Taxes necessary, but not necessarily fair

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Paying taxes is as American as mom and apple pie. According to our latest poll results, 92 percent of Americans understand the necessity of paying taxes and feel that it is everyone’s duty to pay their fair share.

However, many think the system is unfair. Three in five respondents (60 percent) think the tax system is skewed to benefit the rich.

Other findings:
Two-thirds of Americans would prefer to maintain control over their tax returns (65 percent) rather than let the government prepare their returns, if given that option.
Even though two-thirds claim to feel comfortable with tax planning (67 percent), nearly four in 10 (38 percent) look forward to getting a big tax refund each year because they have more money withheld from their paychecks than necessary. This amounts to a tax-free loan to Uncle Sam. Don’t expect reciprocity.
Nearly three out of 10 Americans (28 percent) admit they feel clueless when it comes to doing their taxes.

Bankrate commissioned GfK Roper to conduct a random survey of Americans’ attitudes about taxes as part of this month’s focus in our yearlong Financial Literacy series.

Taxes are important

Americans ‘get’ taxes
“Despite our complaints about paying taxes, people overwhelmingly understand their necessity and feel it is a duty to pay our fair share,” says Bankrate’s senior financial analyst Greg McBride.

Even the tax policy director at Americans for Tax Reform, the group calling for all incumbents and candidates to sign its no-new-taxes pledge, agrees with three of the four statements shown in the adjacent table.

Says Ryan Ellis, the tax policy director who is an enrolled agent as well as a tax lobbyist: “Most people, of course, think that taxes are necessary, that they shouldn’t be abolished and that everyone should pay their fair share. Even the most radical anti-government position — which I share — anticipates a border-securing military, a crime-preventing police and a civil/criminal court system. Less than that and you’re in the Dark Ages.”

— Posted: Dec. 17, 2007

There appears to be some contradictory overlap between those who think that taxes should be abolished (17 percent) and those who say they both understand the necessity of taxes and believe that all Americans have a duty to pay taxes (92 percent). As several of our experts pointed out, potentially 9 percent of people who think everyone has a duty to pay taxes also think taxes should be abolished.

Incomes correlate with attitudes
Sense of duty is not necessarily tied to services received. While those earning the lowest incomes generally benefit the most from government programs — which are funded by taxpayers — one out of five Americans earning $20,000 or less would abolish taxes altogether. One out of four (25 percent) in the $20,000 to $30,000 income range feel the same way. By comparison, just 10 percent of those earning $75,000 or more would abolish taxes.

Leonard Burman, director of the Tax Policy Center and senior fellow at the Urban Institute, calls these results “shocking.”

“A lot of families in the $25,000 to $30,000 range actually get money back from the income tax system,” he says. “They don’t pay, because of the refundable earned income tax credit and the child tax credit.”

Adam Hughes, director of federal fiscal policy for the government watchdog organization OMB Watch, suggests that age may also be a factor, noting that 14 percent of the youngest poll respondents — age 18 to 24 years old — don’t understand the necessity of taxes. The percentage drops significantly for older folks.

Are we taxed fairly?
So we’re resigned to paying taxes, but are we taxed fairly? Six out of ten Americans don’t think so, feeling instead that taxes are skewed to benefit the rich.

“It’s interesting that people at all income levels think that taxes skew to benefit the rich,” says Burman. “Taxes are still progressive, even after the Bush tax cuts. It’s likely that people don’t really understand that. The tax system could use some simplifying.”

But there does seem to be more optimism among younger Americans; more cynicism among older ones. Roughly half of younger folks (age 18 to 34) say the system is skewed to benefit the wealthy. But nearly two-thirds of those in the 35-64 age category believe the rich benefit most from the current system.

— Posted: Dec. 17, 2007

Ellis of Americans for Tax Reform attributes this disparity to the different social policies and political climates of the different generations. “Older people feel (the system skews to benefit the wealthy) because most older adults grew up with much more class-envy rhetoric in their youth,” he says. “The very old grew up with New Deal socialism. Baby boomers grew up with Great Society socialism. Gens X and Y grew up with Reagan, the fall of the Berlin Wall, global free trade and Internet small businesses. People are just more entrepreneurial now.”

Don’t let the IRS handle it
If it were possible, how willing would you be to let the IRS complete your tax return for you?
Very/somewhat willing (total) 32%
Very willing 10%
Somewhat willing 22%
Not very/not at all willing (total) 65%
Not very willing 17%
Or, not at all willing 48%
Don’t know/refused 3%

The buck stops here
Fewer than a third of respondents (32 percent) would be willing to relinquish control over their returns by allowing the IRS to do their taxes for them.

Bankrate’s McBride sees a correlation in the 32 percent who would be somewhat or very willing to let the IRS complete their tax returns for them and the 28 percent that feel clueless about their tax planning and preparation.

