The government has turned the screws on the richest Americans over the past few decades, ramping up how much they have to pay in federal income taxes.
If you’re like a lot of Americans, you nodded sagely in agreement at the above statement. You’re also wrong.
A new poll shows that only one-third of Americans know that the rich’s rates have not climbed — in fact, the top tax rate has fallen off sharply over the last few decades. More than 4 in 10 Americans believe the rich’s tax rates have increased over roughly the last four decades, and the rest said they didn’t know. That’s one finding of the Ipsos poll conducted for NPR, which delved into what Americans know and what they believe is wrong with the U.S. tax code.
Americans tend to think the richer pay more now than they did nearly 40 years ago
In 1980, the top marginal income tax rate was 70 percent. Today, it’s 39.6 percent (something about half of Americans know, per our poll).
However, 44 percent of Americans believe that rate is higher today than it was back then — a plurality in our poll. (Another 34 percent said that’s false, and 21 percent said they didn’t know.)
That means Americans may be sending a garbled message when they voice their opinions on taxes. For example, many Americans also believe taxes should be raised on the richest. The top tax bracket starts at $418,400 right now.
The poll shows that 70 percent of Americans believe taxes should be raised on people making $250,000 to just under $1 million, and that 75 percent believe they should be raised on people making $1 million or more. That’s already a sizable majority, but if people knew taxes on the richest had indeed fallen, it could — maybe — lead even more of them to think taxes should be raised now. (Of course, it’s also possible that historical rates wouldn’t affect their views at all.)
Those views differ widely by party; Democrats are much more likely to believe that taxes should be raised on the rich than Republicans.
Americans also appear to have strong views on how people earn their money. We asked people to what degree they agreed with this statement: “The tax rate on income from work should be lower than the tax rate on income from wealth.”
Across the board, regardless of party, Americans agreed — 75 percent said they did, including 77 percent of Democrats, 71 percent of Republicans, and 84 percent of independents.
This is another result that might make the richest Americans squirm. The rich tend to earn their income in a different way from most other Americans. Besides paychecks, many make money from capital gains — income they get from selling investments like stocks. Most of those capital gains are taxed at a rate far below that top income tax rate. (People at any income level of course can have those kinds of investments, but capital gains are overwhelmingly concentrated at the top of the income spectrum.)
The top rate that the highest-income Americans will pay on most capital gains is 20 percent, around half the top marginal rate for ordinary income.
Americans underestimate the share of Americans who don’t pay federal income taxes
Back in 2012, Republican presidential nominee Mitt Romney’s campaign suffered a blow when a tape was leaked of him grousing that 47 percent of Americans don’t pay federal income tax. It was one of the biggest gaffes of the presidential campaign, but the poll suggests that many Americans forgot it.
A majority think that the share of Americans paying no federal income tax is far lower. The poll gave respondents four options. Thirty-nine percent said that only 11 percent of Americans pay zero or negative income tax, and 31 percent said that only 27 percent pay zero or negative income tax.
Only 21 percent got it right — right now, around 45 percent pay no federal income tax, and some of them get money back, as a result of refundable tax credits like the Earned Income Tax Credit. (Of course, these people might pay other taxes, like payroll taxes, as well as whatever sales and property taxes their states impose.)
Again, this isn’t just about pointing out what Americans know and don’t know. Rather, there could be important policy implications to Americans’ misperceptions about the tax system.
For example, this question dovetails with questions about what people think the lowest-income Americans’ tax rate should be.
Two-thirds of Americans believe lower-income people pay too much income tax (with heavy partisan differences — around 8 in 10 Democrats, 6 in 10 independents, and half of Republicans agreed with that statement). In addition, 60 percent of Americans believe taxes should be lowered for people making $49,000 or less (again, with Democrats and independents being somewhat more likely than Republicans to say those taxes should be lowered).
Taking these two ideas together — that people (mistakenly) think very few of their fellow Americans pay zero federal income tax, and that a majority of Americans think low-income people pay too much in income tax — there are a couple of possible conclusions. One is that if more Americans knew how many others do not end up paying federal income taxes, they would say tax rates should stay the same or even be raised.
Then again, it’s possible that Americans nevertheless would think their poorest fellow citizens do need more money, regardless of how the current tax code looks. That might mean they would advocate expanding the EITC or other tax breaks.
Americans overestimate how important income taxes are to government revenue
About half of the poll’s respondents (with very little variance by party) said they believe 75 percent of the federal government’s revenue comes from personal income taxes. In reality, it’s just under half.
Of all the taxes Americans pay, income tax probably requires the most thought. After all, payroll tax comes automatically out of each paycheck. Sales tax is imposed at the cash register. And so on.
So maybe it makes sense that Americans think all that work they put into filling out their forms ends up doing the lion’s share of funding the government.
What else we learned
Beyond all this, there were a few more fascinating findings in the poll.
Phrasing matters. One thing we learned is that using the phrase “death tax” instead of “estate tax” seems to make people more opposed to that tax — but, interestingly, that effect appears to be by far largest among Democrats.
Sixty-five percent of all people said the “estate tax” should be abolished, compared to 76 percent who said the “death tax” should be. However, among Democrats that swing was far larger: only half said they wanted to abolish the “estate tax,” but 71 percent said the same of the “death tax.”
The estate tax affects fewer than 1 in 500 estates. Many opponents of the estate tax — who have tended to be Republicans — use “death tax” as a euphemism. This shows that to the extent that that phrasing helps them, it could be helping them pick people up across the aisle.
On tax policy, views aren’t always all that partisan. Democrats are often seen as the party that wants a more progressive system — Hillary Clinton, for example, ran for president in 2016 with a tax plan that would have ramped up taxes for the ultra-rich.
But in our poll, nearly half of Democrats — 45 percent — agreed with the proposition that “federal income taxes should be cut for all income levels.”
Likewise, Republicans — the party that has spoken of “makers” and “takers” — were split roughly evenly on the idea that tax cuts for the wealthy lead to economic growth. (Democrats and independents tended to disagree — that is, to say that tax cuts for the wealthy do not lead to that growth.) Incidentally, it’s not at all clear that this is true; one recent comparison of tax rates and growth rates across advanced economies found no strong linkage between the two.
These are only two examples, but they suggest that partisan messaging in Washington on some specific issues doesn’t necessarily filter down to Americans.
Americans agree: Taxes are too complicated (but that’s no reason to cheat). There are a few more areas where Americans tend to agree across party lines: nearly 9 in 10 believe the tax code is too complicated, three-quarters say it’s not OK for people to underreport income on their taxes, and 77 percent say their own personal federal income taxes are too high.
In addition, 72 percent knew that taxes are due on April 18. For those remaining 28 percent, it might be time to file that extension.
The poll was conducted online on April 11-12, with a sample of 1,010 adults age 18 or older. For all respondents, the poll has a credibility interval of plus or minus 3.5 percentage points. The credibility interval is plus or minus 5.7 percentage points for Democrats, plus or minus 6.1 percentage points for Republicans, and plus or minus 8.3 percentage points for independents.