There's a tax revolt brewing, but not over the income taxes Americans paid last week.
Taxpayers are not particularly upset about federal income taxes. At tax time in 1999, 2000, and 2001, more than 60 percent of Americans told the Gallup Poll that their federal income taxes were too high. By tax-time 2003, only 50 percent felt that way. That number has remained pretty steady and is 51 percent this year.
Why did tax resentment decline after 2001? One answer was given by Rep. Marsha Blackburn, R-Tenn., who said last week, "Millions of taxpayers are certainly appreciative for all of the tax reductions that the Republican-led majority has provided." Many Americans did get a tax cut. But something else happened in 2001. The war on terror started, and there's evidence that tax resentment goes down in wartime.
During World War II, Gallup started asking, "Do you regard the amount of income tax which you will have to pay this year as fair?" Even though the federal government had raised income taxes to pay for the war, 90 percent of Americans in 1944 thought that their taxes were fair. The nation was at war, a war that began with an attack on the United States.
By 1946, shortly after the war, the number who thought that their taxes were fair had dropped almost 30 points, to 62 percent. By 1999, fewer than half of Americans (45 percent) said that their income taxes were fair. After 9/11, the number began to climb again. In April 2003, just after Saddam Hussein was overthrown, 64 percent of Americans said that their income taxes were fair. The current number: 61 percent—a number that's about the same for Democrats and Republicans. Once again, there's a war on—a war that began with an attack on the United States.
There's not much evidence that the public is clamoring for overhauling the tax code, either. In an April NBC News poll, the public preferred, by 55 to 39 percent, "a tax system like the one we have now with higher rates for people with higher incomes" over "a flat tax with the same rate for everyone and no deductions allowed." A recent Associated Press poll produced nearly the same result: 57 percent preferred a system with higher tax rates for those who earn more, while 40 percent preferred the same tax rate for all.
There's one tax that growing numbers of Americans resent. And it isn't the federal income tax. Asked by Gallup what is "the worst tax—that is, the least fair," the public gives a very clear answer: the local property tax. More than twice as many people complain about property taxes (42 percent) as about federal income taxes (20 percent). Very few people gripe about the Social Security tax (10 percent), even though most wage earners pay more in Social Security taxes than in income taxes.
Many people think that their Social Security taxes are put aside for them in, well, a lockbox. They are misinformed. "A lot of people in America think there's a trust in this sense—that we take your money through payroll taxes and then we hold it for you, and then, when you retire, we give it back to you," President Bush said on April 5. "But that's not the way it works. There is no 'trust fund.' Just IOUs ... that future generations will pay for." Maybe what people don't understand, they don't complain about.
What's truly striking are the steadily rising complaints about local property taxes. In 1992, 25 percent of Americans called the property tax the least fair levy. The number was 28 percent in 1994 and 38 percent in 2003. Now, 42 percent feel that way. Many parts of the country have seen skyrocketing property values. As property values go up, assessments go up, and real estate taxes go up. This is exactly the situation that fueled the tax revolt that started with Proposition 13 in California, way back in 1978.
For example, The Washington Post reports that "the spectacular boom in Washington-area real estate prices over the last five years has been accompanied by staggering increases in home tax bills." Average tax bills have gone up as much as 70 percent in much of the region. Local political leaders have offered tax-relief plans, but the rate cuts are seldom large enough to counteract rising assessments. Washington Mayor Anthony Williams announced a "Tax Relief for All" plan in March. But he acknowledged that many District homeowners would still be paying 12 percent more in property taxes. "It is tax relief from what they otherwise would be paying if I had not taken this action," the mayor said.
According to The Post, homeowners in the region are now paying a larger share of the cost of government. Five years ago, property taxes covered about one-third of local government spending in Northern Virginia. The rest came from business taxes, federal and state subsidies, and other sources. Now property taxes account for nearly half of local government spending.
If another tax revolt is brewing, we may see signs of it this year in the races for governor of Virginia and New Jersey. High property taxes are a recurrent theme in New Jersey campaigns. And in Virginia this year, the candidates for governor have already proposed competing tax-relief plans.
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