Posted by: John S Kiernan

Complaining about taxes is about as American as apple pie. It’s in our DNA, having paved the way for independence before the United States was even a twinkle in the founding fathers’ eyes. So even though the circumstances have changed quite a bit over the years, we’re still arguing about who owes what to the government and how the money should be used.

Feelings about tax fairness are particularly strong these days, following President Trump’s sweeping tax reforms. And with the 2018 mid-term elections looming large, the time seemed right to take the public’s temperature on the tax system. So WalletHub’s analysts surveyed a nationally representative sample of 882 Americans. The survey was conducted online from March 05 to 09, 2018. You can find a detailed breakdown of the results below, along with expert commentary and our complete methodology.

Key Findings

• Nearly half of respondents (46.19 percent) believe the new (2018) tax code is not as fair as the current system.
• More than half (51.25 percent) say tax fairness is more important than tax equality (20.84 percent), while nearly one in five (18.47 percent) want whatever is best for the economy, and roughly one in 10 (9.44 percent) chose whatever is best for them.
• 77 percent of people think politicians should not use the tax code to reward or punish companies for ties to the NRA.
• Nearly half of respondents (46.76 percent) say the poor shouldn’t have to pay taxes.
• One in four respondents (25.17 percent) support a flat income tax.
• Nearly two-thirds of respondents (64.36 percent) said corporations should face higher tax rates than consumers.
• More than half (59.05 percent) said wages and investment income should be taxed equally, while nearly one-third (32.13 percent) said investment income should be taxed more than wages.
• 38.87 percent of respondents think the fairest possible tax code would have more potential deductions than the current code, but nearly as many (36.81 percent) say it would have fewer deductions.
• More than three-quarters of respondents (76.63 percent) rated the tax code as either “complex” or “extremely complex.” Only 3 percent called it “simple” or “very simple.”

 

1. Tax Rates by Income Group
2. Tax-Code Complexity
3. Investment & Wage Income
4. Consumers vs. Corporations
5. Fairest & Least Fair Taxes
6. Fairness vs. Equality vs. the Economy
7. Tax Rates & Politics
8. Ask the Experts
9. Methodology

Tax Rates by Income Group

Our current federal tax system has a “progressive” structure, in which higher incomes are taxed at higher rates. Central to the tax debate is how income tax should be structured: Should everyone pay the same tax rate? How much more should the wealthy pay relative to the middle class? Should the poorest Americans pay any income tax?

To determine what Americans consider the fairest income-tax system, we presented respondents with the following four charts of income-tax rates by income and asked them to choose the one they considered “fairest”:

• One quarter of the respondents (25.17 percent) said they prefer a flat income tax to the more progressive options.
• Notable again is the difference between men and women in preferences for a flat tax. Men (27 percent) are more likely than women (24 percent) to prefer a flat tax.
• Interestingly, the most popular choice, chart C, includes some taxation of poor households. It is hard to determine, however, which features of the tax systems depicted in the charts are driving support for this attitude. We plan to further investigate this issue in future WalletHub studies.
• Respondents were provided an opportunity to describe in words what they consider a “fair” tax code. The quote bubble below captures some of the most common words and phrases from their responses.

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Tax-Code Complexity

We first asked respondents how complex they would rate the current U.S. tax code:

     

• When asked how complex they found the current tax code, more than 76 percent responded that it is either “complex” or “extremely complex,” compared with only 3.27 percent of who responded that it is either “simple” or “very simple.”
• In a multivariate regression framework, age appears to be positively associated with viewing the current tax code as “too complex” — that is, the older the respondent, the more complex he or she regards the current tax code. This is net of differences by income, sex and region of the country.

• One thing that makes our current tax system complex is the number of deductions. We therefore asked respondents how the number of deductions in the fairest possible tax code would compare to the current system:

       

  • Older participants are generally more likely than younger ones to respond that the fairest tax code includes fewer deductions.
  • Men (39 percent) are more likely than women (34 percent) to respond that the fairest tax code includes fewer deductions. This difference between men and women is statistically significant in multivariate models controlling for income, age, and region of the country.
  Investment & Wage Income

  How to tax income from investments relative to wages has been a major area of disagreement among politicians. Current policy taxes income from investments at a lower rate than income from wages, which results in a prominent investor like Warren Buffet paying a lower effective tax rate than his secretary.

