The Big Tax Increase Nobody Noticed

A new paper from the Center for Economic and Policy Research (CEPR) examines the results of two recent polls that indicate that the American public may not be as sensitive to changes in taxation rates as conventional wisdom holds.

The report, "The Big Tax Increase Nobody Noticed," details the results of two Google Consumer Survey polls conducted by CEPR in 2013 and 2014. The polls asked respondents about the payroll tax that funds Social Security and whether that tax rate had changed that year. In the 2013 poll, the majority of respondents (56 percent) did not know if their taxes went up or down and just 29 percent knew that the payroll tax did in fact go up. This is worth noting since the expiration of the payroll tax holiday at the end of 2012 meant that the tax increased a full 2.0 percentage points. In 2014, when the Social Security payroll tax rate was unchanged, 68 percent responded that they did not know while 20 percent thought the tax had gone up. The 20 percent number can be taken as an estimate of the share of the public who believe taxes go up every year regardless of whether they do or not. This would imply that in the 2013 survey, only 9 percent actually recognized a significant increase in the Social Security payroll tax.

This could have serious policy implications for the Social Security program. In the coming decades, Social Security will face a funding shortfall. If no changes are made to the program, it will begin to pay 75 percent of full benefits in the 2030s. A number of analysts and politicians have proposed increasing taxes on higher income earners to close the shortfall. Very few have proposed increasing the payroll tax rate, even if the increase is phased in over time. For example, if a 2.0 percentage point increase in the payroll tax is phased in over twenty years, taxes could be raised at the rate of 0.1 percentage point annually (0.05 percentage points on each the employer and employer). These poll results suggest that the public might not be as averse to a tax increase like this, if they notice the increase at all. The evidence in "The Big Tax increase Nobody Noticed," indicates that while politicians and the media may treat tax increases as a hot button issue, the general public may not. The full paper and poll methodology can be found here.