Rep. Dave Camp, Republican chairman of the House Ways and Means Committee, unveiled an ambitious tax reform plan last week. The plan would reduce seven income tax brackets to two and lower the corporate tax rate to 25 percent. But Republican leaders in Congress showed no enthusiasm for the plan. Senate Minority Leader Mitch McConnell said that the plan has no hope of passing and Speaker John Boehner replied “blah, blah, blah, blah” when asked about the plan’s specifics.
Why is the Republican Party uninterested in a plan that lowers individual and corporate tax rates? In part, it’s because the plan pays for the rate reductions by capping or eliminating tax deductions, exclusions, and credits in the tax code. The perception is that some of the largest deductions and exclusions — such as the mortgage interest deduction and exclusions for employment-based retirement programs — are some of the most popular. Supporting a tax reform plan that cuts or caps popular tax breaks in an election year would be politically foolish.
Not necessarily. Our new research shows that even popular tax breaks become less popular when framed in a particular way: as benefits for the rich.
We conducted a simple experiment that asked people whether they supported different social programs. The two programs relevant to the tax reform debate were mortgage interest and retirement programs. We described these programs either as tax expenditures (which is what they are) or as direct payments from the government. We also either described each program as beneficial to the wealthy or did not mention this. For example, when the mortgage interest program was described as a tax expenditure that benefited the wealthy, people read this description:
Under this program, homeowners would be allowed to deduct their mortgage interest payments from their federal taxes, helping to offset the amount of money that they pay in interest on their mortgage. The tax deductions will be provided only to those who own homes, with the largest deductions typically going to those who own the most expensive homes (and thus pay the most in mortgage interest).
Here is what we found. First, support for otherwise identical programs — especially among Republicans — was higher when these programs were portrayed as tax breaks rather than direct payments from the government. This seems to suggest that politicians are right to avoid cutting or capping these tax breaks.
However, public support for tax breaks decreased when people were told that they distribute income towards wealthier households. This suggests that support for tax breaks, even ostensibly popular ones, is somewhat soft.
At the same time, not everyone was equally moved by talking about the distributive consequences of tax breaks. We found that Democrats’ and Independents’ support of these tax breaks dropped once the distributive consequences were made clear, but Republicans’ support was largely unchanged.
Thus, even though policymakers are correct in believing that cutting tax breaks for mortgage interest and retirement programs would be unpopular, they might pay less of a price at the polls if they informed voters that these programs tend to benefit the rich. However, the fact that Republicans find this argument unpersuasive means it’s not especially likely that Republicans will step up to sell the cuts in Camp’s plan.