GOP Problem: Americans Like Tax Cuts, But Hate Tax Avoiders

Dec 17, 2017 @ 10:40 AM

Outraged by GOP tax legislation, Democrats have consoled themselves by contemplating its appalling numbers. By rushing the bill to enactment, Republicans seem poised to seal their fate in the 2018 midterm elections.

WASHINGTON, DC – DECEMBER 15: Senate Finance Committee member Sen. Rob Portman (R-OH) discusses progress on the tax reform bill with reporters at the U.S. Capitol on December 15, 2017 in Washington, DC. Republicans are planning for the House and Senate to vote on the final version of the bill early next week. (Photo by Win McNamee/Getty Images)

Of course, Republicans might be headed for disaster anyway. Democrats enjoy roughly a 10-point advantage in the generic ballot, suggesting the possibility of a GOP rout next November.

Republicans, meanwhile, are doing some of their own self-soothing. The tax bill will look better, they tell themselves, once it’s a tax law. Everybody likes a tax cut, and Americans will appreciate a tidy boost in their take-home pay.

Republicans may have a point: The GOP plan seems likely to deliver a tax cut to a large majority of Americans, at least over the short term. Bigger paychecks may, indeed, bolster GOP fortunes.

But there’s a catch: Since most Americans pay their taxes through withholding, the GOP cut will unfold in baby steps over the course of dozens of paychecks. That sort of piecemeal benefit can be hard to see, or at least to appreciate. Withholding – by nature and design – tends to obscure tax burdens. That’s why conservatives don’t like it.

GOP hopes face another problem: Most voters aren’t concerned about taxes these days. We tend to think of taxation as a timeless, winning issue for Republicans, but it’s actually quite variable. In a recent Gallup survey, when asked to identify the most important problem facing the nation, only 2% said taxes. The top issue? “Dissatisfaction with government/poor leadership,” at 23%.

That’s grim news if you’re a Republican pondering your political future. In the worst-case scenario, voters might blame you for passing a bill they dislike. But even in the best case, voters won’t notice the tax bill much at all – and you’ll still get clobbered by broader dissatisfaction with national (predominantly Republican) leadership.

And there’s more bad news.

When it comes to taxes, voters may care about the taxes they have to pay. But they care even more about the taxes other people are paying.

If there is one constant of American tax politics, it’s popular distaste for tax avoidance. Americans are willing to tolerate taxes if they believe those taxes are fair. But tax avoidance erodes the perception of fairness.

The biggest problem with this Republican tax bill — albeit one that may not reveal itself to the public for a while — is the numerous opportunities it creates for creative tax planning and aggressive avoidance.

A coterie of law professors recently outlined the myriad opportunities for tax planning that lurk within draft versions of the GOP bill. In particular, new preferences for passthrough income seem especially promising for anyone trying to minimize their tax bill. The widening gap between individual and corporate tax rates also creates numerous opportunities for avoidance.

Most taxpayers, of course, won’t be able to exploit the new law’s most attractive opportunities for tax planning: Real tax avoidance is a prerogative of the rich. But most taxpayers will be able to see the results of that tax planning, especially since Democrats are certain to harp on it relentlessly.

Over the decades, politicians have made a lot of hay about tax avoidance. President Franklin D. Roosevelt built the modern American tax system – and the modern Democratic Party – on a foundation of popular resentment about tax avoidance. More recently, complaints about successful avoidance led Congress to establish the alternative minimum tax in 1969.

Even the 1986 tax reform law – the apotheosis of dispassionate, technocratic, revenue-neutral tax revision – was built on popular resentment about tax chiselers. President Reagan repeatedly promised that the new law would curtail opportunities for avoidance. “There is one group of losers in our tax plan,” he famously declared. “Those individuals and corporations who are not paying their fair share or, for that matter, any share. These abuses cannot be tolerated. From now on, they shall pay a minimum tax. The free rides are over.”

Resentment about tax avoidance is often directed at the wealthy, possibly because people are envious, but more likely because rich taxpayers have more avoidance techniques at their disposal. In fact, Americans dislike tax avoidance even when it occurs (or seems to occur) in the lower reaches of the income distribution. Witness complaints about nonpayers — the 47%, in Mitt Romney’s famous phrase. Nonpayers are a feature, not a bug, in many tax reform plans. But Americans don’t like the idea of people paying nothing, especially when the levy in question is an income tax.

In the annals of the American political economy, the income tax has been a dominant revenue tool for roughly a century. Since World War II, however, it’s also played a symbolic role, representing the shared fiscal responsibility of citizens in every income bracket.

Voters don’t take kindly to anyone who shirks that responsibility, even if the shirking is legal. Nor do they like the politicians who make it possible.