It’s no secret that the Trump administration needs a win. Since taking office, the president has not signed any major legislation into law, and the White House is regularly reported to be in turmoil.
Both Republicans and the White House are hoping tax reform will be their big break. Since coming back from the August recess, President Trump has been traveling across the country selling his tax reform approach.
So far, he has offered four main bullet points: First, it reduces taxes. Second, it reduces complexity by getting rid of loopholes. Third, it simplifies tax filing. Fourth, it reduces the corporate tax rate.
The tax plan would reduce tax brackets from seven to four, which turns out to be almost a 15 percent reduction on the marginal tax rate for the wealthiest Americans. According to Vox and the Tax Policy Center, this would be a huge tax cut for the rich and a minor cut for the middle class and poor. Moreover, it would slash the corporate tax rate, although so far it isn’t clear by how much. So far Trump’s plan doesn’t lend itself to exact estimates.
What taxation approach do Americans want?
Public opinion surveys conducted by the Pew Research Center show that this approach doesn’t align with American attitudes on taxation. Americans aren’t really looking for a tax cut, and definitely not on the wealthy.
Public opinion surveys are useful in measuring attitudes toward a specific, stand-alone issue. However, surveys’ usefulness are limited by the fact that they have a hard time capturing public attitudes toward real-world trade-offs. In this case, when thinking about public beliefs about taxation, we need to account for attitudes toward both sides of the budget ledger: tax revenue and public spending.
Here’s how we did our research
The three of us recently completed a new study sponsored by the European Research Council and the “Willing to Pay” project at the European University Institute. Between June 7 and 20, we conducted an online survey with 2,277 voting-age Americans using an opt-in panel provided by Survey Sampling International (SSI). We asked respondents to submit a version of the federal budget that they would personally support.
To do this, we partnered up with Balancing Act, a nonprofit organization focusing on public engagement in government budgets, to build an interactive budget tool based on the general line items of the 2017 federal budget. Survey weights based on age, gender and education were applied to the sample to match 2016 Census Current Population Survey Data; click here for the survey.
The budget tool contained both revenue and spending items. For revenue, respondents saw seven income brackets and a variety of other taxes, such as the gas tax, estate tax and corporate income tax. They could see the effective tax rates (as opposed to marginal tax rates), which they could increase by 1 percent with each click.
For government spending, respondents saw nine broad spending categories, such as military and health care, with a variety of subcategories, any of which they could cut.
We explained to respondents that the goal of the exercise was to see how they personally would change federal spending when given the actual federal budget. To keep the experiment relatively simple and time-limited, individuals could raise taxes and/or cut spending, but they were not allowed to lower taxes or increase spending. If subjects didn’t adjust a particular category, we assumed that they agreed with the status quo.
To reiterate, we were interested in what Americans would prefer to do about taxes and spending when faced with the real-world trade-offs involved. Here, however, we will discuss only our results from the tax side of the budget, to give insight into public opinion on Trump’s tax plan.
A majority of Americans will raise taxes on the top 5 percent in income
First, Trump’s tax proposals are wildly out of sync with the preferences of the vast majority of U.S. citizens. Trump’s bullet items would give a tax cut to the wealthiest Americans; most Americans would increase those high-earners’ taxes. Similarly, while Trump would cut U.S. companies’ taxes, we found that many Americans would increase taxes on corporate profits. As you can see in the figure below, very few people think the government should increase taxes for middle- and lower-income earners.
Below you can see the average percentage of respondents who would increase taxes on a given tax category. As you see, when asked to make a budget decision, roughly 53 percent of Americans — an absolute majority — will raise taxes on incomes over $151,000. Even 42 percent of Trump supporters will raise taxes on incomes over $151,000.
How much would Americans raise taxes on the rich? That varies.
On average, participants raised taxes very little — less than 1 percent — on middle-class and lower incomes. However, they raised effective tax rates by a significant amount on wealthy individuals (3 percent) and on the super-rich (4 percent), moves that would in fact generate very significant revenue. These results support a recent article by Cameron Ballard-Rosa, Lucy Martin and Kenneth Scheve in the Journal of Politics that shows Americans have strong preferences for progressive taxation, but their preferences do not necessarily differ a great deal from current tax policy.
As expected, there were significant differences between Republicans and Democrats, as well as Trump and Hillary Clinton supporters. Trump supporters preferred a higher effective tax rate on low-income earners; Clinton supporters preferred higher tax rates on the rich.
For instance, Trump supporters preferred an effective tax rate of 28.57 percent (a 2.5 percent increase) on the richest Americans; Clinton supporters preferred an effective tax rate of 31.67 percent, a 5 percent increase. On the other hand, Clinton supporters preferred an effective tax rate of -3.07 percent (a 0.43 percent increase) on the lowest-income earners, while Trump supporters preferred a tax rate of -2.92 percent (a 0.68 percent increase). It should be noted that because of programs such as the earned income tax credit and other deductions, average effective tax rates for those who make less than $50,000 are actually negative, meaning those individuals get something back at the end of the year.
In the end, then, whose interests does Trump’s tax plan represent? It clearly doesn’t reflect most Americans’ preferences. Even a significant part of his base would design a more progressive tax plan. Although the vague tax plan makes significant promises, it’s not necessarily what Americans want.
John W. D’Attoma is a postdoctoral research associate at the University of Exeter Business School in the Tax Administration Research Center studying tax compliance. Find him on Twitter @john_dattoma.
Sven Steinmo is a professor of political science at the University of Colorado at Boulder. Find him on Twitter @SvenSteinmo.
Kim-Lee Tuxhorn is an assistant professor of political science at the University of Calgary.