Friday, March 23, 2012
There's a reason President Obama, Mitt Romney, Paul Ryan and many others are touting tax reform these days. On the campaign trail, it taps into deeply held beliefs about the way American society ought to work and the role of government.
Seventy-seven percent think it's important to replace the entire federal tax code with something simpler. Seventy-one percent favor a tax code with lower tax rates and very few deductions.
The desire for fewer deductions stems from a couple of sources. One is an underlying belief that those wealthy enough to hire the best lawyers and accountants can find more loopholes than ordinary taxpayers. The other is a reluctance to have government picking winners and losers with special tax breaks. Half of all voters believe that a tax code with no deductions and lower rates would help the economy. Just 13 percent believe it would hurt.
But the reality of designing a reform plan that matches up with those beliefs is far more challenging. The central challenge can be seen in the results of two recent polls by Rasmussen Reports. The first found that 58 percent of voters nationwide think everyone should pay the same share of their income in taxes. So if someone earns twice as much as another person, they should pay twice as much in taxes. Flat-tax advocates seize on such data as proof that voters support their dreams, but that's not really the case.
The second piece of data shows that 66 percent believe the middle class pays a higher share of their income in taxes than the wealthy do. This means that part of the desire for everyone to pay the same share of their income in taxes comes from a desire to have upper-income Americans pay as much as the middle class does.
Whenever I mention that perception to tax reformers, they get frustrated and cite data showing that upper-income Americans pay more, not less, of their income in taxes. That's where implementation of a truly flat tax becomes a policy nightmare. A flat tax would increase the taxes paid by the middle class and cut taxes paid by upper-income Americans. In other words, it would achieve exactly the opposite result of what most Americans are looking to accomplish.
Still, it's possible to talk about fundamental reform and retain some graduated rate structure. Most voters (54 percent) favor a proposal that would eliminate all deductions and include three tax rates: 5 percent on the first $50,000 of taxable income, 10 percent on income between $50,000 and $100,000, and 20 percent on income earned above the $100,000 mark. Only 25 percent of voters are opposed.
One of the reasons such a conceptual plan draws support is that it's grounded in a reality that some reformers occasionally forget. Americans pay taxes on lots of things besides their income. Some taxes (sales taxes and payroll taxes) do take a higher share of income from lower and middle-income Americans. So a graduated income tax to balance that out seems fair to most voters, not to soak the rich but to make sure that all Americans are treated equally.
COPYRIGHT 2012 SCOTT RASMUSSEN
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