90% of Americans Say Tax Investment Income More & 71% Prefer Clinton’s Tax Plan to Trump’s via WalletHub
Tax policy is an ever-changing landscape. As such, questions of fairness regularly find their way to the forefront of politics and public discourse. Who should pay for what and how much are among the questions that everyday Americans grapple with while struggling to navigate an increasingly complex tax code.
And the challenge trickles down to the process of choosing a leader to represent their ideas of fairness. That issue is now in the hands of Hillary Clinton and Donald Trump, who over the course of their campaigns have proposed very different plans for tax reform. In brief, Clinton wants to raise taxes on the wealthiest Americans, whereas Trump claims he will cut marginal taxes on both ordinary taxpayers and businesses.
With the 2016 presidential election ahead of us, the time seemed appropriate to learn what Americans think of the current U.S. tax system, how to improve it and whether their ideas align with Clinton’s or Trump’s plans. To investigate Americans’ attitudes toward taxation, WalletHub’s analysts conducted an online survey of a nationally representative sample of 1,040 Americans. Continue reading below for our detailed findings, expert commentary and a full description of our methodology.
Key Findings
- More than 75 percent of respondents rated the current tax code as either “complex” or “extremely complex.”
- Nearly half of respondents (47.8 percent) said the fairest possible tax code would have fewer deductions than currently available.
- Nine out of 10 respondents said income from investments should be taxed at least as much as wages.
- More than half (57.09 percent) said wages and investment income should be taxed equally, while a third (33.01 percent) said investment income should be taxed more than wages.
- One in four respondents (26.27%) support a flat income tax.
- Nearly three-fifths of respondents (57.18 percent) said corporations should face higher tax rates than consumers.
- Americans view taxes on wages and corporations as “least fair” and taxes on alcohol and tobacco as “most fair.”
- More than half of Americans (56.74 percent) view tax fairness as more important than whatever is best for the economy (22.63 percent) and tax equality (20.63 percent).
- Overall, 71 percent of Americans prefer Clinton’s tax plan over Trump’s (29 percent).
Tax Rates by Income Group
Our current federal tax system has a “progressive” structure, in which higher incomes are taxed at higher rates. Central to the tax debate is how income tax should be structured: Should everyone pay the same tax rate? How much more tax should the wealthy pay relative to the middle class? Should the poorest Americans pay any income tax?
To determine what Americans consider fairest income-tax system, we presented respondents with the following four charts of income-tax rates by income and asked them to choose the one they considered “fairest”:
- One quarter of the respondents (26.27%) said they prefer a flat income tax, compared with almost three-quarters preferring one of the more progressive options.
- Notable again is the difference between men and women in preferences for a flat tax. Men (30 percent) are more likely than women (23 percent) to prefer a flat tax. This difference between men and women holds in a multivariate model: Net of age, income and region of the country, men show 65 percent higher odds than women of preferring a flat-tax option (relative to the other options).
- Interestingly, the most popular choice, chart C, includes some taxation of poor households. It is hard to determine, however, which features of the tax systems depicted in the charts are driving support for this attitude. We plan to further investigate this issue in future WalletHub studies.
- Respondents were provided an opportunity to describe in words what they consider a “fair” tax code. The quote bubble to the left captures some of the most common words and phrases from their responses.
Tax-Code Complexity
We first asked respondents how complex they would rate the current U.S. tax code:
How would you rate the complexity of the U.S. tax code?
| Complexity | Rate |
|---|---|
| Very Simple | 1.61% |
| Simple | 3.89% |
| OK | 18.02% |
| Complex | 36.64% |
| Extremely Complex | 39.84% |
- When asked how complex they found the current tax code, more than 75 percent responded that it is either “complex” or “extremely complex,” compared with only 5.5 percent of who responded that it is either “simple” or “very simple.”
- In a multivariate regression framework, age appears to be positively associated with viewing the current tax code as “too complex” — that is, the older the respondent, the more complex he or she regards the current tax code. This is net of differences by income, sex and region of the country.
Our current tax system is made complex by, among others, the number of deductions. We therefore asked respondents whether the fairest possible tax code would have more, less or the same amount of deductions, relative to current provisions.
- About one in four respondents said the fairest tax code includes more deductions.
The fairest possible tax code would have ______ potential deductions, relative to the current U.S. tax code.
| Complexity | Rate |
|---|---|
| Less | 47.81% |
| The same amount of | 25.34% |
| More | 26.85% |
- Descriptively, older participants are generally more likely than younger ones to respond that the fairest tax code includes fewer deductions.
- Men (26 percent) are more likely than women (22 percent) to respond that the fairest tax code includes fewer deductions. This difference between men and women is statistically significant in multivariate models controlling for income, age, and region of the country.
Investment & Wage Income
How to tax income from investments relative to wages has been a major area of disagreement among politicians. Current policy taxes income from investments at a lower rate than income from wages, which results in a prominent investor like Warren Buffet paying a lower effective tax rate than his secretary.
