The Principle-Policy Gap in American Tax Attitudes

Since the 1980s, tax cuts have been a cornerstone of national Republican economic policy. The 1970s property tax revolts began the obsession with limiting taxes, but the momentum continued well into the following decades and remains with us today. In recent years, the tax cuts fixation has even become bipartisan. National Democrats have surrendered in many ways to this policy preoccupation by limiting their commitments to increasing taxes to only those on the rich, or those who make more than $400,000 (or is it $250,000?). As a result, tax hikes have surpassed Social Security reform in modern American politics as the new “third rail” of domestic policy.

One of the great puzzles of the recent tax-cutting frenzy is why have so many everyday Americans agreed to this new policy prescription? Why aren’t the majority of taxpayers in favor of higher taxes on the rich? Why do they support limiting estate taxes, which affect only the wealthiest Americans, or cutting the corporate tax? Self-interest, after all, would suggest that the non-rich majority would favor higher taxes on the minority of uber-wealthy individuals and companies that have prospered in our New Gilded Age from growing inequality and greater concentrations of wealth.

In her fascinating new book, “Taxation and Resentment: Race, Party, and Class in American Tax Attitudes,” MIT political scientist Andrea Louise Campbell takes on that set of questions. More broadly, Campbell addresses the fundamental query: “Why is it so hard to raise taxes in the United States? Why is it so difficult to fund government?” As one of the country’s leading experts on public opinion and American politics, she naturally turns for answers to public attitudes toward taxes.

What she finds is surprising and counterintuitive. Unlike rich Americans who, Campbell argues, are well aware of their self-interest and thus have successfully waged a century-long war to reduce their taxes, the rest of us “non-rich,” in Campbell’s terminology, “have often been unwitting allies in the quest of the well-heeled to minimize their taxes.” She finds that many ordinary Americans have distinct tax preferences that counter their objective self-interest.

In principle, most Americans support progressive taxation, believing that those who have more should pay more to support the public sector. But when one asks more specific questions about particular taxes, we see a profound disconnect, with most respondents favoring regressive taxes. “Their favorite taxes are the ones that cost them the most,” she writes. “They dislike—sometimes vehemently—the taxes that cost them less.” Plainly put, we non-rich have tax attitudes that contradict not only our own material self-interest but also any principled commitment or abstract preferences we might have in favor of progressive taxation.

There is, in short, a “principle-policy gap” in American tax attitudes. Relying on prodigious original survey research, Campbell contends that in the abstract Americans support progressive taxation based on the concept of taxing based on one’s “ability to pay.” Most people strongly embrace this principle, which goes back to the origins of our modern American fiscal state. They believe the rich and corporations should pay more in taxes. Yet when one interrogates particular policy preferences, when one asks about individual attitudes toward specific types of taxes, particularly graduated income taxes and the estate tax, a different view emerges—one where Americans favor regressive taxes more than progressive ones.

Our Counterproductive Tax System

Why is this so? One of Campbell’s central claims is that our existing progressive tax system is “self-undermining.” As a scholar who focuses on “policy feedback,” she seeks to show that “public policies are not just the outcomes of political processes but also crucial inputs, shaping the very possibilities for subsequent policymaking.” In this case, our existing tax system is the input helping to mold what’s possible in a number of ways.

One reason our current progressive income tax system is self-defeating is that it largely targets the rich—it takes “the most from the most well-resourced, organized, and vocal elements in society.” Our current structure of graduated tax rates and relatively high exemption levels, in other words, affects those with the greatest power to resist it. With access to high-priced lawyers and accountants—as well as channels for campaign contributions and lobbying pressure—the wealthy know their self-interest, and they know how to maximize their posttax income and wealth. “They have been spectacularly successful,” Campbell notes, “achieving reductions not just in the federal income tax but also in other progressive taxes: the capital gains tax, estate tax, and corporate tax.” Indeed, “the very rich are different from you and me,” as F. Scott Fitzgerald noted long ago.

