Super-Competent Citizens and Tax Policy

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Jonathan Chait has been having a back-and-forth with some folks at National Review over whether tax cuts during a recession should be temporary or permanent. What I find interesting about conservatives' arguments on matters like this is that they seem to think that Americans are extraordinarily sensitive to even the smallest changes in tax rates, and make dramatically different personal decisions based on things like whether a tax cut they've been given is permanent or will sunset in a few years.

Problem is, this conception of people's awareness of taxes -- that among the things they use to make their consumer decisions is whether they think a tax cut will sunset in five years -- is just absurd. Quick: what was the marginal rate you paid last year? Do you know? Unless you're an accountant or a tax policy analyst at the Heritage Foundation, chances are you have only the most general idea. If your next paycheck was a bit higher, you'd notice, but the idea that you'd say, "Unless this is a permanent tax cut, I will immediately deposit this extra $50 in my savings account, whereas if I knew it was a permanent cut, I would get myself Red Dead Redemption for my XBox" is pretty ridiculous. Even more, it assumes that the average American is spectacularly well-informed about tax policy.

Unfortunately, people's ideas about taxes are not produced through careful monitoring of their own accounts and national policy. They're a product of vague impressions and easily forgotten information, filtered through their own ideologies. For instance, in April, The New York Times did a poll in which they asked people whether the Obama administration had raised or lowered taxes for most Americans. The correct answer is "lowered" -- the stimulus bill lowered taxes for 98 percent of working families, and the only tax increase that has taken effect under Barack Obama is a small rise in the federal cigarette tax. But 34 percent of respondents -- and 64 percent of Tea Party supporters -- said that Obama had raised most people's taxes.

It would be great if every American had a fine-grained understanding of tax policy -- or any policy, for that matter. But that's not the world we live in.

-- Paul Waldman

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