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The Bush tax cuts and 9/11

I spent some time this morning looking for survey data on taxes. My hunch was that the number of Americans unhappy with their tax bill was not that different in the 1990s (so, pre-Bush tax cuts) and in the Aughts. That hunch was wrong. But this graph raises another question:

galluptaxes.jpg

Why did Reagan's tax cuts have so little effect on people's perceptions of their tax bill? The Bush tax cuts had a huge effect: The number of respondents saying they were paying too much dropped by 15 points in one year. But after Reagan's 1981 cuts, the change is small and gradual. That's odd, given that Reagan's tax cut was larger than Bush's cut.

My hypothesis is that we're actually seeing a 9/11 effect in that poll. The drop comes in 2001, and it might be that supporting the government suddenly seemed patriotic, and the sharp change in people's opinions about their tax bill is a byproduct of that rally-around-the-flag effect, rather than of the Bush tax cuts. But that's just a guess.

By Ezra Klein  | September 21, 2010; 10:24 AM ET
Categories:  Taxes  
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Comments

I'd argue that the Bush tax cuts were more significant for the vast majority of people than Reagan's.

In 1980, the bottom 50% faced an average tax rate of 6.10%. In 1982, it was still 6.10%. By 1985, down a bit, to 5.70%. After the 1986 tax reform, things were better still - in 1989, it was 5.11%. So from 1980-1989, a guy who paid the average tax rate for the bottom 50% saw a 19% decrease in the tax rate.

The tax burden for the bottom 50% fell more during the 1990s, with the average rate down to 4.39% in 1995 and was at 4.60% in 2000. So from 1989 to 2000, the average tax rate was down another 10% or so.

However, by 2003, the average tax rate was down to 2.95%, a 38% decline since 2000.

http://www.taxfoundation.org/news/show/250.html

On top of that, many more families were effectively exempted from income taxes under Bush than Reagan, it is likely that some of those families moved from 'too high' to 'just right'.

Note that by 2009, 47% of Americans had no income tax burden, which suggests that nearly everyone who was still paying taxes thought them too high.

http://www.taxfoundation.org/research/show/1410.html

http://www.nytimes.com/2010/04/14/business/economy/14leonhardt.html

One other aspect to consider was that inflation was high until a few years into Reagan's first term. Even a slightly lower tax rate might have been camoflauged as money illusion generated a higher tax bill in dollar terms, whereas the early part of Bush's first term was characterized by a deflation scare.

Posted by: justin84 | September 21, 2010 11:09 AM | Report abuse

I'd like to see this graph compared with when Republicans controlled or didn't control Congress and/or the presidency.

It's all they talk about when they're out of power. It's the single issue they get traction on again and again. When they're in power and therefore not whining about it 24/7, I bet the public's perception of their tax rate goes down.

Posted by: roquelaure_79 | September 21, 2010 11:12 AM | Report abuse

--"My hypothesis"--

Wow. That poly sci degree is really paying off now.

I think Justin84 has a better "hypothesis".

And, of course, it's the old "thieves justification" game: "Forty percent of muggees believe they're being mugged just the right amount."

Posted by: msoja | September 21, 2010 11:31 AM | Report abuse

Ezra,

Your theory about 9/11 being responsible for people suddenly becoming happy with their tax rates is silly. They became happier with the rates when they became lower, or in the case of nearly half of Americans, when they became non existent.

What I never understand about you liberals, is if you really believe your tax rates are too low, why don't you just pay more? The federal treasury accepts donations. Why doesn't Warren Buffet who complains that his secretary pays higher rates than he does, just write a check for the difference. Why doesn't Bill Gates, who is opposed to the elimination of the inheritance tax, just donate his money to the Government instead of his charity? The reason is because, deep down liberals know what conservatives say is true; Individuals know how to spend their money better than the Government does. Nobody should have to pay more than 35% of their wages to the federal Government. If there is a deficit, then lets debate spending cuts.

Posted by: cummije5 | September 21, 2010 11:41 AM | Report abuse

What people are we talking about? That was 30 years ago. Reagen who? One person thinking that they are paying their fair share is not quite the same as the next person. If you were alive in 1981, and Jimmy Carter didn't kill your savings, I don't think anything short of a gazillion dollar hand out would have made any one happy, and although I am neither a Republican or a Democrat, I believe Mr. Reagen was the right person at the right time and did a pretty good job. On ther other hand, Mr. Bush delivered on a tax cut at a time when the economy was cruising and people's incomes were up across the board pretty much, so unless you were a total numeridiot you could see some difference in the check stub and/or the tax sheet at the end of the year.

