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The Irony of Tax Cuts


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The Republican driven tax cuts have worked. Voters now have more faith that the federal income tax system is fair than at any other time since World War II. Moreover these changes in public opinion coincide with the Republican capture of the House in 1994 and accelerate with the Bush tax cuts. But the irony of this success is that the GOP finds it hard to claim credit for a job well done. Once the tax monster is slain, who do you fight next? Once the people are no longer grumpy about unfair taxation (tea parties notwithstanding), how do you keep the issue alive? By successfully shifting public views of the fairness and burden of federal income taxes through repeated cuts, Republicans inadvertently also reduced the salience of their best issue of the 29 years since the Reagan Revolution. The public now agrees that tax cuts are good, but they are no longer particularly angry about taxes.

The logic of the tax cut issue has been that people should keep their money rather than send it to Washington. But where do you stop that spiral short of reducing everyone's taxes to zero? If lower taxes are good for individuals and good for the economy, the theory offers no logic of where to stop.

Today Ari Fleischer, former press secretary to President Bush, offered an interesting proposal in the Wall Street Journal: raise income taxes on those who currently don't pay. That is a rather shocking proposition from the party that has spent nearly 30 years arguing that tax cuts are good for everyone. The very success of that political program has been to remove millions from the tax roles, and put nearly half within striking distance of paying no federal income taxes. So you'd think that would be cause for celebration among Republicans for a job well done and a lot of credit to claim with those voters.

Alas, those voters aren't voting Republican in overwhelming numbers. The way to not have to pay taxes is to not make a lot of money. And while these less taxed citizens appear to have been pleased with lower taxes, that hasn't translated into a majority of Republican votes among these non-taxpayers. So Mr. Fleischer has now taken on the burden of convincing nearly half of the public that it is not good for them to pay little or no income taxes. Instead, fairness demands that everyone pay taxes. That's a breathtaking argument for a Republican to make.

Fleischer goes on to argue that it is poor policy for the top 10% of earners to pay 72% of all income taxes, and that is probably a discussion worth having. But the argument for raising income taxes on the bottom 90% to provide a little more load sharing for the top 10% is an interesting electoral calculus to say the least.

Fleischer makes a pitch for a total tax system overhaul, dropping all federal taxes except income taxes and allowing no deductions or credits for anything. No Social Security taxes, no Medicare taxes. Just income taxes. He's quiet about the rate structure or about revenue neutrality. Dubbing this the "Economic Growth Code" is interesting, given that Ronald Reagan was eloquent that cutting income taxes was the way to stimulate economic growth. President Bush argued that too.

If we look at the data in the top chart, we see that patriotic support for taxes in WWII dropped sharply once the war ended. Alas, pollsters stopped asking the fairness question for nearly 30 years as well. But when we rejoin the question in the mid-1970s, the public is quite strongly of the view that the income tax is unfair. That feeling was very little affected by the Reagan administration, or the first Bush term. Perceptions began to move in the mid-1990s as Republican control of Congress gave the tax cutting policy proponents opportunities to affect legislation. The public began to respond to tax cut messages with a modest improvement in the "taxes are fair" trend. That shift accelerated in the second Bush administration, presumably driven by the joint effects of the Bush tax cuts and unified Republican anti-tax rhetoric from both White House and Congress. And so we find ourselves at the outset of the Obama administration with only 37% saying their taxes are unfair, while 60% think they are basically fair. That is nearly an exact flip of where things stood at the start of the Reagan Revolution.

Beyond fairness, Americans are also complaining less about how much they pay in taxes, though here the shift in opinion is not nearly so dramatic.
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While the shifts are smaller, Republican successes are still clear. During the Reagan and Bush I administrations, those feeling they paid too much declined by close to 10 points. But that reversed with Clinton in the White House, as more complained of too great a burden, largely erasing the gains from Reagan-Bush. The second President Bush however succeeded in sharply reducing complaints about high taxes. The greater than 10 point drop in his terms was greater than that achieved by the Gipper. Ironically Obama arrives in office with a public almost evenly divided between thinking they pay too much and thinking the tax burden is about right. Obama's plan to lower taxes for more of the lower 90% (or 95%, whatever) plays to the anti-tax momentum Bush built. And it means that Republicans don't have the angry taxpayer revolt of the late 1970s that helped build the Reagan platform that transformed tax policy for a generation of Republican politicians.

And so we are left with the irony of Republican success. How do you keep tax cuts at the center of your economics when nearly half don't pay, but aren't as grateful as they might be. And if the issue doesn't have the mass appeal it did for Reagan, can it still motivate the base (remember those tea parties!) enough to continue to have legs. But I have to wonder if Mr. Fleischer's plan is really the way for the anti-tax party to go.

(Data note: The question wording varies across polling organizations. The quoted texts are typical but are not universal. Results from 12 different polling organizations are included. Gallup, with it's long history, contributed 58 of the 106 items represented in the charts. The last datapoint in each chart is the latest Gallup poll, completed 4/6-9/09.)

 

Comments

Re Fleischer's op-ed: The idea that income taxes on low income people should be raised in order that everyone bears some reasonable part of the cost of government ignores (or suppresses) a critical fact: The relatively progressive federal income tax does exempt (in practice) most low income people, but because other taxes are regressive, low income people do pay taxes -- payroll taxes, excise taxes, sales taxes, and property taxes. The overall burden of tax is about the same for all income groups.

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