Americans' Views on Taxes
An NPR/Kaiser Family Foundation/Kennedy School of Govt. Poll
Summary: Americans feel better about the federal tax system, do not see tax cuts as a priority, but lack knowledge about how the system works.
April 2003 -- Although President Bush has made cutting taxes the centerpiece of his domestic agenda, a new poll by NPR, the Kaiser Family Foundation and Harvardís Kennedy School of Government shows that most Americans believe that other things are more important than cutting taxes.
For instance, an overwhelming 80 percent of those polled believe it is more important to maintain spending on popular domestic programs like education, health care and Social Security than it is to cut taxes. And by a 53- to 41-percent margin, Americans think itís more important to keep down the federal deficit than it is to lower their taxes.
Moreover, compared with the past few years, more people believe that the federal tax system is fair -- a slim majority (51 percent) now holds that view. And an equally slim majority thinks their taxes are too high, but that number has dropped over the past five years and is at its lowest level since the 1960s. Interestingly, this number has dropped among Democrats, Republicans and independents alike.
On the specific proposals to speed up and make permanent the 2001 tax cuts, a large proportion of Americans simply have no opinion at all. Six out of 10 say they donít know enough to say whether they should be made permanent, and nearly half (48 percent) say they donít know enough to say whether they should be speeded up. Among those who do have an opinion, more people support the proposals than oppose them -- but support drops nearly in half if they hear that it might lead to a large budget deficit.
Whatís more, Americans donít necessarily believe that tax cuts would stimulate the economy. Given four potential tax cuts, a majority of Americans (54 percent) said only one of them -- an across-the-board cut in federal income taxes -- would stimulate the economy. Fewer believe a $300 tax rebate (43 percent), a dividend tax cut (35 percent) or a temporary cut in payroll taxes (24 percent) would be an economic stimulant.
Republicans are more likely than Democrats to say that tax cuts will stimulate the economy, yet even Republicans do not overwhelmingly see these tax cuts as stimulative -- except the across-the-board income-tax cut, where 70 percent of Republicans say it would stimulate the economy, as opposed to 44 percent of Democrats.
Fifty percent of Republicans and 38 percent of Democrats say a $300 tax rebate would stimulate the economy; 50 percent of Republicans and 25 percent of Democrats say a cut in taxes on dividends would; and only 27 percent of Republicans and 19 percent of Democrats say a temporary payroll-tax cut would.
Americans feel this way about tax cuts despite the fact that, as expected, the vast majority believe the economy is not in good shape, and there has been an increase in the number of people saying their own personal finances are not very good.
The survey asked about two specific tax-cut proposals -- the elimination of the tax on dividends, and the elimination of the estate tax. On the former, more than six out of 10 people (61 percent) had never heard of the proposal. And of those who had heard of it, nearly three out of 10 (28 percent) -- or another 11 percent of the population -- didnít know enough about it to have an opinion. That means that 72 percent of Americans have neither heard of the proposal to do away with the tax on dividends or donít have an opinion about it.
On the estate tax, it was a different story: although 28 percent of Americans said they did not know enough about the subject to have an opinion on it, a solid majority (57 percent) supported eliminating the estate tax -- only 15 percent were opposed. However, looked at another way, support for completely eliminating the tax is not overwhelming. In addition to the 15 percent of Americans who oppose eliminating the estate tax, another 26 percent oppose eliminating the tax if it is only on estates worth $1 million or more. Taken together, that means that 41 percent support the current law, which exempts estates worth $1 million. About a quarter (26 percent) want to eliminate the tax even on estates worth $25 million.
Overall, a majority of Americans (52 percent) believes that there is so much wrong with the federal tax system that Congress should completely overhaul it. But 44 percent believe that, on the whole, the federal tax system works pretty well and Congress should make only minor changes to make it work better. It is interesting to note that this divide generally tends to hold up across sex, income, education and other demographics. It also does not seem to be related to how much people know about the tax system. People who say they trust the federal government to do the right thing are more likely to say the tax system needs only minor changes. Those who do not trust the federal government to do the right thing are more likely to want to completely overhaul the system.
Despite the large number of Americans who think the tax system is so bad it should be completely overhauled, they do not support two suggestions about how to do it -- one on a flat-rate tax (36 percent favor), and the other on a consumption (sales) tax (24 percent agree itís a good idea) to replace the current system. In both cases, people who want to completely change the tax system are more likely to favor the proposals than those who only want minor changes in the system (45 percent to 26 percent for the flat-rate tax, and 32 percent to 16 percent for the consumption tax). However, there are also large percentages of both groups who say they donít know enough to have an opinion about these suggested overhauls -- 30 percent to 40 percent in all cases.
When it comes to how complex the federal tax system is, 87 percent of Americans say the federal tax system is complex (50 percent say it is very complex). The number-one reason they chose for the complexity is that "there are so many different kinds of deductions and tax credits, and so many rules about how to take them" (82 percent).
However, people are not quick to support simplification. For one thing, they think the tax system should be used for more than just raising revenues. Asked whether the tax system should be used to encourage things like financing a home, giving to charities and buying health insurance, 72 percent said yes. In addition, although tax deductions make the system complex, Americans think that many tax deductions are fair. Asked about specific deductions, all but one earned a majority saying they were fair:
» deductions for dependents (76 percent)
» charitable contributions (62 percent)
» medical expenses (71 percent)
» and home mortgage interest (55 percent).
Only tax breaks for investments did not reach 50 percent approval -- 42 percent said they were fair.
Americansí views about the tax system and what changes should be made are often related to their income. The starkest differences based on income are found in an examination of the responses of people in the top 5 percent of income (those making $150,000 per year or more). They are more likely to favor a variety of proposals including eliminating the tax on dividends, speeding up and making permanent the 2001 tax cuts, and changing to a flat rate system than are those at lower incomes.
They also are more likely to strongly disagree that it is the responsibility of the government to reduce the gap in incomes between the top and the bottom, or the top and the middle. Furthermore, they are considerably more likely to be knowledgeable about the tax system.
In fact, knowledge -- or lack of it -- should factor into any analysis of Americansí feelings about taxes. Half of Americans (50 percent) donít know that in the past two years there has been a cut in federal income taxes. And most donít know much about how the tax system works. While a majority of Americans in the top 5 percent answered key knowledge questions correctly, only about 20 percent of the rest of the country did.
For instance, a majority of Americans (57 percent) either think that Social Security tax and Medicare tax are part of the federal income tax system (30 percent) or donít know whether it is or not (27 percent). About three-quarters (74 percent) of those making less than $20,000 a year are uninformed about that (40 percent believe these taxes are part of the income tax and 34 percent say they donít know).
Asked about the basic structure of the system, 28 percent say they donít know whether people with higher incomes pay a higher percentage of their income in income taxes, or whether everyone pays the same percentage, and another 11 percent believe that everyone pays the same percentage.
Perhaps most important of all, few Americans know how progressive the tax system is. More that six out of 10 (63 percent) think that low-income or middle-income people pay the highest percentage of their income in federal taxes. Only a quarter (25 percent) know that upper-income people actually pay the highest percentage. This misconception is likely why so many Americans (57 percent) think that high-income people donít pay their fair share in taxes.
(See the Tax Policy Center of the Urban Institute and the Brookings
Institution for tables showing
effective tax rates.)