The public opposes Obama’s call for higher tax rates on the rich
As readers of this blog know, I have consistently argued that there is no such thing as public opinion. But other bloggers keep citing public opinion, as if it actually exists. (Is it animal, vegetable or mineral? They never say.)
Let’s put aside the non-existence of public opinion. Suppose it did exist, and suppose the polls could measure it. What do the polls show?
1. The public consistently favors lower tax rates for the rich. They favor a top rate in the 30% area, well below Obama’s 43.4% proposal.
2. The public consistently favors higher taxes on the rich.
I’m not sure what this means, maybe they think we should raise revenue from the rich by closing loopholes, as Boehner hinted the other day.
Of course that’s also my own view. How convenient when this non-existent public opinion just happens to favor what I favor! I guess there is such a thing as public opinion.
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15. November 2012 at 08:08
The public consistently under-estimates the current tax rates on high incomes. They think the current marginal tax rate is in the low 20s or high teens, well below their preferred 30%.
I think if the poll question was “currently, the tax rate on the highest income is 35%; do you think taxes on the highest income should be lower, higher, or about the same”, you’d see much higher percentages for the “lower” and “about the same” answers.
15. November 2012 at 08:14
I wouldn’t go so far as to say public opinion doesn’t exist, just that pollsters do a very poor job of capturing anything very basic sentiments. I will vote for Barack Obama. I am pessimistic about the economic future of the country. People can give those kinds of answers with out calling on much information.
I would like to see polls on more complex questions that resemble the reading comprehension section of the SATs. Yes or no questions are worthless for these issues.
15. November 2012 at 08:23
You’re talking marginal tax rates, the public (and the press) only ever talks about average tax rates after all the loopholes and deductions.
If the rich were really paying ~30% of their income as tax, that would more than double their taxes on average.
15. November 2012 at 08:27
Tomasz Wegrzanowski:
It may very well be the case that the public are talking about effective rates, but your numbers are way off. Earners above the top quintile pay over 25% on average. Mitt Romney is not your average rich person.
Even still, Scott’s point would hold. That polls report the public like 30% effective rates for the rich tells us nothing about how they’d like to get there, or even who they really consider “rich.”
15. November 2012 at 08:36
I don’t like the term “loophole” because it implies something sneaky.
Is it a loophole that people can itemize their state taxes, thereby paying federal tax only on the money left over after paying state taxes? And wouldn’t eliminating this “loophole” significantly raise MTRs, especially in high tax states.
Then there are “loopholes” that are really subsidies, like the employer side health insurance and mortgage interest deductions. But even the term subsidy is less pejorative than loophole.
15. November 2012 at 08:47
A big problem here is that “the public” really has no clue what’s going on. Not that we should blame them! These things are complicated. Especially marginal rates – people don’t really get them. Sometimes, even USA today doesn’t get them:
http://marginalrevolution.com/marginalrevolution/2011/09/a-failure-to-think-on-the-margin.html
Also, not sure where you got 43.4% from – the number is 39.6%: http://www.csmonitor.com/Business/Tax-VOX/2012/1025/What-is-President-Obama-s-tax-plan
Anyway, how you poll these questions determines the answer. If you ask “in principle should the rich be paying higher/lower?” people will say higher; if you ask them to pull a percentage out of their hindparts you’ll get nonsense answers. But if you asked them:
“Currently, the top tax rate on high earners is 35%. President Obama supports raising that rate to 39.6%; Congressional Republicans are opposed. Who do you support?”
You could also try and strip the polarizing political aspect by asking “some support raising that rate…” but again you will find that people don’t really know the math of the situation that well.
I think the best hueristic is this: Obama campaigned pretty vocally and centrally on raising marginal tax rates on high earners, and he won, and so did a lot of Senate candidates on the same platform, and House Democratic candidates got a majority of the national vote (they didn’t retake the house for structural reasons). That is the best indicator of public support you can really get in a republic.
15. November 2012 at 08:54
Steve, I like the term “loophole,” because I consider all loopholes to be evil. Only a payroll tax with no loopholes is morally justifed (and of course even they have the healthcare loophole–I’d close that too.)