  To see what taxpayers think, we asked respondents to identify the fairest possible relationship between tax rates on investment income and wages:

       

  • More than 90 percent of respondents said income from investments should be taxed at least as much as income from wages.
  • Women and men show stark differences in opinion, with women (35 percent) significantly more likely than men (29 percent) to say that higher taxes for investment is the fairest option. In a multivariate regression model, net of age, region of the country, race and income, women have 80 percent higher odds than men of supporting a higher tax for investment than wages.
  Consumers vs. Corporations

  Graduated income-tax rates aren’t the only way to make the tax code fairer. Respondents also said corporations should face a higher tax rate than consumers:

       

  • Yet again, women and men show stark differences in opinion, with women (69 percent) significantly more likely than men (60 percent) to say that higher taxes on corporations is the fairest option. In a multivariate regression model, net of age, region of the country, race and income, women have 141 percent higher odds than men of supporting a higher tax on corporations than consumers.
  Fairest & Least Fair Taxes

  Not all taxes are viewed as equally fair. We therefore asked respondents to rate different taxes on a scale from 1 to 5, with 1 indicating “very fair” and 5 “not fair at all.” The chart below shows the percentage of respondents who considered each type of tax to be anywhere from “very fair” to “OK” (1 to 3 on the scale).

       

  • Interestingly, more than a quarter of respondents (25.58 percent) view taxation on charitable donations — that is, income-tax deductions for donations — as “unfair.”
  Fairness vs. Equality vs. the Economy

  Tax systems can affect economic growth by influencing the actions of a range of economic actors from corporations to investors to workers. Some suggest, for example, that increasing tax rates on corporate profits or income from investments would have a negative impact on the economy. But we wanted to know what Americans value most: tax equality, tax fairness, whatever is best for the economy, or whatever is best for them personally. The results are as follows:

       

  • Elder people appear to be more likely than younger to have responded that tax fairness is most important (relative to the other options). This difference is net of age, income and region of the country.
  Tax Rates & Politics

  With tax reform representing one of President Trump’s signature achievements to date, we asked a few questions to determine how taxpayers view the changes, relative to both the current system and other key issues people want politicians to focus on.

       

  • Surprisingly, 75 percent of the respondents are not interested in the fairness of elections or the tax code.

   

  Embed on your website<iframe src="//d2e70e9yced57e.cloudfront.net/wallethub/embed/4171/tax-columnchart1-fairness.html" width="700" height="450" frameBorder="0" scrolling="no"></iframe> <div style="width:700px;font-size:12px;color:#888;">Source: <a href="https://ift.tt/2IZtLN7>      

  • More than 65 percent (67.12 percent) of Democrats consider that the new tax code is less fair compared to the previous one while nearly 50 percent (48.55) of Republicans perceive the new tax code as an increase in fairness.

   

  Embed on your website<iframe src="//d2e70e9yced57e.cloudfront.net/wallethub/embed/4171/tax-columnchart2-fairness.html" width="700" height="450" frameBorder="0" scrolling="no"></iframe> <div style="width:700px;font-size:12px;color:#888;">Source: <a href="https://ift.tt/2IZtLN7>      

  • Most of the Democrats (69.39 percent) and Republicans (87.07 percent) interviewed agree upon the fact that the tax code should not be used as political punishment-reward system towards companies tied to the NRA.
  Ask the Experts

  Once the results of our survey were in, we asked a panel of experts in the fields of public taxes and tax reform to interpret our findings. Click on the panelists’ profiles below to read their bios and thoughts on the following key questions:

  • More than 90 percent of respondents to WalletHub’s Tax Fairness survey said investment income should be taxed at least as much as wages. What do you think about that?
  • More than half of respondents said that corporations should face higher tax rates than consumers. Are they right?
  • Our respondents said tax fairness and tax equality are more important than whatever is best for the economy. Are they right? What are other considerations?
  • More than 75 percent of our respondents said the tax code is too complex. How can we make it simpler?

