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.

FILED UNDER: Government, Quick Takes, Taxes, US Politics
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Stormy Dragon says:

    “Most people with nothing would rather protect the possibility of becoming rich than face the reality of being poor.”

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  2. al-Ameda says:

    In April 2017 the California state legislature, which is completely controlled by the Democratic Party, passed the Road Repair and Accountability Act of 2017. It included an additional 12 cent per gallon increase at the pump. Most of the estimated $5.2 billion in proceeds would go to a road maintenance and rehabilitation.

    This is a very sensible and practical way to fund this infrastructure improvement – users of the roads and highways, aka ‘drivers’ pay for the improvement of the roads they use.

    Well, of course Republicans filed papers to launch an initiative drive aimed at repealing the 2017 gas tax increase. Republicans SAY they want infrastructure improvements, they just do NOT want to PAY for them.

    America is a really dumbed down country.

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  3. Daryl's other brother Darryl says:

    Full disclosure…being in the 95th percentile of income, I received a very nice tax cut – nothing like Berkshire Hathaway’s – but way better than Paul Ryan’s teacher at $1.50 a week.
    https://www.vox.com/policy-and-politics/2018/2/24/17048378/warren-buffett-berkshire-hathaway-tax-cuts
    I don’t mind paying taxes. I get stuff for it. 19 years of public education that put me into the 95th percentile of income, fire protection, police protection, planes don’t crash into each other, roads are decent, we have a fine military, I can buy food without worrying about getting sick from it.
    You want to reform something that will help everyone? Reform insurance. I pay more every month for insurance…medicare, health, life, home, car, toys, etc…than I do in taxes, and I get nothing. It’s a scam, and insurance companies are making insane profits.
    Meanwhile Trump has taken a system that was working (Obamacare) and made it cover fewer people, at a lower coverage level, and cost more for both individuals and the Government.
    You wanna make me happy? Raise taxes on the wealthy (including myself), cut taxes on the middle an lower classes, and fix insurance.

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  4. KM says:

    America is full of temporarily embarrassed millionaires. They *can’t* take from the rich because someone will take from *them* one day…. you know, when they win the lotto! Besides, they’ve internalized the concept that the rich have *earned* their wealth somehow and it’s stealing to ask for more from the guy with billions then to ask the guy with $5 bucks. They hate that guy, always begging and mooching – why doesn’t he get a job and work hard like the rest of us?!

    In short, people aren’t too dumb to raise taxes on the rich – they’re too invested in the BS that keeps hope alive in their hearts that one day, they too will own an island.

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  5. teve tory says:

    You want to reform something that will help everyone? Reform insurance. I pay more every month for insurance…medicare, health, life, home, car, toys, etc…than I do in taxes, and I get nothing. It’s a scam, and insurance companies are making insane profits.

    Insurance as a way to pay for medical care is a system that has disproved itself.

    Why wouldn’ it? It’s a stupid concept. You need medical care. You pay x dollars into a kitty for that care. The kitty takes money off the top, and then employs a dude whose career and compensation is ranked on keeping as much of what’s left from being spent on your care. Who thinks that’s an intelligent system?

    Dems will win with Medicare/Medicaid for all, it’s just a matter of time.

  6. Stormy Dragon says:

    @al-Ameda:

    You conveniently leave out the fact that there have been several cycles of the state legislature passing a gas tax hike for the supposed purpose of increasing funding for highway infrastructure and then the following year siphoning money out of the higway trust fund to close shortfalls in the general budget and then using the fact there’s still no money for infrastructure to push for another increase in the gas tax.

    And indeed, the state legislature is already this year proposing to use most of the money from last year’s gas tax hike to fund parks programs instead of highway infrastructure.

  7. Daryl's other brother Darryl says:
  8. Just Another Ex-Republican says:

    @Stormy Dragon: “To the right, ever to the right
    Never to the left, forever to the right”

    Prescient musical, eh?

  9. Franklin says:

    @Daryl’s other brother Darryl: “You want to reform something that will help everyone? Reform insurance.”

    Here’s yet another situation where one can take advantage of being relatively well off: Avoid insurance when it is reasonable to do so. And it becomes more reasonable the more money you have.

