George Gibbs Center for Economic Prosperity

Trump ⁠t⁠ax reform — why don’⁠t⁠ more Amer⁠i⁠cans unders⁠t⁠and ⁠t⁠he benef⁠i⁠⁠t⁠s?

By: Dr. J. Robert McClure / 2018

Throughout history, mankind has been susceptible to and manipulated by the art of deception. With Tax Day upon us, I’ve been reminded of this as I attempt to make sense of policy and political debates. From the nebulous concept of “fake news” to charges of media bias across the philosophical spectrum, deception seems to be all around us.

That spirit has been spectacularly apparent throughout the debate on the tax reform package President Trump signed into law late last year. Regardless of who you ask, a common belief among American taxpayers is that although it’s a necessary part of civil society and the social contract, the current tax system stinks. It’s an incredible burden, stressful, and fraught with complications. But perceptions of what to do about it don’t always align with facts.

The hyper-partisanship around the president and his tax reform has created a fog of confusion among Americans. Taxes are the most complex involvement most people have with their government, and it makes people stressed, anxious, and angry — regardless of their political persuasion. The new reforms will bring greater simplicity to every American’s taxes, and that’s something we want people to know as they wrap up this last tax season under the old plan.

We recently conducted a research poll on public perceptions relating to the Tax Cuts and Jobs Act, and the confusion it revealed was eye-opening.

While the reality of the new tax code is that the average family will pay roughly $1,000 less in taxes, and the doubling of the standard deduction means most filers will have far easier tax preparation in 2019, the perception is just the opposite.

Two central features of the federal tax plan were a lower burden on middle-income households and a simpler process. Yet just one-third of respondents indicated that they expect a simpler tax system. And less than one-third expect that average Americans will pay less in taxes because of the new system.

This begs an important question: Why is there such a gap between the perception and the reality? Two things stood out.

The first is the echo chamber of loathing toward President Trump, which affects perceptions regardless of what the tax reform bill actually does. While just 16 percent of self-identified liberals oppose efforts to simplify the federal income tax code, 68 percent of them oppose the “federal tax plan” and 73 percent oppose the “Trump tax plan” — even though these three plans have identical, or very similar, content. Clearly, President Trump’s name negatively impacts the view that self-identified liberals have of the plan.

The second effect has less to do with philosophy and more to do with state tax structures. We found that on average, states spend $25 per person to administer state tax systems, but states with a flat personal income tax spend one-third less per resident to administer their tax systems than those with complex systems ($21 vs. $28 per resident).

In addition, they reap a 22 percent better return on investment ($63 vs. $49 for every dollar spent administering the system). On top of that, their people spend less to prepare and file their own taxes — $69 vs. $176.

The conclusion is obvious: The more complex a state’s tax system is, the more it takes to run the system and the less it brings in. If there is a better case for limited government and the inherent waste of bureaucracy, I have yet to see it.

Dr. Robert McClure is president and CEO of The James Madison Institute, a statewide, free-market think tank based in Tallahassee, Florida devoted to research and education on public policy issues.