Why Americans don't want to soak the rich

[Velar Fricative]

With rising income inequality in the United States, you might expect more and more people to conclude that it’s time to soak the rich. Here’s a puzzle, though: Over the last several decades, close to the opposite has happened.



Since the 1970s, middle-class incomes have been stagnant in inflation-adjusted terms, while the wealthy have done very well; inequality of wealth and income has risen.



Over that same period, though, Americans’ views on whether the government should work to redistribute income — to tax the rich, for example, and funnel the proceeds to the poor and working class — have, depending on which survey answers you look at, either been little changed, or shifted toward greater skepticism about redistribution.



In other words, Americans’ desire to soak the rich has diminished even as the rich have more wealth available that could, theoretically, be soaked.



It’s not just public opinion polls, either. It shows up in the actual policies espoused by candidates for office and enacted by Congress. In 1980, the highest earning Americans faced a 70 percent tax on every dollar they earned beyond $215,400 for a married couple, for example, the equivalent of $544,000 today.



Over the last decade, by contrast, the top marginal rate has ranged between 35 percent (which President George W. Bush secured in 2003) and 39.6 percent (which President Obama advocated and which took effect in 2013).



This core question — How much should the government use its power to tax and spend to redistribute wealth in pursuit of a more equal society? — has been at the root of ideological clashes around the world and throughout history. Yet in American politics in recent years, it has manifested itself in a narrow, partisan debate over whether the top marginal income tax rate should be 35 percent or 39.6 percent.



How you make sense of this seeming paradox of rising inequality and flat or declining support for redistribution depends on your ideological assumptions.



If you’re conservative, a compelling answer might be this: Americans are seeking less redistribution because they have come to their senses. They realized the very high tax rates and generous social spending that prevailed in the middle decades of the 20th century came at a high economic cost, and that low taxes on the rich encouraged greater investment and entrepreneurship, spurring faster economic growth that ultimately made everybody better off. (The economists Glenn Hubbard and Tim Kane have made a version of that argument.)



If you’re a liberal, the answer might be more like this: Americans have been hoodwinked by conservative politicians and media outlets, and have come to view redistribution as a dirty word because they don’t recognize the ways it benefits them. This barrage of misinformation has led them to view any redistributive efforts as welfare that goes to somebody else, particularly to someone with a different color skin. (Paul Krugman has made a version of that argument.)



New research offers a bit more evidence on what may be occurring. It doesn’t disprove either the conventional liberal or conservative argument. But it does show some of the ways that Americans’ attitudes toward redistribution are more complex than either would suggest.


A National Bureau of Economic Research working paper by Jimmy Charité, Raymond Fisman and Ilyana Kuziemko tackled this with an online experiment in which a random sampling of Americans were asked what tax rate they thought appropriate for someone whose annual income had suddenly increased by $250,000 for reasons involving luck. The researchers asked the question twice. In one version, the income gain occurred in the current year; in the other, it happened five years ago. Surprisingly, the respondents favored a 1.7 percentage point higher tax rate if the person with the income gain had recently started earning the extra money than if the person had been earning it for five years. That may not sound like much, but it is more than half of the gap the same experiment showed between the tax rate favored by Obama voters and the rate favored by those who said they voted for Mitt Romney in 2012.


In other words, respondents favored less redistribution if they believed that the person had already grown accustomed to a higher income. The psychology seems to be something like this: Rich people who have been rich for a while have gotten used to their money, so it would be unfair to tax them heavily. But people who have just gotten rich have not become accustomed to higher levels of after-tax income, so it wouldn’t be as harmful to raise their taxes in the interest of greater equality.



Another working paper, from the Brookings Papers on Economic Activity by Vivekinan Ashok, Ms. Kuziemko and Ebonya Washington, looks at how thinking about redistribution has varied over time among groups. One of its more striking conclusions: The shift away from a belief in redistribution has been stronger among elderly Americans than any other age group.



Might this be explained by the elderly becoming more conservative in general, and therefore taking a more conservative view on this issue? Not really. The shift showed up even when the researchers controlled for views on hot-button social issues like abortion and gun control.



The researchers offer another way of making sense of the pattern: Older Americans benefit more directly than any other age group from the social safety net, specifically, Social Security and Medicare. The fact that American seniors already receive government-provided health care may make them view any talk of greater redistribution as taking away what they already have, the researchers suggest.


During the debate over President Obama’s health care overhaul, this thread was often evident; with opinion polls showing that older Americans opposed the law more than younger people did. At the same time, conservative politicians and commentators pummeled the law for cutting Medicare spending to help pay for expanded coverage for younger Americans.



The two studies indicate how complex — even messy — opinions on this question of political philosophy are. Our views on proper tax levels and redistribution may be shaped by seemingly extraneous factors, like whether we believe the rich are already used to being rich, and whether we are already getting government benefits.



In other words, the question isn’t, Why don’t Americans want to soak the rich more? It may be, Who exactly is being counted as rich and who is perceived to be benefiting from the soaking?

[zoegirltx]

well my simplistic explanation is that most are just plain ignorant idiots. They have some complex that the rich got that way b/c they are good & righteous & hard working who earned it by working harder than anybody else, and they could possibly be in those ranks some day. They fail to understand how we keep crating the system to make the rich get more rich at the expense of everybody else.

[penguingrrl]

I also think that politicians are owned by wealthy donors and therefore know they risk losing their reelection campaign for doing something as unpopular as raising taxes on their donors.

[jln]

The mentality that anyone can become rich is what's hurting us. And many Americans are delusional enough to believe it.

