Thomas Piketty's new book, Capital in the Twenty-First Century, has sparked a heated debate over the causes and consequences of rising inequality in the US and Europe. And given that Piketty's key policy proposal to counter the growth in inequality involves higher taxes on wealth, the book has added new fuel to fiery partisan bickering over tax policy.
Turn on the TV today and "experts" on both the left and right claim to know exactly what Americans want when it comes to tax policy: some say Americans want investment income to be taxed more, others assert Americans really think investment income should be taxed less; some say Americans want a simple flat tax, others say Americans DEMAND a more progressive structure.
In an effort to move beyond the punditry, WalletHub decided to reach out and ask Americans directly what they really think of our current tax system and, more importantly, what they think a more fair tax system would look like. To do so we conducted an online survey of more than 1,000 Americans, a sample designed to be nationally representative by age, race and sex.
Below I highlight three key findings from our study -- the full 2014 WalletHub Tax Fairness Survey includes detailed analysis of attitudes and opinions towards a range of tax policy questions.
Key Finding #1: Tax Code Too Complex -- More Fairness with Fewer Deductions
More than 80% of individuals in our sample rated the current tax code as either complex or extremely complex. That's not too surprising. But it is interesting that respondents felt a fairer tax code would have fewer deductions than the current system. This suggests American's are supportive of a complete overhaul of the federal tax code, not more patches that make the system more complicated even if done in the name of increasing fairness.
Key Finding #2: Tax Investment Income More -- At Least As Much As Wages
Respondents believe a fair system would tax income from investments at a substantially higher rate than it is today. Specifically, well more than half (57.64%) think wages and investment income should be taxed equally; 33.06% say investment income should be taxed more than wages. American's don't appear to be OK with a system where billionaire Warren Buffet pays a lower effective tax rate than his secretary.
Key Finding #3: Tax Fairness Trumps Other Considerations
Tax fairness is more important than whatever is best for the economy. Many commentators have suggested that Piketty's global tax on wealth would have negative implications for economic growth by stifling investment and innovation. As both sides argue about whether -- and to what extent -- a wealth tax would inhibit economic growth, it appears Americans would ultimately prefer a tax system that was just designed to be fair.
Tax policy is a complicated issue. Yes tax policy affects levels of post-tax inequality. But how we tax also determines the resources available for critical government functions. And the structure of tax systems can affect economic growth by influencing the actions of a range of economic actors from corporations to investors to workers.
We recognize that designing a tax system that balances these priorities while being both simple and fair is no easy feat -- indeed our survey also found that reforms that prioritize simplicity, such as a flat income tax, are typically not considered to be very fair. But engaging with everyday Americans reveals a strong appetite for reform and a real consensus on a range of issues.
We here at WalletHub will focus in the coming months on trying to better understand what American's think a fairer tax system would look like. We welcome your thoughts and suggestions as we move forward with this work.
Odysseas Papadimitriou is CEO of the personal finance websites CardHub & WalletHub.