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A general view of the U.S. Internal Revenue Service (IRS) building, with the partial quote "taxes are what we pay," in Washington May 27, 2015. Tax return information for about 100,000 U.S. taxpayers was illegally accessed by cyber criminals over the past four months, U.S. IRS Commissioner John Koskinen said on Tuesday, the latest in a series of data thefts that have alarmed American consumers. The entire quote chiseled on the building, from Oliver Wendell Holmes, reads, "Taxes are what we pay for a civilized society''. REUTERS/Jonathan Ernst - GF10000109452
Up Front

Americans want the wealthy and corporations to pay more taxes, but are elected officials listening?

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Economic inequality is on the rise in the United States and has been for the past 40 years. Prominent Democrats have offered several proposals to curb inequality by taxing those at the very top. Senator Elizabeth Warren has proposed a wealth tax of two percent on those holding more than $50 million in wealth and three percent for those holding more than $1 billion. Representative Alexandria Ocasio-Cortez has floated a top marginal income tax rate of 70 percent on those making more than $10 million. Senator Bernie Sanders has proposed an expanded estate tax with a top rate of 77 percent for estates valued at more than $1 billion.

Public opinion towards these three proposals varies. Senator Warren’s wealth tax is by far the most popular. Sixty-one percent of voters favor the measure. This majority holds across Democrats and Independents, at 75 percent and 56 percent, respectively. However, Republicans are divided on the measure, with 50 percent supporting.

In contrast, Americans tepidly support a 70 percent top marginal rate. A plurality of registered voters, 45 percent, favor the proposal. A majority of Democrats favor the proposal, but Republicans and Independents are less favorable.

While polling is not available for Senator Sanders’ specific proposal to expand the estate tax, there is a wealth of public opinion data on the estate tax more generally. Americans tend to favor repeal, though support for repeal has waned over time with only 48 percent of voters now agreeing that repealing the estate tax is a “good idea.”

Stepping back from policy specifics, most Americans support increasing taxes on the rich. Recent data from the American National Election Study show that, in 2016, 67 percent of Americans favored a “tax on millionaires.” Among Democrats, the proportion was 80 percent; among Republicans it was weaker at 50 percent.

This preference towards taxing the rich is not new. Gallup polling data show that the public consistently thinks that “upper-income people” and corporations do not pay their fair share in federal taxes.

This dissatisfaction with how much the rich pay in taxes is high relative to other concerns about the tax system. When Americans are asked what bothers them about the federal tax system, a sense that corporations and the wealthy are not paying their fair share top the list.

Popular support for raising taxes on the rich reflects public dissatisfaction with inequality. Two-thirds of Americans are dissatisfied with “the way income and wealth are distributed in the U.S.,” with 43 percent being very dissatisfied, and 23 percent being somewhat dissatisfied.

So why haven’t the rich paid more in taxes?

Based on classical democratic theory, we would expect that government would be responsive to the public’s preferences for higher taxes on the rich. Indeed, in their classic work, Meltzer and Richard (1981) predicted that increasing inequality would lead to higher taxes on the rich.

But that hasn’t been the case. In fact, average federal tax rates on the top one percent have remained stable since 1979, ranging from 25 to 35 percent.

More recent work suggests that elected officials are more responsive to economic elites and business interest groups compared to mass-based interest groups and the average citizen. Policymaking is much more responsive to the views of those at the 90th percentile of the income distribution compared to those at the median or the 10th percentile. This phenomenon is even more powerful when these groups disagree. Rising inequality combined with policymaking that is unresponsive to the average voter suggests a disturbing cycle in which inequality begets more inequality.

How do we reconcile the public’s desire for higher taxes on the wealthy with lukewarm support for a top rate of 70 percent? In her recent book, Read My Lips: Why American are Proud to Pay Taxes, our colleague Vanessa Williamson finds that Americans see taxpaying as a civic duty. She notes that come tax season, deductions and credits are at the forefront of tax filing, not marginal tax rates. As such, Americans think that corporations and upper-income Americans don’t “pay their fair share” because they can take advantage of more, and larger, “loopholes.” In fact, many of Williamson’s respondents supported the idea of a flat tax rather than higher rates on the wealthy not because they want to maintain low rates on the rich, but because they see the flat tax as a means to eliminate loopholes for the wealthy, thus increasing their tax burden, on net. What they do not realize is that moving to a flat tax would lower taxes on the rich and raise taxes on the poor and middle class.

In sum, Americans want a simple and transparent tax system to ensure that the rich are paying taxes on the money they make, rather than using loopholes and tax shelters to reduce their tax liability. Of course, there are large tax expenditures that favor the rich, such as the new pass-through deduction for small businesses and reduced rates on dividends and long-term capital gains. However, there are also large tax expenditures that benefit the middle and upper-middle classes, such as the exclusion for employer-sponsored health insurance and tax benefits for retirement plans.

While base-broadening and raising taxes on the rich are worthy policy goals, we are pessimistic about the politics. Regardless of how well a given policy polls, American democracy is more responsive to the affluent and business interest groups. So, will Americans get their wish and see raised taxes on the rich? We seriously doubt it.

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