[summer]

This article tells me a lot. Americans have been sold the idea that capitalism, God, and country are the holy trinity. www.npr.org/templates/transcript/transcript.php?storyId=396365659

From the article re: corporations in the 1930's upset about New Deal regulations.

"That's it exactly. They used these ministers to make the case that Christianity and capitalism were soul mates. This case had been made before, but in the context of the New Deal, it takes on a sharp new political meaning. And essentially, they argue that Christianity and capitalism are both systems in which individuals rise and fall according to their own merits. And so in Christianity, if you're good, you go to heaven. If you're bad, you go to hell. In capitalism, if you're good, you make a profit and you succeed. If you're bad, you fail.

The New Deal, they argue, violates this natural order. In fact, they argue that the New Deal and the regulatory state violates the Ten Commandments. It makes a false idol of the federal government and encourages Americans to worship it rather than the Almighty. It encourages Americans to covet what the wealthy have. It encourages them to steal from the wealthy in the forms of taxation. And most importantly, it bears false witness against the wealthy by telling lies about them. So they argue that the New Deal is not a manifestation of God's will, but rather a form of pagan sadism, and it is inherently sinful."

[pamela]

Apr 17, 2015 21:59:58 GMT -5 penguingrrl said:

I also think that politicians are owned by wealthy donors and therefore know they risk losing their reelection campaign for doing something as unpopular as raising taxes on their donors.

So politicians weren't owned by rich people when the top tax rate was 70%?

[penguingrrl]

Apr 18, 2015 0:40:25 GMT -5 pamela said:

Apr 17, 2015 21:59:58 GMT -5 penguingrrl said:

I also think that politicians are owned by wealthy donors and therefore know they risk losing their reelection campaign for doing something as unpopular as raising taxes on their donors.

So politicians weren't owned by rich people when the top tax rate was 70%?

In general when the top tax rate was that high the average income disparity was lower, so no, I don't think they were as obviously owned by the rich as they are now. More "average" people had more disposable income and campaign spending was much lower, so in general you needed fewer "big" donors to make it into office.

[penguingrrl]

Apr 19, 2015 10:45:34 GMT -5 @lcap said:

If we want things to be more equal in this country, simply "soaking the rich" - while perhaps emotionally satisfying - won't cut it. They're aren't enough of them. It won't bring in the necessary revenue. Taxes will have to be raised on the middle class too. Are people making 75-100k and up willing to pay more in taxes? That is what is needed to fund all the social programs we would like (UHC, universal preK, paid and longer parental leave, etc. etc.).

I think that's why these proposals almost never go anywhere. Politicians understand that calling for increased taxes on the middle class (and to be fair, the rich as well will have to pay more if the rate is raised on income at 75k and above) is a no go zone.

Given that our healthcare costs are more than double out current taxes are hurting us far more than out tax burden is, I would gladly pay higher taxes. In fact, if my taxes were equivalent to my taxes plus my healthcare costs currently are but also included other necessary social safety nets I would be thrilled.

But then I fully support spending on services and see my tax bill as providing necessary services and do think I could find a way to pay more.

[irishbride2]

Apr 19, 2015 10:45:34 GMT -5 @lcap said:

If we want things to be more equal in this country, simply "soaking the rich" - while perhaps emotionally satisfying - won't cut it. They're aren't enough of them. It won't bring in the necessary revenue. Taxes will have to be raised on the middle class too. Are people making 75-100k and up willing to pay more in taxes? That is what is needed to fund all the social programs we would like (UHC, universal preK, paid and longer parental leave, etc. etc.).

I think that's why these proposals almost never go anywhere. Politicians understand that calling for increased taxes on the middle class (and to be fair, the rich as well will have to pay more if the rate is raised on income at 75k and above) is a no go zone.

This is where I am. However we fall in that income range and even high taxes would probably be cheaper than our current taxes plus 24k in health care expenses.

[tacosforlife]

Apr 19, 2015 11:26:44 GMT -5 @lcap said:

Apr 19, 2015 10:59:59 GMT -5 penguingrrl said:

Given that our healthcare costs are more than double out current taxes are hurting us far more than out tax burden is, I would gladly pay higher taxes. In fact, if my taxes were equivalent to my taxes plus my healthcare costs currently are but also included other necessary social safety nets I would be thrilled.

But then I fully support spending on services and see my tax bill as providing necessary services and do think I could find a way to pay more.

I kind of think this is where the Obama Administration and the Democrats in Congress at the time went wrong with the ACA. They should have just gone after what they really wanted: a true, robust UHC system that they could pay for by raising taxes on the entire population. Instead they compromised by killing the public option and only raising taxes on the rich which resulted in our weird  public/private hybrid system that doesn't get the job done and is pretty unpopular all around.

I would happily pay more in taxes too if I could see it actually going towards social programs we need, like UHC or universal prek. I think a lot of people would. How often do you really hear people complaining about their school taxes, you know? Some do but most people use public schools and see the benefit of having an education community.

It's all well and good to say Obama should have gone for UHC, but it was not politically feasible, full stop. The ACA barely passed because the more conservative Dems were a tough sell. No way would UHC have been a go.

[doobeedoo]

This is a fascinating article, thanks for posting.

I am not a fan of redistribution/soaking the rich. Whether they earned it, or it was a windfall, been rich their whole lives or just got rich yesterday, "soaking" them is not the answer. That said, if I think about which audience I'd be more comfortable soaking, it would be the people who have always been rich, will always be rich even after being soaked. The person who just started earning the big bucks and who would need to make sacrifices after being soaked, not so much.