Why Tax Rates are Low but Opposition Is High

Polls show public thinks taxes are relatively fair; record shows tax rates are lowest in decades.

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Republicans have waged a ferocious and largely successful battle against raising taxes. Democrats seem to be falling in line. Many have taken to calling for a tax overhaul—lowering tax rates but also ending tax loopholes—as the only politically safe way to raise revenues. Otherwise, the sentiment for closing the nation's budget deficits, in part through higher taxes, has been as tepid as the Tea Party has been hot.

Meanwhile, public attitudes about taxes and a look at tax rates tell a surprisingly different story. The American Enterprise Institute has issued a comprehensive look at public opinion polls showing Americans' attitudes toward all sorts of taxes during the past 75 years.

[See How to Plan for Tax Hikes and Spending Cuts.]

Don't expect people to say they like taxes or paying them. Polls don't show that. But they have recorded attitudes that, over the years, have at least bordered on grudging acceptance that maybe things weren't so bad.

Back in early 1962, AEI's report shows, 45 percent of Americans actually said they thought the level of taxes was "about right." There have been only a few higher poll readings since then, and they've all come in recent years: 50 percent in 2003, 48 percent in 2005 and then again in 2009, and 45 percent last year. These are about as close as the public comes to an endorsement that taxes are not a problem.

"In questions asked by Gallup during World War II, large majorities described the income tax they paid as fair," the report said. "In April 2010, 59 percent regarded the income tax they paid as fair, and 36 percent said they did not."

[See 10 Hidden Tax Deductions Exposed.]

"Although the question isn't asked regularly," it added, "surveys suggest that the local property tax is now seen as more onerous than the federal income tax. ... People seem to pay closer attention to the levels of state and local taxes than they do to the federal income tax."

Earlier this year, the non-partisan Congressional Budget Office issued a 40-year look at federal tax rates. It included individual income taxes, corporate income taxes, social insurances (Social Security and Medicare), excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts.

In 1971, the total take from all these taxes equaled 17.3 percent of the nation's gross domestic product—a common way of measuring the impact of taxation. In 1980, Americans were paying 19 percent of taxes as a percent of GDP. Tax burdens were in the 17 to 18 percent range for most of the 1980s and 1990s but started rising in the late 1990s and topped out at 20.6 percent in 2000, the highest percentage in 40 years. It was also one of the few times when the government did not run a budget deficit.

Triggered by the Bush tax cuts, tax burdens fell during the past decade and bottomed out at 14.9 percent of GDP in both 2009 and 2010, their lowest levels in the 40-year period covered by the CBO report.

Even steadily rising deficits have rarely caused the public to sit up and take notice, the AEI assessment of public polling found. Last month, only 13 percent of the public told Gallup pollsters that the deficit was the most important problem facing the nation, and that was the highest level in 15 years.

[See How Life Would Change Under the GOP Budget.]

While the public supports the tax system as fair, it has consistently felt that rich taxpayers get a break and should pay higher taxes. However, the public also supported giving the Bush tax cuts a two-year extension at the end of last year. And when it comes to reducing deficits, polls have consistently found public opposition to using higher taxes to close the gap.

The AEI study did not directly delve into whether there was a disconnect between actual tax policies and the public's perception of those policies. Yet it did reveal a regular theme of public criticism of government spending as wasteful.

Further, it may not be the amount of tax dollars spent but the things they're spent on that has generated rising public opposition to higher taxes. That was certainly the case in the unsuccessful 11th hour effort by Republicans last week to include abortion curbs in the revised 2011 budget negotiations.

If people feel the government does a bad job of using its money, it's easier to understand the opposition to higher taxes, regardless of whether people feel current tax rates are fair or even low by historical standards.

Twitter: @PhilMoeller