As for a survey like this, I don't know that it means anything, at all. I have never met anyone who believed that they were not paying too much taxes, but perhaps this survey asked the question in a different way.

If asked, and I won't be, how I felt about the amount, I would respond this way: If we were talking about a flat tax, where there were no deductions for anything, then I would say I was paying about the right amount. In all probability, that might mean some of us we would pay less taxes but others would pay more. In the end more taxes would probably be collected and that would be good, maybe, if it was applied to the debt. The bottom line, however, is that we need to tax more in the USA, not less, and certainly, not in the manner as we do now.

Posted by: rryder1 | September 21, 2010 12:17 PM | Report abuse

If the wealthy continue their spree of irresponsibility at the expense of others, this country will be just about as much fun to live in as Brazil, India and China combined.

Poverty-stricken, polluted and politically oppressive.

Posted by: tony_in_Durham_NC | September 21, 2010 12:20 PM | Report abuse

It's disappointing that the number of citizens who think their taxes are too low did not also show a significant patriotic leap. But then again, Bush could never have asked for a shared sacrifice without engaging the American public and more fully justifying his foreign adventures. To do so would have been totally hypocritical. Instead, he could only dig the economic hole even deeper.

Posted by: cjherzfeld@verizon.net | September 21, 2010 12:36 PM | Report abuse

It would be interesting to compare this graph with one that tracked the percent of people paying 0% income tax.

The NFIB tax poll doesn't fluctuate that much, so I think it might be due to individuals thinking that a (near) 0% tax rate is "about right." If the number of people paying 0% also greatly increased after 2001 then it would give some weight to this argument.

Posted by: chrisgaun | September 21, 2010 1:01 PM | Report abuse

justin84's explanation is more plausible than a 9/11 effect. But what one hand giveth, another taketh away. Starting in the Reagan era, many responsibilities were shifted to (or dumped on) state and local gov'ts. Supporting these programs required state and local gov'ts to raise revenues, typically through the wrong kind of taxes and fees, wrong as in those with regressive impacts as compared to the federal income tax.

So while average federal income tax rates may have trended lower, the take from sales taxes and real property taxes (perhaps excepting Prop. 13-like areas) have risen making the wealthy 'tax-happier' at the expense of the middle class. Not good from a tax equity standpoint but equity and fairness is not really part of the lexicon in political debate today when the overall perception is one of everyone fighting for pieces of a shrinking pie.

Posted by: tuber | September 21, 2010 1:13 PM | Report abuse

All Bush era Tax Cuts, Oil Industry subsidies; estate taxes giveaways and Feedstock and Cotton Subsidies from top to bottom should end. Hit 'Reset' until America can bring its military men and women home from the Middle East.

The Bush era tax cuts should expire, but the tax code should be simplified with a minimum rate for all individuals and corporations. The corporate tax rate of 35% is a Joke when loopholes allow companies to write off 100% of their taxes and force small business and individuals to bear the greatest blunt of America’s tax burden. America needs a minimum tax rate of 10~15% for all businesses and individuals after all deductions.

Americans are paying historically low taxes that are the lowest since 1950. No one pays their tax bracket rate as write off allow everyone’s federal, state and local income taxes to average less than 9%/year and for the more wealthy landowners it’s often 0%.

Posted by: Airborne82 | September 21, 2010 1:15 PM | Report abuse

Millionaires and Billionaires pay $0.00 in estate taxes in 2010

Estate Taxes and the USA deficit:

http://voices.washingtonpost.com/ezra-klein/2010/07/research_desk_compares_whats_t.html#more

The current Estate Tax giveaway to the Rich is costing the USA $300~700 Billion between 2009 and 2018.

Steinbrenner heirs could save millions from one-year gap in estate tax

http://www.washingtonpost.com/wp-dyn/content/article/2010/07/13/AR2010071305028.html

“The year-long hiatus of the estate tax, which normally falls on the very rich, could cost the U.S. Treasury an estimated $14.8 billion in 2010. "In the midst of this terrible recession, the idea of giving billionaires a massive tax break is obscene," Sen. Bernard Sanders (I-Vt.) said Tuesday. "Already we have four billionaire families who are not paying taxes -- Steinbrenner's being the last one. Many billions are being lost. We have to address that reality right now." “