There are, of course, other reasons why our current tax system is self-defeating. The sheer complexity of our tax laws—as anyone completing their annual 1040 by themselves knows—creates a “fog of tax.” Exacerbating this complexity is the asymmetry between the way the U.S. raises revenue and the way that much of our social spending is structured. Revenue extraction is highly salient, while social spending is often hidden. We feel the pain of taxpaying nearly every day at the gas pump and at the store. And when we look at our paychecks and complete our 1040s, we see how much we owe the federal government.

By contrast, much of U.S. social spending is hidden as part of the submerged state. Our public benefits are mainly indirect in the form of tax breaks—known technically as “tax expenditures”—benefits delivered in the form of uncollected taxes. Most Americans do not think of the home mortgage interest deduction as a tax benefit. And nearly everyone is oblivious to the tax exclusion for employer-provided health care coverage and retirement savings. It is no wonder that many ordinary Americans resist specific tax policies. They simply cannot see their costs and benefits clearly.

Beyond Self-Interest, Partisanship, and Ideology

With her prodigious empirical research in survey data, Campbell dispels many of the other usual explanations for the current widespread American anti-tax sentiment. She shows that party identification and ideology are not consistently correlated with tax opinions. To be sure, a majority of Republicans unsurprisingly have negative attitudes toward taxes. But so too do large minorities of Democrats. And, perhaps, most importantly, Campbell shows that “independents are even more likely than Republicans to say various taxes are unfair and should be decreased.”

If partisanship and ideology are not the key variables, what explains broad anti-tax attitudes? In what is perhaps her most provocative and arresting argument, Campbell contends that race and racial resentment play an outsized role in shaping tax preferences. For racially resentful white Americans, progressive taxes are seen as funding direct social benefits that go to undeserving nonwhites or out-groups, such as Blacks and Hispanics. The asymmetry of our tax laws and fiscal policies lead to “confusion about who benefits from government spending, thereby heightening the racial politics of taxation,” Campbell notes. “Large shares of white Americans thus think they pay taxes that fund visible benefits for others who they find unworthy while failing to realize that they too benefit from government benefits.”

Much of this racialized thinking, Campbell acknowledges, is historically embedded. Citing the work of historians, she notes that “policy and rhetoric have framed whites as taxpayers and black Americans and other non-whites as burdens on the state.” Such thinking, Campbell observes, “makes for a pernicious tax politics, dating back to the post-Civil War era, of white Americans perceiving themselves as taxpayers and ‘nonwhites’ as tax eaters.” Consequently, many white Americans are less supportive of progressive taxation in particular and more supportive of regressive taxes, such as sales and payroll taxes.

At the same time, racial minorities also harbor anti-tax views. Although Black and Hispanic respondents are generally more supportive of government programs than whites, Campbell’s analysis shows that minority groups “are more likely than whites to say that a number of taxes are unfair and should be decreased.” Building on the work of critical tax law scholars, such as Dorothy Brown, Campbell notes that even many seemingly neutral tax law provisions have “differential effects across race, resulting in the greater taxation of Black and Hispanic households compared to similar white ones.” Part of the reason for these effects is the persistently stubborn racial wealth gap and the pernicious disparities that continue to exist in the labor market, not to mention the legacy of historical use of taxation as a tool of racial subordination.

Yet another reason for these anti-tax views, Campbell stresses, is the past interactions that racial minorities have had with government. Revenue extraction is inherently coercive. Thus, “communities that have suffered government coercion in other arenas such as the criminal justice and social welfare systems have every reason to be concerned about government coercion in the tax sphere as well.” That is certainly a plausible claim, but one wonders why the coercive aspects of state power seem to surpass the cautious faith that many Blacks have in some parts of federal activism such as civil rights enforcement, as the work of Michael Dawson has shown.