    If my car drops below, say, $15k in value, I remove collision insurance on my policy. I could grudgingly handle the loss if it’s totaled, but chances are high that it won’t and I’ll come out ahead. Use that basic strategy for a long enough time on all different types of insurance (including the scams like home appliance warranties), and you are essentially guaranteed to come out ahead, overall.

    Just make sure not to cut out anything you couldn’t afford. So yeah, you need that insurance for if you accidentally injure or kill someone in a car accident.

  10. Daryl's other brother Darryl says:

    @Franklin:

    If my car drops below, say, $15k in value, I remove collision insurance on my policy.

    Exactly. I did total my 2001 Dodge truck around xmas in 2016, and so I took that loss, which hurt. But in the previous years I likely saved at least enough to cover my loss, and probably more. I have to say though, I learned that trick long ago when I had less money and needed to save where I could. Poor people are more likely to go “naked”, insurance-wise, than those better off.

  11. Daryl's other brother Darryl says:

    FYI…The site still loses my name and email…depending on what…I don’t know.

  12. @James:

    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.

    Actually, isn’t this a fit with the broader point of the pieces you cited: people, as a general principle, don’t understand taxes?

  13. James Joyner says:

    @Steven L. Taylor:

    Actually, isn’t this a fit with the broader point of the pieces you cited: people, as a general principle, don’t understand taxes?

    Yes–although a rather different take than the authors, who argue people oppose higher taxes because they think they’re closer to the median income than they really are.

  14. al-Ameda says:

    @Stormy Dragon:

    And indeed, the state legislature is already this year proposing to use most of the money from last year’s gas tax hike to fund parks programs instead of highway infrastructure.

    The claim, by California State Assemblywoman Melissa Melendez that Gov. Brown’s budget is “diverting 30 percent of funding from the gas tax to non-road related projects like building parks and job training for felons,” is largely false. The truth is that approximately 3% of Brown’s proposal does go to transportation-related items that are not road repair, and those expenditures were authorized by legislation, and were not an illegal expenditure of funds..

    That said, I drive 100 miles a day as part of my commute to San Francisco, and I can tell you that payment needs regular care. The current level of gas tax revenue probably provides 25% to 33% of the annual amount needed to maintain good roads in good condition – that is before they deteriorate to a condition that requires a level of costly reconstruction.

    So, yes, I support the 12 cent per gallon increase. What other way is there?
    Are we to continue the fantasy/hope that we can generate savings elsewhere in government to take care of ongoing and deferred maintenance?

  15. Stormy Dragon says:

    @al-Ameda:

    I wasn’t saying the transfer was illegal. Just pointing out that people are getting tired of the “rope-a-dope” strategy of saying something like:

    This is a very sensible and practical way to fund this infrastructure improvement – users of the roads and highways, aka ‘drivers’ pay for the improvement of the roads they use.

    To justify raising gas tax revenue for things that have nothing to do with drivers paying for the improvement of the roads they use.

  16. Hal_10000 says:

    I think it goes much deeper than that and it’s not a result of idiocy or anything else. People have an inbuilt resistance to taking things that are not theirs. In Applebaum’s book the Iron Curtain, she wrote about mansions being seized from aristocrats and given to the people. But many people refused to live in them because they regarded it as stolen goods. I think the same logic works here: even if you’re poor, there’s a resistance to taking other people’s money. This is not a bad thing; it’s how society functions.

    If you look at the big welfare states, you’ll find that their taxes are usually *less* progressive than ours. This is for two reasons: 1) it’s the only way to fund them; 2) it makes everyone feel like they’re part of it. You’re putting money into the system, you’re getting money out. Everyone is pulling some weight, if not necessarily equal weight. You’ll notice in this country that Medicare and Social Security are almost sacrosanct because everyone pays into it. It’s not really seen as a welfare system.

    As long as the Democrats continue this charade that things like single payer can be paid for just by taxing “the rich”, they will continue to struggle. (Republicans have a charade where they pretend things like a giant military can be paid for by unicorn tears and dragon sneezes, but that’s a different story).

  17. Stormy Dragon says:

    @Hal_10000:

    Republicans have a charade where they pretend things like a giant military can be paid for by unicorn tears and dragon sneezes, but that’s a different story

    If a giant military could be purchased with dragon sneezes, I would not be hanging out here.

