How Big Is Your Tax Cut? Compared to What?

December 23, 2017
Posted by Jay Livingston

Questions:

1. How much did you pay in federal income tax last year?
2. What percent of your gross or net income was that?
3. When you file your taxes in a couple of months, will you compare the figures with those of a year earlier?

My own answer to the first two is “I don’t know.” That’s probably the most accurate answer to #3 as well. 

Americans opposed the recently passed tax bill 46-32%. Most people also think that the tax bill favors the wealthy rather than the middle class. Only self-identified Republicans think otherwise, and even among them, only 60% see the tax as more for the middle class than for the wealthy.

(Click on an image for a larger view.)

Republican politicians are hoping that these views will change when people see their take-home pay increase. Here’s conservative columnist Bret Stephens writing in today’s New York Times:

In 2018, according to the Tax Policy Center, 91 percent of middle-income filers will get a tax cut, averaging close to $1,100. That’s real money, or at least enough to give Donald Trump and congressional Republicans a good opening for a “we told you so” moment.

In politics, perception and ideology are more important than the facts. But what about personal experience?  How much does it influence perception and ideology?

When Obama reduced taxes, almost nobody noticed the increase in their paycheck. Public perception was equally divided between those who thought taxes and not changed and those who thought taxes had increased.

I get paid every two weeks. That $1100 of “real money” Stephens talks about will work out to about $50 a check. Will I notice? Maybe the first time. I think that’s what happened when Obama’s payroll tax cut went through. When I do my income tax next April, will I say, “Hey, I’m paying $1100 less than last year!”? Not unless I dig out my old returns.

Republican hopes might also run into the problem of “comparison groups” – the others that we compare ourselves against. So far, that’s worked out pretty well for Republicans. Liberals have been in despair puzzling about those White working-class people who oppose Obamacare and other programs they would have benefited from. Why would they reject a healthcare law that picked up a large chunk of their insurance premiums?

Probably because they were comparing themselves with the undeserving poor – the moochers, the folks who are getting Medicaid absolutely free. As Sen. Orrin Hatch put it recently, ““I have a rough time wanting to spend billions and billions and trillions of dollars to help people who won’t help themselves, won’t lift a finger and expect the federal government to do everything.”

But when it comes to tax cuts, those White working-class taxpayers can’t very well compare themselves with the poor, whose tax cuts, if any, are small. Instead, when it comes to paying taxes, working-class people, and middle-class too, are looking not at the poor but at the wealthy. And what they see is people  getting tax cuts that dwarf their own. Perhaps on this one issue, they will share the left-wing focus on the undeserving rich.

In April, the Gallup poll regularly asks people if they see their income taxes as “fair.”  Last year, with no real change in the income tax, the percentage jumped from 50% to 61%.

 If Republican politicians and journalists are right, that number will increase next time around. I’m not so sure.