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WHAT DOES THE AMERICAN PUBLIC BELIEVE ABOUT TAX POLICY? A
STUDY OF THE BELIEFS OF THE AMERICAN PUBLIC ON ISSUES OF
VERTICAL EQUITY, OPTIMAL TAX THEORY, AND POSITIVE QUESTIONS OF
TAX POLICY

by

Gerald Prante
A Dissertation
Submitted to the
Graduate Faculty
of
George Mason University
in Partial Fulfillment of
The Requirements for the Degree
of
Doctor of Philosophy
Economics

Committee:

___________________________________________ Director

___________________________________________

___________________________________________

___________________________________________ Department Chairperson

___________________________________________ Program Director

___________________________________________ Dean, College of Humanities
and Social Sciences

Date: _____________________________________ Spring Semester 2010
George Mason University
Fairfax, VA
What Does the American Public Believe About Tax Policy? A Study of the Beliefs of the
American Public on Issues of Vertical Equity, Optimal Tax Theory, and Positive
Questions of Tax Policy

A dissertation submitted in partial fulfillment of the requirements for the degree of
Doctor of Philosophy at George Mason University

By

Gerald Prante
Masters of Science
Southern Illinois University Edwardsville, 2004

Director: Bryan Caplan, Professor
Department of Economics

Spring Semester 2010
George Mason University
Fairfax, VA
Acknowledgements

I would like to thank my dissertation committee for their quick feedback in the editing
stages. I would also like to thank my wife Amy for her help with proofreading
programming code that went into producing the results in the dissertation, as well as
putting up with the hours that went into it. I would also like to thank my parents Sandy
and Jerry Prante and my sister, Andrea for their support.

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Table of Contents

Page
Abstract................................................................................................................……..… iv
Chapter 1…………………………………………………………………………….….…1
Chapter 2…………………………………………………………………………….…...19
Chapter 3………………………………………………………………………...….……45
Chapter 4.…………………………………………………………………………….…..78
Chapter 5………………………………………………………………………………..110
Appendix A..……………………………………………………………………………114
Appendix B.…………………………………………………………………………….236
Appendix C..……………………………………………………………………………358
Appendix D……………………………………………………………………………..479
List of References………………………………………………………………………485

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ABSTRACT

WHAT DOES THE AMERICAN PUBLIC BELIEVE ABOUT TAX POLICY? A
STUDY OF THE BELIEFS OF THE AMERICAN PUBLIC ON ISSUES OF
VERTICAL EQUITY, OPTIMAL TAX THEORY, AND POSITIVE QUESTIONS OF
TAX POLICY

Gerald Prante, Ph.D.

George Mason University, 2010

Dissertation Director: Bryan Caplan, Department of Economics

This dissertation is composed of three essays analyzing the beliefs of the American
public on tax policy. The first essay discusses the American public's beliefs on tax
policies as they relate to the issue of vertical equity. The second essay discusses the
systematic differences that exist between the general public's views and the consensus
view of public finance economists on many specific issues. The third essay assesses the
knowledge of the American public on verifiable questions of tax policy. The first essay
finds little evidence for the role of self-interest in formulating views on specific tax
policy measures, but does find evidence for pride driving beliefs on more general
questions relating to the person's individual tax burden. Also, the first essay finds a role
for party leadership's ability to affect the views of its members on tax policy. The second
essay concludes that on issues of fundamental tax reform, as well as on questions of
environmental tax policy, significant differences exist between the views of the general
public and the economists' criterion of optimal tax theory. The empirical evidence in the
third essay indicates that the American public possesses satisfactory knowledge of the
U.S. social insurance system and the overall size of its tax burden but a rather limited
knowledge of the U.S. tax system's existing distribution and the distributional effects of
specific tax policies. Overall, the empirical evidence presented in the three essays
indicates that those with higher incomes, more education, and those who are male are
generally most likely to be informed on tax policy and to agree with public finance
economists in their judgment of which tax policies are optimal.
CHAPTER 1