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  • Steve Cruice Certified Financial Planner and Founder of Simply Steward
  • Kimberly Houser Clinical Associate Professor of Business Law at Washington State University
  • Dwight Denman Instructor of Business at Eastern Oregon University
  • Wendy Hubbard Certified Financial Planner and Founder of Heirloom Financial Services
  Steve Cruice Certified Financial Planner and Founder of Simply Steward

  More than 90% of respondents on WalletHub’s Tax Fairness survey believe investment income should be taxed at least as much as wages – what do you think about that?

  Interest income, in most cases, is taxed at ordinary income rates (except for Social Security and Medicare taxes). Only qualified dividends receive preferential tax treatment, but many times are still taxed depending on the taxpayer’s ordinary income tax bracket. Dividends should continue receiving preferential treatment because it’s money that has already been taxed. The corporations are taxed on profits, and then distribute dividends after tax. The taxpayer then pays taxes on the dividend income making the income double taxed.

  Long-term capital gains receive preferential treatment, and there is a simple reason. The tax code seeks to reward an investor that puts capital at risk for a significant period of time (one year or more). Capital gains are still taxed at up to 20 percent (and more when considering the Medicare surtax). Taxpayers could argue on how much the tax code should reward putting capital at work, but rewarding capital risk behaviors to keep the financial, real estate, and small business markets functioning seems appropriate. Most of the respondents probably do not understand how the different facets of the tax code interact with one another.

  Over half of our respondents felt that corporations should face higher tax rates than consumers – do you agree?

  No, while corporate payers should pay their fair share, increasing the taxes on corporate entities would likely result in lower wages and higher product prices. Investors will still require the same return on capital for the risk they take, so the corporations will have to either increase prices or decrease expenses to meet investor demand.

  Respondents in our sample rank taxes on corporations and wages as the least fair and taxes on tobacco and alcohol as the most fair – what do you think?

  Should we pay based on consumption, then? This would most likely hurt lower-income taxpayers the most, since products and services make up a larger percentage of their annual income than higher-income taxpayers. Flat tax could also result in lower taxpayers paying more than they do right now. There are a lot of ideas of how to make a “fairer” tax system, but they typically all have drawbacks.

  Our respondents view tax fairness and whatever is best for the economy as more important than tax equality – are they right? What are other considerations?

  To an extent, the higher-income earners can afford to pay more than lower-income taxpayers. The tricky part is who defines “fairness.” The rich? The poor? The government?

  More than 75% of our respondents found the tax code too complex – how can we make it simpler?

  It will never happen, as long as politicians exist.

  Kimberly Houser Clinical Associate Professor of Business Law at Washington State University

  More than 90% of respondents on WalletHub’s Tax Fairness survey believe investment income should be taxed at least as much as wages – what do you think about that?

  I was surprised that the figure was so high. My concern is that older people who no longer earn wages but rely on investment income in retirement would be very adversely affected.

  Over half of our respondents felt that corporations should face higher tax rates than consumers – do you agree?

  I not only agree, I am one of the few who believe that individuals should not be required to pay taxes on income. It is my belief that the Constitution envisioned corporations as being responsible for funding the federal government. I could write an entire paper on this subject, but for practical purposes, I briefly summarize my thoughts on tax policy in response to the last two questions in this series.

  Respondents in our sample rank taxes on corporations and wages as the least fair and taxes on tobacco and alcohol as the most fair – what do you think?

  I would rank taxes on wages as being the least fair, and taxes on corporations as being the most fair. I discuss taxes on goods below (but agree that higher taxes on certain good or services are appropriate).

  Our respondents view tax fairness and whatever is best for the economy as more important than tax equality – are they right? What are other considerations?

  It may sound like I am avoiding answering this question, but I would propose moving to a system of taxation of all business income. The corporate tax would apply not only to corporations, but also to pass-through entities. Rather than an income tax on individuals, I would propose a VAT (value added tax) on goods and services. To shape policy, the VAT percentage could be higher or lower, depending on which activities the federal government wished to encourage or discourage. Obviously, this would need to be determined by a bi-partisan committee.