  18. gVOR08 says:

    I don’t think it’s any more complicated than what @Daryl’s other brother Darryl: said. No, not him, the other one.

    There have been, I believe, any number of studies that show government responds to what rich people want, not to what majorities want, for reasons that seem obvious. Rich people want their taxes cut, and no regulation on their businesses. They can’t run on that as a platform, so they’ve done a very effective job of running on other stuff, mostly xenophobia and religion. Some of our rich are people who sell bottled water and cigarettes, they know that you can sell anything with enough money and a clever pitch. The results are before us with the Republican tax reform (sic) and gutting the regulatory agencies.

    The obvious counter is working class solidarity, but in the U.S. it’s always been easy to split that on race.

  19. teve tory says:

    What’s the exchange rate for Dragon sneezes to bitcoin?

  20. gVOR08 says:

    @gVOR08: Can’t find it again, but there was a good article a month ago pointing out why Republicans are suddenly so against immigration. Used to be that if an immigration bill came up a number of large, corporate lobbyists would support easier immigration. They wanted the inexpensive labor. There are no longer pro-immigration lobbyists because the corporations sent all the low wage/low skill jobs overseas. Aside from less influential ag business corporations they no longer need immigrant labor. So now they can pander to the xenophobia they stoked in their base.

  21. gVOR08 says:

    @Hal_10000:

    If you look at the big welfare states, you’ll find that their taxes are usually *less* progressive than ours. This is for two reasons: 1) it’s the only way to fund them; 2) it makes everyone feel like they’re part of it. You’re putting money into the system, you’re getting money out. Everyone is pulling some weight, if not necessarily equal weight. You’ll notice in this country that Medicare and Social Security are almost sacrosanct because everyone pays into it. It’s not really seen as a welfare system.

    Decades ago J. K. Galbraith said Democrats should push a VAT or something like it for several reasons. 1) we need the money it could raise, 2) economists always prefer consumption taxes, and 3) removing resentment over progressive taxation would largely defund the Republican Party.

    Note that SS was originally called an “entitlement” for exactly the reason Hal says, you paid, you were entitled. Now, however, Republicans hate SS anyway, even though the wealthy don’t pay payroll taxes to speak of. That’s largely driven by having borrowed all the SS money to fight stupid wars and not wanting to pay it back out of the general fund. Oh, and that Goldman Sachs sees that huge pile of money and they want it.

  22. al-Ameda says:

    @Stormy Dragon:

    To justify raising gas tax revenue for things that have nothing to do with drivers paying for the improvement of the roads they use.

    I agree generally, however I’m not going to avoid a logical method of funding infrastructure repair because I don’t find perfection in how it’s currently done. This is how we avoid addressing our public capital improvement problems, it turns into death by a thousand paper cuts, and it goes on indefinitely.

  23. An Interested Party says:

    People have an inbuilt resistance to taking things that are not theirs.

    Really? So corporations aren’t people? It’s a pity a majority on the Supreme Court doesn’t believe that…meanwhile, certain people do seem to believe that’s all that poor people, racial minorities, and illegal aliens want to do…to steal from you what isn’t theirs…

  24. Hal_10000 says:

    @gVOR08:

    The old joke about the VAT is that Democrats oppose it because it’s regressive while Republicans oppose it because it brings in lots of revenue. It will eventually be passed when Democrats realize it brings in a lot of revenue and Republican realize it’s regressive.

    I would support a VAT over a lot of other taxes. It’s fairly transparent and the economic deadweight is minimal. The other tax I might support is a carbon tax, depending on how it was offset.

  25. DrDaveT says:

    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.

    I think you misunderstood the article. People don’t think in terms of what the median income is; they think they have a sense of where they are in the pecking order. And they almost always overestimate — which is to say, they underestimate just how wealthy the wealthy are, and how many people there are who would consider their income to be negligible.

    Yes, if people were numerate this would be equivalent to an estimate of what the median and mean incomes are — but people aren’t numerate.

    The benefits of taxing the mega-rich are minimal — there aren’t enough of them to contribute that much marginal revenue to the treasury. The real benefits to society come from taxing people like me, who exist by the millions, still pretend to be “upper middle class”, and would barely notice enough extra taxation to shift a family of four from abject poverty to reasonable comfort.

  26. James Joyner says:

    @DrDaveT: That makes more sense.