight majority of Americans – 52 percent – think they pay the right amount of taxes, according to new data from the Pew Research Center. The number of people who feel that they pay more than their fair share of taxes dropped from 55 percent in 2000 to 38 percent in 2011. It’s a sentiment so popular across party lines that it prompted the Pew Research Center to write: “Very few Republicans, Democrats, or independents cite the amount they themselves pay as their chief complaint.”
Such feel-good data almost sounds like a conspiracy on the part of the Internal Revenue Service to boost its public image. It seems implausible given the annual griping that takes place every April leading up to the deadline to file returns. But, look at the data, and the explanation seems simple. “Right now, taxes are objectively very low. The lowest level since 1950,” says Jon Bakija, a professor of economics at Williams College. Instead of over-taxation, what frustrates many Americans is the complexity of the tax code, as well as the perception that the wealthy get off easy: two themes that have started to dominate the 2012 election cycle.
Tax revenues now represent just 14.4 percent of the GDP, according to the Office of Management and Budget, compared to a high of 20.6 percent in 2000. Over the past 25 years, the number of individual tax breaks known as tax expenditures has ballooned, giving people deductions on everything from mortgage interest and charitable donations to state and local taxes. In fiscal year 2011, tax expenditures cost the federal government $1.1 trillion, or 7.6 percent of the GDP, compared to 1976 when they accounted for just 4.2 percent of the GDP.
And, even with taxes at an historic low, people still find ways to skirt them. A recent IRS report estimated that Americans underpaid their tax bills by $385 billion in 2006, the latest year for available for such data.
Pollsters and economists have a hard time determining why Americans feel more satisfied with their tax bills than they did a decade ago. The Pew Research Center’s associate director, Michael Dimock, thinks the well-publicized 2001 and 2003 Bush-era tax cuts made Americans feel more flush, even if the biggest breaks went to the wealthy. “I don’t know if Americans feel this way because it’s a real bookkeeping thing, or a reaction to the news,” he said.
It could also be the lack of familiarity with how the tax code works. In a well-cited 2003 poll done by NPR, Harvard University, and Kaiser, just 21 percent of those surveyed knew the meaning of “progressive” – the long-standing idea that the rich should pay more than the poor in taxes. According to historical polling data kept by the conservative think tank American Enterprise Institute, Americans also hold the conflicting and contradictory ideas about how to tax the rich, namely that the rich should pay more taxes and that the government should cap federal income tax for the highest-paid earners at 25 percent.
Instead of hard-nosed data, emotion and impressions seem to rule the day when it comes to Americans’ thinking about their tax bills, says Karlyn Bowman, a senior fellow who studies polling at AEI. And, these impressions give politicians an opening on the campaign trail.
Candidates on the campaign trail already have picked up on two issues that bother Americans about the tax code. Fifty-nine percent of those surveyed by Pew say the tax code is so screwed up that Congress needs to overhaul it. (The breakdown by Republicans versus Democrats is 60 percent to 55 percent). Revamping the tax code to simplify it, broaden the base, and rid it of loopholes is certainly an idea all of the GOP presidential candidates have supported in debates and stump speeches.
Both Newt Gingrich and Gov. Rick Perry would lower the individual income tax rates to 15 percent or 20 percent, respectively, while allowing taxpayers to either opt into the current tax system, or pay the candidates’ proposed lower rates—whichever gave taxpayers the most favorable financial outcome. Rick Santorum would lower taxes on capital gains from 15 percent to 12 percent, while Mitt Romney vaguely has called for flatter, reduced tax rates and a broader base with more details to come.
Overwhelmingly, Democrats surveyed by Pew are most irritated by the perception that the wealthy do not pay their fair share of taxes. Seventy-two percent of them cited it as the most irksome quirk of the U.S. tax system, shared by 38 percent of Republicans: a theme that President Obama seems to be capitalizing on as income inequality becomes one of the major themes of his re-election strategy.
In early April 2011, NBC News and the Wall Street Journal conducted a poll that asked Americans which party would do a better job of tackling taxes -- and 20 percent expressed little faith in either party. The rest of the group was almost evenly split between confidence in Republicans and Democrats.
So, as far as voters’ perceptions go, it seems neither party has an advantage as the 2012 campaign season heats up. No big tax decisions will be made before the November elections, but quickly thereafter Washington will grapple again with the question of extending the Bush cuts and then possibly take up tax reform in 2013. Who knows if any taxpayers will feel satisfied then?