This dissertation is an empirical work containing three chapter essays that explore the
beliefs of the American public on tax policy. The first essay delves into the beliefs of the
American public on the normative question of vertical equity in tax policy, measuring the
extent to which the American public and subgroups of it support one view of vertical
equity over another. The second essay compares how public finance economists view tax
policy questions (i.e. through the lens of optimal tax theory) compared to the general
public and subgroups of it. The third and final essay assesses the knowledge of the
American public on tax policy using responses to verifiable questions asked in various
recent surveys. Each of the three essays uses survey data to draw its empirical
conclusions. The data methods used in the three essays are discussed at the end of this
introductory chapter, following the literature review. Chapter five provides a synopsis of
the dissertation‘s conclusions.
Overview of Findings
Contrary to the predictions of the self-interested voter hypothesis (SIVH), the first essay
finds that the role of self-interest in formulating normative views on tax policy is
statistically significant in some areas, such as on general questions of redistribution and
progressivity, and nonexistent in others, such as on questions of specific tax reforms. The
first essay also shows that support for progressivity on specific policy questions can be
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affected by a lack of knowledge of the effects on progressivity from those specific
policies. This was most noticeable on the issue of the estate tax. However, even holding
constant this lack of knowledge on progressivity didn‘t change the fact that the SIVH
performed relatively poorly on questions of specific tax reforms. Finally, the first essay
shows that the positions of party leaders can effectively serve as a signal to party
members as to what their positions ―should be‖ on various tax policy issues.
The second essay, which compares how economists view tax policy to the general public,
finds that the general public‘s support for using the tax code to promote investment and
consumption of certain types (such as health care and housing) far exceeds any positive
externality justification on which economists would judge such subsidies. Furthermore, in
the case of environmental taxation, the second essay shows that there is a large
preference among the general public for using command-and-control direct regulations as
opposed to Pigouvian taxation, a policy position with which economists overwhelmingly
disagree.
The third essay, which examines what the public knows and doesn‘t know about tax
policy, finds that the American public tends to systematically underestimate the share of
taxes paid by high-income people, underestimate the degree of regressivity in a national
retail sales tax reform, and tends to overestimate the extent of the federal estate tax. On
the other hand, the American public‘s performance is solid on the issue of payroll taxes
and the Social Security system, as well as on questions of the total level of taxation that
Americans face, both in an absolute sense (i.e. overall percentage of income) and in a
relative sense (i.e. compared to other nations). Finally, the third essay presents evidence
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of confirmation biases existing among various subgroups on certain questions in tax
policy, for example with Republicans and their beliefs on the Laffer Curve.
Overall, the empirical evidence presented in the dissertation indicates that those with
higher incomes, more education, and those who are male are more likely to be informed
on tax policy and to agree with public finance economists in supporting optimal tax
policy. Along age lines and across political party identification, the results are mixed. In
some cases, such as on environmental taxation, younger Americans and those aligning
with the Democratic Party are more likely to agree with economists or possess
knowledge on the question. On other issues, it is older Americans and Republicans who
are more likely to understand tax policy and/or agree with economists on specific tax
policy questions.
I. Review of Previous Literature
When evaluating public opinion on tax policy in a way that will answer the questions
posed in this dissertation, the obvious question to ask is to what extent is there a link
between the preferences of the general public on tax policy and policy outcomes?
Analyzing such a question, which is at the core of public choice economics, is the
primary focus of this literature review. As part of answering this question, the literature
review delves into one of the core assumptions of traditional public choice economics:
rational ignorance. Finally, a review of optimal tax theory is provided given that such a
framework is used by public finance economists to evaluate tax policies.
What Drives Political Preferences and Do They Matter?
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In order to claim that the beliefs of the American public are important at a given moment
in time, one must assume at least some link (or the possibility thereof) between public
preferences and policy outcomes at that moment. Of course, the policy views could still
possibly be relevant even if public preferences did not currently matter much. That‘s
because it would still be beneficial to know whether or not structural or legal shifts in our
democratic structure in the direction of a greater influence for the general public‘s
opinion would be, on net, good or bad for social welfare as it relates to tax policy.
Obviously, in a direct democracy, the preferences on tax policy of the general public
would matter. California‘s famous Proposition 13 initiative against property taxes in 1979
is the classic example. But in the United States most major tax policies that raise
considerable amounts of revenue (except for the property tax) and have distributional
effects in mind are determined by representative government. Therefore, the question can
be reframed: do elected officials in the United States represent the views of the American
public on issues of tax policy?
Many of the well-discussed issues in public choice are at play here. First is the classic
issue in microeconomics of the bundling of products, and thereby the challenge of
measuring the demand for the components or attributes of a product, such as housing or
an automobile (Lancaster, 1966). Like virtually all goods in the private marketplace, in
representative democracy, this challenge exists in trying to assess the importance of
views on various issues given that one‘s vote is always a choice between (in the United
States) two bundles of viewpoints. The fact that a voter must express his/her preference
for tax policy in the same vote as his/her preference for foreign policy can lead one to
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