Tax Rates and Political Ignorance

Many polls show that large majorities of the public want to raise tax rates on people earning over $250,000 per year. But in an interesting recent post on the Democrats’ approach to tax policy, Megan McArdle cites an interesting 2012 poll of likely voters conducted for The Hill, which shows that the vast majority of Americans prefer rates that are much lower than those that existed even before the the recent fiscal cliff deal:

Three-quarters of likely voters believe the nation’s top earners should pay lower, not higher, tax rates, according to a new poll for The Hill.

The big majority opted for a lower tax bill when asked to choose specific rates; precisely 75 percent said the right level for top earners was 30 percent or below.

The current rate for top earners is 35 percent [the rate that existed before the fiscal cliff deal - IS]. Only 4 percent thought it was appropriate to take 40 percent, which is approximately the level that President Obama is seeking from January 2013 onward…

The new data seem to run counter to several polls that have found support for raising taxes on high-income earners….

But The Hill poll found that a dramatically different picture emerges when voters are asked to specify the “most appropriate” rates.

Support for relatively low tax rates was not limited to Republicans or high-income earners. Indeed, low tax rates for the wealthy got their highest level of support from relatively low-income survey respondents, and their lowest level from the wealthy themselves:

Republicans were more likely than Democrats to support lower tax rates for the wealthy, but voters in both parties solidly supported lower rates compared to current law. Eighty-one percent of Republicans favored tax rates below current levels, compared to 70 percent of Democrats.

The Hill Poll, conducted by Pulse Opinion Research of 1,000 likely voters, also found broad support for lower rates across income groups. The group most supportive of lowering tax rates on the wealthy below current rates made between $20,000 and $40,000 a year; 81 percent supported tax rates of 30 percent or lower….

Of the income groups surveyed, those making more than $100,000 a year were the least supportive of lower rates, with just 66 percent supporting income tax rates of 30 percent or lower. That group was most likely to support income tax rates of 40 percent. Eleven percent of those voters said a 40 percent tax rate was most appropriate.

This result is not an anomaly, and is in fact consistent with previous poll results that ask questions about specific tax rates, such as this 2009 Tax Foundation study.

Why is it that large majorities simultaneously support increasing income taxes on people earning over $250,000 per year, but also believe that they should be taxed at a lower rate than existed even before the recent fiscal cliff deal raised it for individuals earning over $400,000, and families earning over $450,000? As The Hill points out, the most likely explanation is political ignorance. Most people probably don’t know what tax rates are currently in force, especially for people in income classes other than their own:

One possible explanation is voters may not know how much the nation’s top earners are already being taxed. The poll did not ask voters to identify current tax rates before saying what rate they favored.

“It might be that people are underestimating how much the rich pay now,” said Bruce Bartlett, a former Reagan adviser and Treasury official under President George H.W. Bush [Note: Bartlett is indeed a former adviser to Reagan and Bush I, but he has also moved to the left on economic issues in recent years].

If most of the public is indeed ignorant on this point, it would be consistent with extensive political ignorance on a wide range of other issues, including fiscal policy and the federal budget.

To be clear, I am not suggesting that raising tax rates above 30 percent is a bad idea merely because the vast majority of the public opposes it. Most of the public has little understanding of the relevant arguments and data. Their views are only a weak indicator at best of the desirability of particular tax rates. But the data do suggest that ignorance of current tax rates may be a strong influence on the distribution of public opinion on tax issues. And public opinion, in turn, has an influence on policy, even if it’s not the only factor affecting it.