We asked respondents what they consider the fairest possible relationship between tax rates on investment income and wages. Should tax rates be higher on wages or investment income? Or should the tax rates be the same for both?
Which of the following options describes the fairest possible relationship between tax rates on investment income and wages?
| Complexity | Rate |
|---|---|
| Higher Tax Rates for Wages | 9.9% |
| Higher Tax Rates for Investment Income | 33.01% |
| Equal Tax Rates | 57.09% |
- More than 90 percent of respondents said income from investments should be taxed at least as much as income from wages.
- Notably, no significant differences by income or age are present. Across all groups, there appears to be strong support for higher taxes on investment income, relative to current policy.
Consumers vs. Corporations
Graduated income-tax rates aren’t the only way to make the tax code fairer. Respondents also said corporations should face a higher tax rate than consumers:
Which of the following options describes the fairest possible relationship between corporate and consumer tax rates?
| Complexity | Rate |
|---|---|
| Higher Tax Rates for Corporations | 57.18% |
| Higher Tax Rates for Consumers | 6.24% |
| Equal Tax Rates | 36.59% |
- Yet again, women and men show stark differences in opinion, with women (65 percent) significantly more likely than men (49 percent) to say that higher taxes on corporations is the fairest option. In a multivariate regression model, net of age, region of the country, race and income, women have 274 percent higher odds than men of supporting a higher tax on corporations than consumers.
Fairest & Least Fair Taxes
Not all taxes are viewed as equally fair. We therefore asked respondents to rate different taxes based on fairness using a 1 to 5 scale, with 1 indicating “very fair” and 5 “not fair at all.” The chart below shows the percentage of respondents who considered each type of tax to be anywhere from “very fair” to “OK” (1 to 3 on the scale).
Percent Rating Each Tax as ‘OK’ to ‘Very Fair’
| Complexity | Rate |
|---|---|
| Alcohol | 66.44% |
| Tobacco | 63.94% |
| Sales Taxes | 57.77% |
| Charitable donations | 55.35% |
| Cars | 54.59% |
| Real estate | 52.66% |
| Investment income | 48.21% |
| Gas | 46.81% |
| Food | 44.61% |
| Corporations | 39.06% |
| Wages | 38.08% |
- “Sin taxes” on alcohol and tobacco appear to be considered the “most fair” among respondents; taxes on wages and corporations were rated as “most fair” by the smallest percentage of respondents.
- Multivariate regression analyses suggest that women are more likely than men to consider alcohol taxes as “fair.”
- Interestingly, nearly a fifth of respondents (22.83 percent) view taxation on charitable donations — that is, income-tax deductions for donations — as “unfair.” We plan to further investigate this issue in future Wallethub studies.
Fairness vs. Equality vs. the Economy
Tax systems can affect economic growth by influencing the actions of a range of economic actors from corporations to investors to workers. Some suggest, for example, that increasing tax rates on income from investments or on corporate profits will have a negative impact on the economy. But we wanted to know what Americans thought was most important: tax equality, tax fairness or whatever is best for the economy. The results are as follows:
Which is more important?
| Complexity | Rate |
|---|---|
| Tax Fairness | 56.74% |
| Tax Equality | 20.63% |
| Whatever is Best for the Economy | 22.63% |
- About one in five respondents (22.63 percent) said that whatever is best for the economy is the most important consideration for tax policy.
- Women appear to be more likely than men to have responded that tax fairness is most important (relative to the other options). This difference is net of age, income and region of the country.
Tax Plan: Hillary Clinton Vs. Donald Trump
The two major presidential candidates have different plans for how to tax the rich. Which plan do you prefer?
| Complexity | Rate |
|---|---|
| Donald Trump: Cut the top income tax bracket to 33 percent from its current level of 39.6 percent. | 32.13% |
| Hillary Clinton: A 4 percent surcharge on incomes above $5 million, effectively creating a new top bracket of 43.6 percent. | 67.87% |
- When it comes to taxes on the rich, Clinton’s plan is favored by 67.87 percent of respondents, compared with 32.13 percent for Trump’s, when the name of the candidate proposing the plan is disclosed to the participant.
- Notably, the results are very similar when both plans are presented but the name of the candidate proposing a specific plan is undisclosed: 70.35 percent in favor of the Clinton plan, compared with 29.65 percent in favor of the Trump plan.
The two major presidential candidates have different plans for how to tax corporations. Which one do you prefer?
| Complexity | Rate |
|---|---|
| Donald Trump: Cut the corporate rate from its current 35 percent to 15 percent. | 28.53% |
| Hillary Clinton: Keep the same 35% corporate tax rate. | 71.47% |
- In terms of corporate taxes, Clinton’s plan is favored by 71.47 percent of respondents, compared with 28.53 percent for Trump’s, when the name of the candidate proposing the plan is disclosed to the participant.
- As with taxes on the wealthy, virtually the same percentage of respondents favor the same plan when the candidate’s name associated with the proposal is undisclosed: 72.50 percent in favor of the Clinton plan, compared with 27.50 percent in favor of the Trump plan.