Tomasz, Exactly my point.
wjaredh, Let’s put it this way. I can get the “liberal” or “conservative” answer from the public in almost any poll on economic public policy questions depending on the way I phrase the question.
For instance, every poll shows the public hates foreign aid, and thinks it’s too expensive. I guarantee I could construct a poll getting Americans to call for more foreign aid. Just give them 5 choices:
$0, 0.25% of GDP, 1.0% of GDP, 2.0% of GDP or 5.0% of GDP.
I bet less than 50% of people would pick zero. That means most people favor spending more on foreign aid. Of course I could set it up in a different way to show exactly the opposite. There is no such thing as the public’s “actual” views on foreign aid, they don’t exist. The problem is that people are wrong on the facts. So any view of their actual views must implicitly decide which wrong facts to discard.
15. November 2012 at 09:02
Squarely rooted, You said;
“Also, not sure where you got 43.4% from – the number is 39.6%”
The proposal is for a 43.4% top rate. Period, end of story. The Obama supporters are lying. It’s that simple. Don’t believe reporters, they often misinform.
You said;
“I think the best hueristic is this: Obama campaigned pretty vocally and centrally on raising marginal tax rates on high earners”
I never once heard Obama call for higher MTRs on the rich, I heard him 100 times call for higher taxes on the rich, which as you say the public does support (and I do as well.) It’s crazy to think the public voted for higher MTRs o nthe rich. The public doesn’t know what MTRs are. They voted for higher taxes on the rich.
I do agree on one thing. In a democracy it’s the votes that matter, not “public opinion.” When Reagan was winning landslides it was the liberals claiming that the public didn’t really support Reagan’s views.
15. November 2012 at 10:03
Yes, there is no such thing as public opinion. Nonetheless, the wisdom of crowds makes democracy the best system.
15. November 2012 at 10:03
I think that if, as you say, public opinion exists, it favors someone other than themselves paying the government tab.
15. November 2012 at 10:06
It favors “the sentiment” of paying more for public goods (since one vote makes no difference). Bonnie, you should read Robin Hanson on this, he nails it. Or just this Bryan Caplan post: http://econlog.econlib.org/archives/2012/09/the_public_good.html
15. November 2012 at 10:07
FWIW, my guess is that to the extent the public has an opinion, they probably support a 30% overall rate, possibly including investment income, not a 30% marginal rate on earned income over a certain amount.
Since they’ve been told for two years that Romney and Buffet are paying about 15%, 30% probably seems like a fair increase.
15. November 2012 at 10:22
Scott, the pre-Bush tax cut rate was 39.6%, what makes you think it’ll go higher than that?
I could also “encourage” people to give more to any budget item, by giving four choices higher than the current amount and the fifth choice zero…
15. November 2012 at 11:24
Saturo
– You are forgeting the medicare surcharge which added a 3.8% tax on the rich. So going back to the Bush rates of 39.6% would actually be 43.4%..of course State income taxes are also higher. California, Illinois, and NY will all be working with around 50% marginal rates.
15. November 2012 at 13:18
Steve,
If you don’t like the term “loophole” how about “tax expenditures”?
15. November 2012 at 13:33
Saturos, sean:
I thought this piece to be a good one on the MTR and capital gains taxes from Obamacare:
http://www.smartmoney.com/taxes/income/what-obamacare-may-mean-for-taxes-1335896160486/
15. November 2012 at 14:34
What it means is that many people believe that the rich pay very little in taxes.
BTW this is a chance for me repeat one of my pet peeves:
A person who owns tax free municipal bands is not getting out of the income tax he is opting to pay his income tax to the issuers of the municipal bonds at a slightly lower rate. Yet journalists love to do stories about rich municipal bond holders claiming that they pay no taxes. Perpetuating the myth that the rich do not pay taxes.
15. November 2012 at 14:49
J Mann, They would support either a 30% tax rate on investment income, or a zero tax rate, depending on how the question is asked.
Sean, Finally someone who doesn’t buy all the lies put out by the Obama defenders. You nailed it.
Saturos, Read Sean.
15. November 2012 at 18:21
Steve,
‘Loopholes’ is an irregular noun-
You use loopholes.
I use exemptions.
The rich avoid tax.