Generating Provocative Questions

Like all good books, “Taxation and Resentment” raises as many questions as it answers. One wonders, for example, about those moments when Americans have been willing to tolerate higher taxes. As other scholars have shown, Americans have embraced higher taxes during national emergencies and when there is a clear and direct connection between taxes and the spending they support, such as Social Security. Vanessa Williamson’s research on public opinion even suggests that Americans are proud to pay their taxes when they believe they are contributing fairly to a shared sense of belonging, to an imagined community anchored in fiscal citizenship.

Campbell’s critique of tax expenditures similarly raises questions. She is certainly correct that the complexity and opaqueness of indirect spending through the tax code exacerbates confusion about tax law and fiscal policy, and the growth of such tax benefits has only made some matters worse. But tax expenditures do not benefit only the rich. While the wealthy are the main recipients of many of the most generous tax benefits, they are not the only beneficiaries. Refundable tax credits such as the Earned Income Tax Credit and the Child Tax Credit are among the most robust forms of U.S. anti-poverty provisions. This is one reason why many progressives have reconciled themselves to supporting tax expenditures as perhaps the most effective way to enact redistributive social-welfare programs amid an anti-tax political culture.

The proliferation of tax expenditures may be yet another example of the fundamental paradox of American attitudes toward government and, by extension, taxation. Although there is a long-standing and deep-seated suspicion of centralized power in the United States, Americans rely heavily on the state to manage risk, stabilize markets, and protect the vulnerable. A similar sentiment may hold for tax attitudes. While a wide swath of Americans might be opposed in practice to particular highly progressive taxes, as Campbell convincingly shows, these same people cling to the benefits embedded in the tax code. Like other types of government intervention that are welcomed “when all else fails,” tax expenditures might be an ideal type of “statism for anti-statists.”

The Future of U.S. Tax Policy

In addition to raising provocative questions, Campbell also provides some significant closing thoughts on the future of tax policy. One of the most appealing is her rumination about the possibility of a U.S. value-added tax (VAT). Unlike all other advanced industrialized democracies, the United States lacks a broad-based national consumption tax, such as a value-added tax. In most European social-welfare states, it is the highly regressive VAT, along with progressive taxes, that underwrite robust progressive social spending on universal health care, educational support, and old-age public pensions, among many other benefits.

Campbell’s findings that many Americans favor regressive taxes, including payroll taxes supporting Social Security, suggest that a national VAT might have some traction in the United States. Yet Campbell remains skeptical. “Perhaps the biggest problem with a VAT is that I can imagine the United States achieving one-half of the European bargain but not the other,” she writes. Given the public opinion dynamics she has uncovered, Campbell rightly doubts that a U.S. VAT would lead to much more than lower income taxes. “In the United States, it is easier to imagine the privileged getting their taxes reduced through replacing part of the income tax with a VAT without expanding government spending on education, infrastructure, or social policies.” One might not be surprised by such a possible scenario after reading Campbell’s brilliant book.

But such a prediction is also over-determined. As Campbell’s own research shows, there may be a way to harness public attitudes toward taxation in support of a particular type of dedicated U.S. VAT. Many Americans not only favor regressive taxes, such as the payroll tax, but also support Social Security, mainly because of the “annuity fiction” it perpetuates. Despite its original and continued failings, Social Security could be a model for a U.S. VAT that has its revenues earmarked to progressive social spending such as the continued solvency of Social Security or rising health care costs.

The political power of linking regressive taxes to progressive spending was not lost on President Franklin D. Roosevelt and the architects of Social Security. “We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits,” Roosevelt famously recalled in 1941. “With those taxes in there, no damn politician can ever scrap my social security program.” He was right.

We are, of course, far removed from FDR and the heights of the New Deal order. In our highly polarized political environment, bipartisan support for tax hikes seems nearly impossible—at least in the typical fashion of raising marginal income tax rates, as Campbell persuasively documents. Nonetheless, as the U.S. national debt continues to reach historic highs signaling a looming fiscal crisis, federal lawmakers may eventually have no choice but to break free of the tax-cutting frenzy; they may have no choice but to attend to the new third rail of modern politics by finding new and creative ways to raise revenue and fund the government.