Tax policy, public perception, and the midterm elections

As we head into midterm elections next week, both political parties are working hard to win support for their positions on major issues, including tax policy. The passage of the Tax Cuts and Jobs Act of 2017 created sweeping change in this area, and the election is an opportunity for both parties to try to spin that legislation to their advantage – Republicans by touting its supposed benefits for economic growth, Democrats by describing how they would fix it.

A recent opinion piece published in The Hill claims that the tax bill will be Republicans’ downfall in the midterm elections because of how starkly at odds it is with public beliefs about tax policy. Drawing on our class discussions about optimal tax policy and minimizing efficiency and equity, I thought it was interesting to reflect on the huge gap this author highlights between the underlying logic of the tax bill and the logic that makes sense to the majority of the public. The tax bill gave huge tax cuts to corporations and wealthy individuals, espousing supply-side and trickle-down theories that this would stimulate economic growth. The author of this piece, drawing on a recent report on public opinion which he co-authored, illustrates that these theories have been falling from favor among the general public for years as trickle-down effects have continually failed to materialize. For example, he found that 60 percent of the public believes that the middle class pays more than its fair share of taxes, and 88 percent believes that making the wealthy pay their fair share of taxes will grow the economy. Public opinion now seems to more closely support the logic of progressive taxation we discussed in class this week.

While Republicans acted in contradiction to the wishes of the majority of Americans by passing the Tax Cuts and Jobs Act, Democrats are positioning themselves as the party that will act on behalf of the public to correct the problems with the recent tax bill. A recent article from Bloomberg News describes “What Democrats Want to do on Taxes if they Win the House.” Highlights include raising taxes on the wealthy, repealing the cap on state and local deductions, cutting taxes for middle-class families, and scrutinizing the ways the tax bill benefits corporations. All of these actions seem to be more aligned with the public preferences about tax policy expressed in the first article.

It is also interesting to note that the primary tool discussed in the article for providing some relief to middle-class families is tax credits. As we’ve discussed in class, credits are a more progressive way to reduce families’ tax liability than deductions because the amount of the credit does not depend on your tax rate. The article speculates that Democrats may try to expand the earned income tax credit and child tax credit and to create a new education tax credit. Though action would still need to be taken to correct for the major tax cuts for corporations and the wealthy to get to a truly progressive tax structure, expanding these credits could be a first step in that direction.

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