Tax Cuts and Economic Growth: What Does the Public Think?

July 11, 2012, 2:15 PM GMT+0

The current debate over tax policy is laden with competing claims about the supposed economic benefits of cutting taxes for different income groups. Republican politicians justify their support for cutting taxes on the wealthy by arguing that such tax cuts would stimulate economic growth. But when faced with proposals intended to ease the tax burden on folks at the lower end of the economic spectrum, Republican politicians sometimes demur, arguing that such policies have negligible economic benefits and would only worsen the country’s fiscal situation. For Democratic politicians, of course, the reverse is the case. They support cutting taxes on the poor, arguing (among other things) that such policy changes would spur the economy. But nothing gets Democrats in D.C. more riled up than the notion that cutting taxes on the rich pays for itself by delivering economic growth.

What do Republican and Democratic voters think? Are Republican voters as convinced of the economic merits of cutting taxes on the rich as Republican politicians? Are Democratic voters as sure of the economic benefits of cutting taxes on the poor as Democratic politicians?

In this week’s Economist/YouGov poll, we asked respondents whether a variety of policies would have the effect of stimulating the economy, slowing the economy, or if they would make no difference. These policies included “cutting taxes on the rich” and “cutting taxes on the poor” (as well as “cutting taxes on the middle class”, but more about that a little later).

Let’s start with the Republicans. Do Republicans overwhelmingly subscribe to the economic wisdom of cutting taxes on the rich? Not exactly. The table below shows the cross-tabulation, among Republicans, of views about the economic benefits of cutting taxes on the rich versus cutting taxes on the poor. As can be seen, 30.6% of Republican respondents (the total number of respondents in the cells colored yellow) believe that cutting taxes on the rich would stimulate the economy but that cutting taxes on the poor would make no difference or would slow the economy. Given the rhetoric of many GOP politicians today, it is perhaps surprising that the percentage of Republicans in these cells isn’t higher. But there are also quite a few Republicans who believe that cutting taxes on both the rich and the poor would spur the economy (the cell at the top left-hand corner). These folks apparently believe in the economic wisdom of cutting taxes for everybody, which is also a mainstream position in the contemporary Republican Party. Adding up all the cells in the first column, we find that about 48.5% of Republicans think cutting taxes on the rich would grow the economy -- a substantial percentage, to be sure, but not the majority.

Effect of Tax Policies on Economy (Republicans Only)

Cutting Taxes on Wealthy

Stimulate economy

No difference

Slow economy

Cutting Taxes on Poor

Stimulate economy

17.9%

8.6%

7.9%

No difference

27.7%

20.2%

5.1%

Slow economy

2.9%

1.0%

1.5%

Perhaps more surprising, though, is the percentage of Republicans who claim that cutting taxes on the poor would jumpstart the economy but that cutting taxes on the wealthy wouldn’t. Those are the folks represented in the two cells colored green. Together, they constitute 16.5% of the Republican sample -- fairly large when we consider that this view is basically the opposite of what many prominent Republican politicians stand for.

So, on the whole, ordinary Republicans seem to have views that are close but not identical to those of Republican politicians about the link between tax cuts and economic growth.

Among Democrats in the general public, there is a similar story to tell. A total of 41.5% of Democratic respondents (the total number of respondents in the cells colored green) think that cutting taxes on the poor would stimulate the economy but that cutting taxes on the wealthy wouldn’t. This, of course, is quite similar to President Obama’s position (as he stated in a press conference on Monday, tax cuts for the wealthy are “the tax cuts that are least likely to promote growth”). Only 5.9% of Democrats (the cells colored yellow) believe the opposite. Surprisingly, however, adding up all the cells on the left-hand column of the table below shows that 16.1% of Democrats believe that cutting taxes on the rich would stimulate economic growth. Again, this isn’t a large percentage, but it’s important when we consider that Democratic Party politicians have largely lined up against this policy, at least in principle.

Effect of Tax Policies on Economy (Democrats Only)

Cutting Taxes on Wealthy

Stimulate economy

No difference

Slow economy

Cutting Taxes on Poor

Stimulate economy

10.2%

10.5%

31.0%

No difference

5.1%

11.9%

12.0%

Slow economy

0.8%

0.3%

2.5%

Finally, what about cutting taxes for the majority of Americans who are neither rich or poor? Well, perhaps unsurprisingly, it turns out that large majorities of both Democrats and Republicans subscribe to the economic benefits of that! And at much higher rates than for cutting taxes on the poor or rich.

Effect of Cutting Taxes on the Middle Class

Democrats Republicans

Stimulate economy

61.9%

72.2%

No difference

19.0%

19.0%

Slow economy

7.4%

3.8%

Not sure

11.5%

4.5%

Total

100%

100%

Thus, the economic importance of easing the tax burden on middle-income Americans appears to be the one aspect of tax policy upon which most Democrats and Republicans -- ordinary citizens and politicians alike -- agree (again, at least in principle). While we don't know what's behind this consensus (are the politicians listening to the voters, or vice versa?), its existence is pretty clear. Does this mean both parties will surely support tax cuts for the middle class (or at least oppose tax increases on the middle class) in the near future? No. For one thing, the parties might not agree on who qualifies as "middle class." But what is certain is that, as the tax battle in Washington, D.C. heats up after the November election, both parties will seek to frame their positions as in support of the "middle-class taxpayer."