Hughes concurs, noting that 43 percent of young people (age 18-24) would be willing to let the IRS do their taxes for them. And 42 percent in that age group feel clueless about income tax planning and preparation.

Yet overall, 65 percent wouldn’t let the IRS do their returns.

“It’s surprising,” says Burman, “when in California they’ve been doing this for people for a couple of years and it’s my understanding it’s been quite popular.”

Bankrate’s Tax Talk columnist George Saenz says, “The more you make, the more you worry about holding on to it, and that dynamic is reflected in the poll results. People at the lower income levels are more willing to let the government do their taxes and at the lower level it probably makes more sense … if it were more automated,” he says. “Others are probably worried about fewer opportunities for deductions.”

— Posted: Dec. 17, 2007

Ellis agrees.

“As people age and earn more income, they learn that the IRS has its interests, and taxpayers have theirs,” he says.

“I was very pleasantly surprised to see that about two-thirds of taxpayers don’t trust the IRS to prepare their return. That’s a wise instinct. The IRS’ interest is in maximizing tax revenue. The taxpayer’s interest is paying the least legally allowed. That’s a conflict for the IRS. You can’t be the tax collector and the tax preparer and not have the former overwhelm the latter.”

But IRS spokesman Dean Patterson points out that the IRS doesn’t legislate; it enforces tax law. “The IRS’ goal is for people to pay the right amount in taxes: no more, no less,” he says.

Comfortable or clueless?
When asked if they feel comfortable or clueless about tax planning and prep, 67 percent reported feeling comfortable. Still, more than a quarter (28 percent) feel clueless.

“It’s interesting that so many people feel comfortable,” says Burman, considering research by academics at the University of Michigan and Princeton whose 2000 study concluded that people are clueless about the tax system.

According to Nancy Mathis, a spokeswoman for the IRS, approximately 60 percent of Americans get help from a tax professional when filing their taxes. It’s hard to tell whether respondents would feel comfortable without professional help and how many of those, if any, feel uncomfortable despite receiving professional help.

“I might have expected a slightly lower number of respondents to have felt comfortable with tax planning and preparation,” says lobbyist Bob Weinberger, vice president of government relations at H&R Block. He thinks the number may be inflated because the alternative forces respondents to identify themselves as “clueless,” which may be too harsh. If pollsters had used the word “uncertain,” they might have produced a different result, he says.

“That would explain why 67 percent can feel comfortable, but 60 percent still use a paid tax preparer,” he says. “It may also reflect the value of a taxpayer’s time: We can change the oil in our car or mow the lawn, but it may be worth the cost to hire someone else to do it for us.”

— Posted: Dec. 17, 2007

Tax-free loans to government
Nearly 40 percent of Americans look forward to getting a hefty tax refund each year. They could adjust the tax withheld from their paychecks and make better use of their own money.

“They are giving Uncle Sam a free loan every year — and like it that way,” says Bankrate’s McBride. “These are most often people under 35, with household incomes less than $50,000, and living in the Northeast. In other words, those with tight budgets struggling to keep up with the cost of living who could most use a few extra dollars in each paycheck instead of giving it to Uncle Sam.”

Imprecise about tax withholding
Which of these scenarios best fits the way you handle your tax bill? Total

(1,004 respondents) %

18 to 34

(143 respondents) %

35 to 49

(230 respondents) %


(569 respondents) %

You look forward each year to getting as big a tax refund as possible 38% 52% 39% 28%
You adjust your tax withholding so you don’t get a big refund or owe a big tax bill 34% 27% 39% 37%
You have the least amount withheld from your paycheck so you pay up at tax time 13% 11% 15% 15%
Don’t know/refused 15% 10% 7% 21%

“I think a bunch of people see that as a bonus or extra money,” says Hughes of OMB Watch.

Over three-quarters of filers receive refunds and the average refund size in 2006 was $2,324. “That’s an extra hundred bucks a paycheck,” says McBride. “Who couldn’t use an extra hundred bucks a paycheck?”

While paying in the extra tax money is without question a free loan to the government, some people view it as an effortless savings mechanism. Saenz, a CPA, says that for some, it’s easier to let the government “hold onto it and give it back as a lump sum refund. Probably they have a harder time holding onto money and prefer the government save it for them.”

This national random-digit-dialed phone study of 1,004 adults 18 or older was conducted for Bankrate by GfK Roper Public Affairs & Media. The surveys were conducted from Nov. 30, 2007 through Dec. 2, 2007. The sample was weighted by demographic factors including age, gender, race, education and census region to ensure reliable and accurate representation of adults in U.S. households. The margin of error for the survey is +/- 3 percentage points. For full results and methodology, download this PDF.

— Posted: Dec. 17, 2007