Nasty politician X cheats on his taxes.
15. November 2012 at 20:57
[…] Does the public oppose raising taxes on the rich? I don’t know what “the public” could be, […]
15. November 2012 at 22:49
Thanks Sean and ChacoKevy. But then there’s also this: http://www.washingtonpost.com/business/economy/obama-says-no-red-lines-on-top-tax-rate-signaling-some-flexibility-in-debt-talks/2012/11/14/c28ceb0e-2e9a-11e2-beb2-4b4cf5087636_story.html
16. November 2012 at 11:58
Scott, thanks for the reply. We clearly agree that votes, not public opinion, is what really matters, and that the public has no clue what MTRs are.
But as for exactly what the rate is, the Tax Policy Center says it’s 39.6% – http://www.taxpolicycenter.org/taxtopics/2012-candidates-tax-plans.cfm – if you’re talking about income, which is what I thought we were talking about. If you’re including the PPACA taxes then you’re still a little off because the 43.4% rate would only be on certain kinds of capital gains and the rate on income would actually end up being 40.5%, it seems. So it would depend on precisely how the higher earners made their money, but “rates as high as 43.5%” would be correct.
And to quibble with what Obama called for, while our political dialogue doesn’t really encourage presidential candidates to get into the weeds of this stuff for aforementioned reasons, Obama was pretty clear about (paraphrasing) “going back to the rates we had under Bill Clinton” for “folks making above 250,000.” There are lots of ways you could tax the rich – propose new higher MTR brackets, a wealth tax, a higher estate tax, a luxury goods tax, etc – but Obama wasn’t campaigning on any of those speciifcally. As to what most voters heard I’m sure it was just “Obama not tax you, tax more rich instead” but in terms of what he was actually saying on the campaign trail in light of the issues I think it was actually fairly clear.
16. November 2012 at 12:13
Just noticed Sean already got to this. Here’s the best explanation of the Medicare surchage:
https://www.fidelity.com/viewpoints/personal-finance/new-medicare-taxes
Basically, if you’re in one of those $250,000-or-greater households, you only pay the surcharge on all the income over that amount IF that amount is less than your investment income. So if you made $300,000 but it was all from investments you’d pay the 3.8% on the last $50,000 but you almost certainly wouldn’t be paying the 39.6% rate on that $50,000 in investment income.
16. November 2012 at 12:50
As an economist, what’s the difference between raising tax rates like Obama is proposing or raising effective tax rates by “lowering rates and broadening the base”? In my view, the burden of the government on the economy comes from government spending or taxes collected depending on which is higher.
17. November 2012 at 02:28
Why not leave the tax problem to be absolutely voluntary. If you want to participate, the state allows you to and you will have more services than a person who prefers to not pay as much as you. Just and effective as well as pragmatic. Why do we always try to force the other half of the population into something they do not want. We have to start dealing with serious problems – homelessness, hunger, price of eduction, or even immigration to Canada. Taxes are not the real problem, taxes are the consequence of the problem.
17. November 2012 at 07:06
I actually agree with this post. I think the best way would be to try and eliminate almost all loopholes while decreasing rates across the board. Let’s start with getting rid of things like the Mortgage Interest Rate deduction, charitable deductions, let’s tax capital gains as income. Let’s get rid of the corporate income tax(in my view, this is double taxation). Let’s find a way to broaden the base and reduce taxes across the board. We need to simplify the tax code.
17. November 2012 at 08:28
“Of course that’s also my own view. How convenient when this non-existent public opinion just happens to favor what I favor!”
Isn’t that called the Pundit’s Fallacy?
By the way, it’s also my own view. Taxes should be a simple process for raising revenue. Add up your gross income, subtract what you put in your super-IRA, add what you take out of it. Then 2 or 3 marginal brackets and you’re done. The IRS should just send you a bill like your local property tax office does. It should take 5 minutes.
17. November 2012 at 08:33
An addendum to my comment – we should move to “serve the check” tax policy. When there’s a deficit, your bill from the IRS should go up to cover the shortfall. The argument against this is always that we need deficits to stabilize aggregate demand in a recession. But of course that ignores the Sumner Critique.
