Are People Too Stupid to Raise Taxes?
Daniel Triesman offers an explanation as to "Why the poor don't vote to soak the rich."
Daniel Triesman offers an explanation as to “Why the poor don’t vote to soak the rich.”
In a democracy, income inequality should in theory correct itself. The poor majority should vote to tax the rich and divide the proceeds among themselves. But that’s not happening in the United States. In fact, inequality has been rising for decades.
Scholars suggest various explanations. Here’s one possibility that few have discussed: Poor voters may oppose a policy of higher taxes and income transfers because they wrongly think they’ll be victims of it.
The idea that in democracies the poor soak the rich goes back to Aristotle. The economists Allan Meltzer and Scott Richard formalized the logic in a classic paper. If the majority gets to set a flat tax rate and share the revenues equally among all voters, then when incomes are especially unequal, the majority should set the rate higher.
In a recent article, Vladimir Gimpelson and I show that in many countries — the United States included — most people simply don’t know how high inequality is or where they fall in the distribution. Nor can they say reliably how it’s been changing.
Many don’t know. In 2015, Ipsos MORI asked respondents in 28 countries to guess the average annual wage. That year in the United States, the correct answer was around $59,000, according to the OECD. The average guess was less than half that — about $26,000. (Even if we suppose respondents had in mind post-tax not pre-tax income, the guesses were way too low.)
Another survey in 2007 asked Americans about average household income. The median respondent guessed $40,000. According to the Census Bureau, average household income that year was $69,193 — again, much higher than the typical answer.
This fits with another common bias. People tend to think they are closer to the middle of the income distribution than they actually are. As in Garrison Keillor’s fictional town where all children are above average, residents of many countries like to think they are close to the mean. The poor underestimate how much the rich earn, while the rich underestimate the poverty of the poor.
Misperceptions are certainly not the only reason poor Americans resist higher taxes to pay for programs that would benefit them. Culture, racial prejudice, and political messaging also contribute. But the desire of millions to see themselves as more or less average may help explain why they don’t use their voting power to shape public policies in their interest.
The explanation doesn’t make much sense to me. If people think the median income is half what it actually is, then it would seem to follow that taxing “millionaires” would actually be even more appealing.
Maybe people just think taxes, like the rent, are too damn high? People see the deductions from their paycheck every pay period and think too much is coming out. And, when they get a rebate at the end of the year, they don’t really do the math and realize how little they paid in net.