  More than 75% of our respondents found the tax code too complex – how can we make it simpler?

  You could make the tax code very simple by eliminating the individual income tax. The corporate tax code could be vastly simplified. Corporate (business) tax policy could be shaped by the types of deductions permitted to businesses depending on what type of business behavior the federal government wished to encourage or discourage. Again, this would need to be determined by a bi-partisan committee.

  I though the survey was very interesting. It does seem clear that the respondents were dissatisfied with the current tax structure, but may not have considered all options (such as eliminating the individual income tax and replacing it with a VAT or taxing all businesses at the corporate rate). Obviously, there are many other considerations to these proposals, but they would be a good starting point for overhauling the U.S. tax system.

  Dwight Denman Instructor of Business at Eastern Oregon University

  More than 90% of respondents on WalletHub’s Tax Fairness survey believe investment income should be taxed at least as much as wages – what do you think about that?

  I disagree. Most investment income comes from a principal investment that originated as taxable wages they earned already. If it was taxed again at the same rate as wages, it would have a double-taxation effect.

  Over half of our respondents felt that corporations should face higher tax rates than consumers – do you agree?

  I disagree. The U.S. must make corporate rates competitive with other countries' tax rates in order to attract investment. It's not so much that corporate rates need to come up to match personal rates; I believe that personal rates should come down so that the top rate is about the same as the new lower corporate rates.

  Respondents in our sample rank taxes on corporations and wages as the least fair and taxes on tobacco and alcohol as the most fair – what do you think?

  I guess the "fairness" of taxes is in the eye of the beholder. "Sin taxes" are meant to curb certain behaviors as much as they are meant to collect a revenue stream. I don't really have a position on this. There is no correct answer.

  Our respondents view tax fairness and whatever is best for the economy as more important than tax equality – are they right? What are other considerations?

  Again, fairness is in the eye of the beholder. What one person thinks is fair, another person may believe is unfair. If by fairness you mean that the rich should pay more in taxes, both in dollars and percentages as their income increases -- again, it's a matter of perspective. If I am poor, then I probably believe it is fair that a rich person should pay more in sheer dollars and percentage of income. However, the rich person would most certainly disagree that this was fair.

  More than 75% of our respondents found the tax code too complex – how can we make it simpler?

  I believe a flat tax would be the answer if you want to make the tax code less complex. Everyone would pay the same percentage of their income, and, of course, the more you make, the more you pay. Get rid of all deductions and exclusions for individuals. Limit certain deductions for corporations.

  Wendy Hubbard Certified Financial Planner and Founder of Heirloom Financial Services

  Over half of our respondents felt that corporations should face higher tax rates than consumers – do you agree?

  It's interesting that most respondents felt corporations should face higher tax rates than consumers, yet they also felt taxes on corporations (and wages) were among the least fair.

  Respondents in our sample rank taxes on corporations and wages as the least fair and taxes on tobacco and alcohol as the most fair – what do you think?

  Being taxed on wages seems the least fair, because taxpayers have very little control over this. Aside from adjusting withholding, which can catch up with you at tax time if you're not careful, employees are stuck paying taxes out of their paychecks. Taxes on alcohol and tobacco seem more fair because, unlike payroll taxes, they are avoidable. In addition, the tax on alcohol and tobacco is paid at the time of purchase, which results in a slightly higher expense, but doesn't cause a decrease in income.

   
  Methodology

  The above results are based on a nationally representative online survey of 882 individuals conducted by WalletHub from March 5 to 9, 2018, via SurveyMonkey, with a 3.3 percent margin of error. After all responses were collected, we normalized the data by age, gender and income in order for the sample to reflect U.S. demographics for income-earning adults.

  Regression models on ordinal outcomes are robust to both ordinary least squares and ordered logit model specifications. Binary outcomes (and outcomes bounded by 1) are estimated using logistic regression and are also robust to OLS specifications. Descriptive statistics presented are for the full sample (n=882). Missing data in multivariate models are dealt with using listwise deletion. Analytic sample size for all multivariate regressions is n=869.

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