Let the Fed target AD, and use taxes to pay for government. You think your bill is too high? Then vote for the guy who wants to spend less. Just like local government.
17. November 2012 at 11:41
“I guess there is no such thing as public opinion….”
Public opinion just elected Obama to another term as president. The public vote in elections just the same as they vote in opinion polls. The only difference is only one poll counts in the election.
If you think the deficit needs to be cut, then raising taxes on the rich is one step along that path. (39.6%, 43.8% who cares?) You can also reduce spending by cutting ‘entitlements.’ But remember, to those receiving ‘entitlements’, a cut in those ‘entitlements’ is a tax increase, too! Just ask Grover about cutting ‘tax expenditures.’
And while we’re talking about Grover, maybe the best thing to do is just get rid of him and the rest of the ideological rigid.
17. November 2012 at 14:42
When you factor in all the loopholes and the lower capital gains rate the rich already pays way beneath 30%.
The effective tax rate for the rich is usually roughly half what the official rate is. So while the official rate now is 35%, in truth it’s about 17.2%.
I’m not sure there’s no such thing as public opinion, more that it changes depending on how you phrase a question. That doesn’t mean there’s no underlying opinion
When’s they’ve asked people about Obama’s proposed tax hikes-with the numbers given-people have said they support it in polls.
17. November 2012 at 18:16
I see people are still having trouble with the 43.4% tax bracket. Yes, it doesn’t apply to long term cap gains, but then neither does the 39.6% rate. So that’s irrelevant. Both apply to wage income, interest income, dividends, and short term cap gains.
lxm, Your comment is totally off topic, and you completely misquoted me.
17. November 2012 at 18:25
Squarely Rooted, If Obama said he wanted to go back to the rates under Bill Clinton, then he lied.
17. November 2012 at 19:03
Not to belabor this point, because it is not the crux of anything in the scheme of things, but:
a) When Obama says he wants to go back to the Clinton rates, that is not a true statement because he doesn’t want to repeal the taxes in PPACA. If you want to call that lying, that’s perfectly fine. I tend to reserve that particular term for bigger, bolder lies, but I wouldn’t really contest your use of it here.
b) Nonetheless, it is hard to envision a scenario in which any individual pays federal taxes of 43.4% on their marginal earned dollar. Not impossible, just very, very, very unlikely due to the way the tax is structured.
18. November 2012 at 17:57
Squarely rooted, I strongly disagree. I think lots of people in the top bracket will pay 43.4% rates on their marginal income from wages, dividends and interest. Only the small group whose marginal income comes from long term capital gains will pay less.
And that’s just from Federal taxes. Add in state income taxes and the top rates will be closer to 50%.
BTW, the top rate isn’t the main problem, perhaps it should be 60% or 70%. The problem is that we should be taxing consumption, not income.
19. November 2012 at 12:22
This hurts my head, but it looks like there are two marginal rates. The example below shows the marginal rate on investment income can be 43.4%, while the marginal rate on wage income can be 40.5%.
https://www.fidelity.com/viewpoints/personal-finance/new-medicare-taxes
Here is an example from the source:
“Paul and Ann’s MAGI is $372,000, of which $330,000 is wages and $42,000 net investment income. Their MAGI is $122,000 over the $250,000 threshold for married couples filing jointly. They’ll owe the 3.8% on their $42,000 of net investment income, because it is less than the amount they are over the MAGI threshold ($122,000). They’ll also owe 0.9% on the $80,000 that their wages are over the $250,000 earned income threshold for married couples filing jointly. Their total Medicare tax surcharge will be $2,316, which includes $1,596 (3.8% of $42,000) and $720 (0.9% on $80,000).”
In this example their paying 40.5% (39.6 + .9) on an additional dollar of wage income and 43.4% on an additional dollar of investment income.
19. November 2012 at 12:28
*they’re
20. November 2012 at 13:31
“BTW, the top rate isn’t the main problem, perhaps it should be 60% or 70%. The problem is that we should be taxing consumption, not income.”
On that we agree pretty much completely.
21. November 2012 at 18:09
Charlie, That’s wrong, the 3.8% applies to both investment and wage income. The 0.9% is the increase in the rate on wage income that was enacted with Obamacare.