The following remarks were delivered by TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. Foundation President Scott A. Hodge at the National Press Club in Washington, D.C. at a press conference announcing the Tax Foundation’s latest “Annual Survey of Attitudes on Tax and Wealth” conducted by Harris Interactive.
Good morning. My name is Scott Hodge, President of the Tax Foundation. The Tax Foundation is one of the nation’s oldest tax research organizations. We were founded in 1937 with the mission to provide Americans with basic, non-partisan information on the taxes they pay and how those taxes affect them, their businesses, their communities, and the economy.
The Tax Foundation is best known for its annual announcement of Tax Freedom Day – the day Americans quit working to pay their tax bills and begin working to pay their family’s bills. This year, Tax Freedom Day arrives on April 17.
I’m pleased to be here today to announce the results of a new Tax Foundation/Harris Interactive poll of more than 2,000 American adults. The purpose of the poll was to gauge Americans’ attitudes toward taxes, the fairness of the tax code, and our perceptions of wealth.
The poll questions are comprised of an equal number of time-tested poll questions (such as Gallop’s famous question whether we think we pay too much in taxes), and a series of new questions aimed at understanding Americans’ receptivity to fundamental tax reform.
In January, President Bush appointed a blue ribbon panel of experts to analyze what is wrong with the tax code and to deliver to him a menu of tax reform options by the end of July. The results of our poll clearly show that Americans are ready for fundamental tax reform.
The poll results show that a majority of Americans believe federal taxes are too high, the tax code is too complex, the tax system is unfair, and they support tax simplification even if that means giving up deductions and exemptions.
An overwhelming 81 percent of respondents said the federal income tax is somewhat or very complex, and 70 percent said they either “hated” or “disliked” doing their income taxes.
Not surprisingly, then, we found that 77 percent of Americans said that the federal tax system should be completely overhauled or needs major changes. Just 18 percent said the tax system needs only minor changes or is fine the way it is.
While the wealthiest Americans pay on average more than 27 percent of their income in federal taxes, there is still a widespread perception that the tax code is so riddled with loopholes that people with smart lawyers and accountants can still avoid paying their fair share of taxes.
Our new Tax Foundation/Harris Interactive poll indicates that Americans have lost faith in our federal tax system. When we asked who pays more federal income taxes as a percentage of income – you or Donald Trump — a remarkable 59 percent of our poll respondents thought that they pay a larger share of their income in federal income taxes than the Donald.
But while Americans believe it is unfair that rich people pay no income taxes, they believe it is just as unfair that people on the low end of the income scale are not paying taxes either.
In 2004, an estimated 44 million Americans filed tax returns but paid no income taxes after they took advantage of their credits and deductions. Asked if this is fair, 59 percent said it was not, and that everyone should be required to pay some minimum amount of tax to help fund government. Just 21 percent said it was fair.
Since 1947, the Gallop Organization has been asking Americans a standard question of whether they think their federal income taxes are too high, about right, or too low. We asked that question again this year and found that 55% of Americans think their taxes are too high, while 33% believe they are about right and just 2 percent believe they are too low.
An interesting result to note is that 40 percent of respondents who earn less than $25,000 per year believe their income taxes are too high, while 49 percent of respondents who earn between $25,000 and $35,000 believe their taxes are too high. In many cases, taxpayers in these income groups have little or no income tax liability.
As the chart below shows, Americans’ discontent with their tax burden has fluctuated over the past six decades. The most recent high-point was in 2000, when 64 percent of Americans thought their taxes were too high. This sentiment declined somewhat after the first couple of Bush tax cuts, but appears to be rising again.
Chart 1: “Do you consider the amount of federal income tax you have to pay as too high, too low, or about right?”
When people were asked to identify what the maximum percentage of a person’s income that should go to taxes, the average response was 16 percent. This is far lower than the national average share of income that Americans will actually pays to cover all taxes this year – 29.1 percent.
So, not only do Americans think their taxes are too high, they do not think they are getting good value for the taxes they are paying. 66 percent of our respondents rate the value from the taxes they pay to government as being fair or poor. 25 percent said they were getting excellent or pretty good value for their tax dollars.
Conventional wisdom says that the biggest obstacle to fundamental tax reform is Americans’ reluctance to give up their deductions for a simpler tax code. These survey results challenge that belief.
When asked if they are willing to give up deductions to make the tax system simpler, a 54% majority of respondents said they would.
Surprisingly, those most willing to trade deductions away for simplicity are the same ones likely to benefit from deductions: 59 percent of married respondents, 59 percent of those over age 45, and an overwhelming 69 percent of those with incomes over $75,000 say they are willing to abandon some deductions for a simpler tax code.
We then asked people what system they would prefer for collecting federal taxes: the current system with deductions; a flat-rate system with no deductions; or a national sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. . By nearly a 2 to 1 margin, respondents favored a flat-rate system with no deductions over the current system or a national sales tax.
When they were asked specifically whether they would favor or oppose a flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. whereby everybody, whatever they earned, would pay income taxes on the same percentage of their income over some minimum level, 54 percent of respondents favored the plan while 21% opposed it. This represents a slight decline from 1999, when 60 percent favored a flat tax, though opposition declined from 35 percent, which indicates fewer Americans are informed enough to choose.
Americans are more divided over a national sales tax. When asked if they favor replacing parts of the income tax with a nationwide sales tax, 36 percent opposed such a plan, while 34 percent favored it. Again, the opposition to such a plan declined from 57 percent in 1999, meaning Americans are becoming more informed on the various tax reform plans being debated.
Americans clearly believe some taxes are more fair than others. When asked which federal tax is least fair, the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. received the most votes (30 percent) followed closely by the income tax (26 percent) and the Social Security payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. (15 percent). The age group most likely to think Social Security payroll taxes as unfair is 18-44 year olds (19 percent) and, somewhat surprisingly, those in the lower- to middle-income range of $25,000-$50,000 (23 percent).
When we specifically asked people whether they would favor or oppose eliminating the Estate Tax, an overwhelming 68 percent favored elimination. Interestingly, support for repeal is significantly higher among those in the middle class ($35,000 to $75,000) – 73% of people in this income group favored repeal.
At the state and local level, property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. es are seen as least fair (38 percent), followed by state income taxes (19 percent) and sales taxes (18 percent). These results are perhaps not surprising giving the rise in property values and property taxes nationwide.
I’ll conclude with some thought of what the implications of this poll for the President’s tax reform panel.
- People want tax reform – or at a minimum, tax simplification.
- Americans want to know that the tax code will be applied fairly to everyone – that people with clever accountants cannot avoid paying taxes.
- Americans are troubled by the fact that millions of people have been knocked off the tax rolls and they think that everyone – including low income people – should contribute something to the cost of government.
- They are not wedded to tax deductionA tax deduction is a provision that reduces taxable income. A standard deduction is a single deduction at a fixed amount. Itemized deductions are popular among higher-income taxpayers who often have significant deductible expenses, such as state/local taxes paid, mortgage interest, and charitable contributions. s and are willing to give them up if it means are simpler system that makes everyone pay the same rate.
- The poll also has a message for Congress: Americans want better value for the taxes that they are now paying.
Thank you very much. I’d be happy to take any questions.Share