Posted by: Airborne82 | September 21, 2010 1:32 PM | Report abuse

msoja, I've never heard the original statement you're referencing, so I'm not sure I'm really following. Still, it's ludicrous to compare all taxation to theft unless you want to argue for an anarchist state with literally no government. If you think there should be any level of government, whether you like having military protection, some mechanism for creating and enforcing patents, contract enforcement, a judicial and criminal system, etc., then there has to be some way to fund that in a compulsory manner from the citizenry. There can certainly be unjust levels of taxation, but that's a different argument.

cummije5, your theory that lower taxes are responsible for the shift in the graph is undercut by Ezra's point about Reagan's tax cuts. If the shift is just due to changing rates of taxation, we should see similar shifts for Reagan's cuts. If there's some circumstance or argument that you think mitigated the shift after Reagan's cuts, then you should make that argument. Ezra's connection of the shifts to 9/11 may not be right, but it's certainly compelling enough that you should actually address it rather than asserting your preferred truth.

As for why people don't voluntarily pay more in taxes, well, why don't people voluntarily pay more for anything? We all have competing interests and desires vying for our money. It's perfectly consistent to believe that tax rates should be increased because it is good policy and be personally annoyed when you have to pay your own taxes. I don't know anyone that loves giving more money to the government, but that doesn't mean I don't know plenty of people who think it is some combination of necessary or a preferable outcome to a bankrupt government or draconian cuts in services.

Posted by: MosBen | September 21, 2010 1:38 PM | Report abuse

For deficit Hawks:

End the $150~$200 Billion over 10 years to Rich farming conglomerates while victims of decades of abuse and discrimination cannot get a dime. End the $80 Billion in subsidies for rich oil and coal industries over 10 years. End the Estate Tax giveaway that costs $300~$700 Billion over 10 years.

Tax stock trades and gambling transactions a fraction of a penny to fund jobs legislation. There are over $4 Trillion in trades every single day. A minuscule tax of less than a penny on each trade could fund American manufacturing and Job creation.

Of course Poor little Wall Street Babies will cry. Americans should pity the Wall Street Poor babies who do not want to contribute to America's recovery; who want to hoard money and invest American taxpayer FDIC insured funds into jobs and manufacturing in Asia.

But there is the deficit to consider.

Posted by: Airborne82 | September 21, 2010 2:04 PM | Report abuse

You're really stretching with that hypothesis Ezra. People might have been more willing to support their government, and by extension their tax bill, in 2001, but that graph's 'peak happiness' is in 2006. Was there still a pro-government 9/11 effect in 2006, after Katrina, at the nadir of the Iraq war, with Bush's approval ratings at rock bottom? Let's be sensible here. Occam's Razor tells us it's more likely that public sentiment on taxes changed because tax rates came down, doesn't it?

Posted by: bigmandave | September 21, 2010 2:12 PM | Report abuse

Airborne82, that hits on what frustrates me about the Republican party these days. It's like most of the issues we face have one possible solution and you're either for it or against it and for or against liberty. Most of the problems Dems are talking about have tons of ways to come at them, and I think the Dems have shown that they're fairly willing to try different, and their non-preferred, ways of addressing problems in the name of compromise.

Posted by: MosBen | September 21, 2010 2:26 PM | Report abuse

There was no Rush Limbaugh pimping resentment during the Reagan years.

The numbers jump up under Clinton, then down under Bush. To what extent does this represent the society's hyper-politicization?

(Limbaugh persistently told listeners that Clinton had performed "the largest tax increase in history.")

Posted by: bobsomerby | September 21, 2010 2:41 PM | Report abuse

--"Limbaugh persistently told listeners that Clinton had performed 'the largest tax increase in history.'"--

Would "one of the largest" work for you, Bob?

Posted by: msoja | September 21, 2010 10:07 PM | Report abuse

--" If you think there should be any level of government, whether you like having military protection, some mechanism for creating and enforcing patents, contract enforcement, a judicial and criminal system, etc., then there has to be some way to fund that in a compulsory manner from the citizenry. There can certainly be unjust levels of taxation, but that's a different argument."--

Hmmm. Except for defense, there, which is obviously bloated and riddled with corruption, you've pegged as necessary a very small jot of the current conglomeration. If you agree to jettison the rest of the morass, I believe I could be very agreeable on defense, and I might even think you had a brain.

Granting that once feet are in doors, it becomes hard to hold the line, I'd say a swift chop to eighty percent of the Cabinet agencies, and a swifter abolishment of the last eighty years of alphabet soup agencies, and we'd have an honorable accord.

And then we could debate the morality of forcing people to pay for a military they didn't value.

Posted by: msoja | September 21, 2010 10:18 PM | Report abuse

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