The Great American Tax Debate

Come November, the economy — and who would be better to fix it — will probably be at the forefront of voters’ minds. But like pretty much every election of the last 60 years, voters’ choice will be colored by their views about taxes. If you believe the rich pay too little, chances are you will vote for Barack Obama. If you think tax rates on wealthy Americans are still too high, you will vote for Mitt Romney instead. Speaking to his donors at a fund-raiser, Mr. Romney argued he has no chance of gaining the vote of the nearly half of Americans who pay no federal income tax. But he probably has a good chance of capturing the vote of their fellow citizens who think paying no tax is unfair.

The great American tax debate may feel like a stale, perennial feature of our politics. But it is important. The controversy is not merely about how much we pay in taxes. An equally important question is about who pays them.

The liberal end of our political spectrum strongly believes that tax policy should aim to reduce inequities in pretax income. After all, a dollar taken from the rich to give to the poor should increase national welfare because the poor value that dollar more than the rich do. This would justify a progressive tax schedule — with tax rates rising sharply with income.

Conservatives, by contrast, scoff at the notion of income redistribution by the government. Many have long supported flat taxes — which take roughly the same share of the income, or the spending, of the rich and the poor.

The public shares this polarization. A growing share of Americans believes the rich pay too little in taxes. Many say our country would be fairer if those earning more than $250,000 paid more. A CNN/ORC International poll in April found that seven in 10 Americans support the Obama administration’s proposal that people making $1 million a year or more pay at least 30 percent of their income in taxes.

Still, many shrink from raising taxes on the wealthy. A McClatchy/Marist poll in July found that more than half of Americans want all the tax cuts passed in the Bush administration to be extended, including those for the richest Americans. What’s more, a quarter of Americans believe the poor don’t pay enough, the highest share since Gallup started asking the question a decade ago.

When I wrote a column suggesting that top tax rates could rise much higher, many readers disagreed. “The problem is not with the 5 percent who pay half of all federal income taxes, but with the 50 percent who pay no federal income taxes,” wrote James A. Rowan Jr., an investment banker from Baltimore. “That’s the obvious and fair place to go for increased tax revenue.”

Our skepticism about tax fairness has become an economic albatross. Tending to our liberal side, we have built a progressive tax schedule. Despite the decline in top tax rates, the rich today pay a larger share of federal taxes than they did decades ago. They pay a larger share of taxes than in Europe’s social democracies, which have much flatter tax schedules. But the progressive system we have built raises comparatively very little money to pay for social programs and to reduce economic inequality. And it does so at a high cost in terms of economic efficiency.

What’s more, skepticism about taxes is paralyzing our politics, removing taxes as a potential tool to address our budget deficit. As Andrew Kohut, the pollster who is president of the Pew Research Center, pointed out in a recent report: “In my years of polling, there has never been an issue such as the deficit on which there has been such a consensus among the public about its importance — and such a lack of agreement about acceptable solutions.”

Could we come to a consensus on what taxes we need? There have been moments in our history when we have rallied around the need to pay Uncle Sam. In 1944, as World War II raged, 85 to 90 percent of taxpayers said their income taxes were fair, according to Gallup. Today, only 59 percent of Americans think the same. That’s despite a drop in the top tax rate from 94 percent in 1944 to 35 percent today.

Our skepticism about taxes’ legitimacy is unique among developed democracies. Among citizens of rich industrial countries, Americans are the least likely to agree that taxing the rich to subsidize the poor is an essential job of government in a democracy, according to the World Values Survey.

There is reason to be skeptical that we can build more support for taxation. The rise of the fiercely antitax Tea Party suggests that Americans are going the other way. And the stagnation of middle-class incomes and fast growth in income inequality since the 1980s have not made taxes any more popular. Income tax rates are at their lowest point in two decades, yet Gallup finds that about half of Americans still think they are too high.

Economists and other social scientists suggest that the uniquely American discomfort with taxation may be a permanent feature of our society, one that holds in good and bad economies.

Some argue that the nation’s racial, ethnic and cultural mix undercuts support for taxes among whites, who believe government spending is a tool to transfer their hard-earned dollars to minorities who are different from them.

Others have suggested that what differentiates Americans is a belief in the fairness of the economic system — which allows us to accept income inequality as the result of an economy that showers its largess on the most talented, hard-working and productive citizens.

But maybe it’s all a question of understanding what taxes are for. Europeans not only have fewer qualms about paying taxes, they long ago accepted regressive taxes on consumption as a reasonable price to pay. But they see their taxes at work much more often than Americans do.

For starters, every time they go to their taxpayer-financed doctor, they are reminded. Many Americans, by contrast, have only a foggy idea of what their taxes pay for. Few understand that taxes subsidize the health insurance from their employer, which would be much more expensive without the government’s hand.

Few understand that tuition at public colleges (including community colleges), which is $4,774 a year, on average, would rise to $11,064 in the absence of government subsidies. Many think government spending is all politically motivated “pork.”

“A good reason for not wanting to pay more in taxes is that we have a wasteful and corrupt government,” William Brennan, a retiree from Novato, Calif., wrote to me. “The more they get, the more they spend on programs to ensure their re-election.”

Indeed, surveys like Pew find that even though most Americans want a smaller government, few want to cut any actual government programs. Maybe the way to start building a consensus about taxation is to make the connection between the taxes people pay and the benefits they finance.