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.”
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 to the left captures some of the most common words and phrases from their responses.
Tax-Code Complexity
We first asked respondents how complex they would rate the current U.S. tax code:
How would you rate the complexity of the 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.
- 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.
- 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.
- 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.
- Interestingly, more than a quarter of respondents (25.58 percent) view taxation on charitable donations — that is, income-tax deductions for donations — as “unfair.”
- 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 sex, income and region of the country.
- Surprisingly, 65 percent of the respondents are not interested in the fairness of tax code.
- 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.
- 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.
- 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?
- Steve Cruice
Certified Financial Planner and Founder of Simply Steward
Read More - Kimberly Houser
Clinical Associate Professor of Business Law at Washington State University
Read More - Dwight Denman
Associate Professor of Accounting at Eastern Oregon University
Read More - Wendy Hubbard
Certified Financial Planner and Founder of Heirloom Financial Services
Read More
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:
The fairest possible tax code would have ______ potential deductions, relative to the current U.S. tax code.
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:
Which of the following options describes the fairest possible relationship between tax rates on investment income and 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:
Which of the following options describes the fairest possible relationship between corporate and consumer tax rates?
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).
Percent Rating Each Tax as 'OK' to 'Very Fair'
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:
Which is more important?
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.
Which do you care more about?
Is the new tax code more or less fair than it was previously?
Should politicians use the tax code to reward or punish companies for their ties 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:
Ask the Experts
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.