Academic journal article Policy Review

The Trouble with Tax Cuts

Academic journal article Policy Review

The Trouble with Tax Cuts

Article excerpt

IN RECENT YEARS, tax cuts have fallen sharply as an issue of concern to voters. Poll after poll puts cutting taxes well down the list of priorities. This is puzzling because taxes as a share of gross domestic product or personal income are at all-time highs and have risen very sharply during the Clinton administration. Taxes have risen much more sharply than during the 1970s, when the increases led to a tax revolt epitomized by Proposition 13 in California and the election of Ronald Reagan in 1980 largely on a promise to cut tax rates across the board.

Political conservatives lament the decline of tax reduction as a political issue, but as yet have offered no coherent explanation for why this should be the case. Many have merely fallen to repeating their calls for tax cuts in the apparent hope that repetition alone will make people more receptive. That is always a possibility. But on the theory that advocacy is most effective when advocates know not only what they want but also what others want, a better approach might be to take a hard look at why the case for tax cuts is failing.

Tax and poll data

IT IS NOTORIOUSLY DIFFICULT to draw definitive conclusions from polling data, because questions are asked at different times by different organizations in slightly different ways. Nevertheless, although the particular numbers vary from place to place and time to time, as far as taxes are concerned the general trend is unmistakable. People simply do not rate tax reduction as a primary goal today. Consider the following data from September 1999 polls:

Fox News/Opinion Dynamics. Registered voters were asked what are the two most important issues for the federal government to address. First was education (30 percent), second was Social Security (23 percent), third was health care (18 percent), with taxes coming up fourth (15 percent). Harris. Americans (not just registered voters) were asked the same question. First on their list of concerns was education (17 percent), second was crime (16 percent), and taxes (15 percent) were third. CBS News. Americans were asked to select the single most important issue they would like presidential candidates to address. First was education (27 percent). Health care, Social Security/Medicare and taxes were tied for second at 22 percent each. This suggests that while a significant percentage of Americans view taxes as the most important issue, the vast majority of Americans put other issues higher on the list of their concerns. This attitude is in sharp contrast with prevailing views in the tax revolt era, when people seemingly wanted their taxes cut regardless of the consequences. Following is a New York Times reporter's summary of a national poll in the wake of Proposition 13 in 1978:

Fifty-one percent of those interviewed in the Times poll said they would vote for a measure like Proposition 13, which cut property taxes and placed a limit on future increases in California.

A majority said they would prefer a smaller government and fewer services if it meant a lower tax rate, but many voters do not believe they really have to make a sacrifice. Time and again, they said that costs could be cut by "trimming fat" and that taxes could be reduced without reducing services.

Clearly, nothing like this sentiment exists today. Indeed, even self- identified Republicans believe that increasing spending for education and Medicare is a better use for the budget surplus than cutting taxes for businesses and individuals, according to a 1999 Wall Street Journal/NBC News poll.

The irony is that taxes are higher and rising faster today than they were at the time of Proposition 13. As Figure 1 illustrates, in the 26 quarters leading up to Proposition 13, federal taxes as a share of GDP were unchanged. They were 19.1 percent in the first quarter of 1972 and 19.1 percent in the second quarter of 1978. Over this entire period, taxes peaked at 20. …

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