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Put it on my ... er, his tab

Opinion polls show a big gap between the public's desire for services and its willingness to pay for those services

January 1, 2004


Put it on my ... er, his tab

A funny species, the taxo-payerus.

By day, it adores good schools, wants to be tough on crime, is a sucker for fresh asphalt or the promise of more jobs and loves getting (seemingly) free stuff. But by night, it swoons when it finds out there is no free lunching on public goods, shrieks when its taxes go up and swears at others benefiting at its expense.

The onset of tighter fiscal conditions at state and local levels for the last couple of years has also increased the number of Jekyll-and-Hyde sightings of this not-so-elusive creature and its opinions about government spending, which often carry a pickpocket theme.

Many are quick to blame legislators—including other legislators, according to e-mail correspondence with almost 30 in the district. Wrote one North Dakota state representative, "I think it is a reflection of the fact it is so hard for legislators to say no." And a Montana state senator: "It's easy to vote for bills that provide more services, but when the Legislature asks more of government, we also have to cover the costs."

Many other factors are responsible for accelerated spending on government services, including rising costs—particularly evident in health insurance of late—and federal and state mandates handed down to lower levels of government, often without related funding.

But frequently ignored is the notion that accelerated spending on government services actually reveals the public's desire for such services—in many cases, in spite of the obsessive complaining about burdensome taxes. While one can argue about public support for spending on individual programs, government spending levels should—in sum and over time—jibe with the public because voters elect the people who make spending decisions. Elections might not be an exact reflection of the public's priorities for government spending, but suffice to say they should be a ballpark proxy or there would be little point in holding elections.

Yet public opinion polls and insights from legislators and other sources show an interesting dichotomy in the mindset of many taxpayers: a desire for government services, but a reluctance to pay for such services in part because they believe their taxes are too high already and they've already paid their fair share.

'Cuz I'm the taxed man

The common perception that people are paying too much in taxes needs little corroboration, but here are a few tidbits. In Montana, a Missoulian editorial chided legislators during the state's last session for considering higher taxes, saying that a voluntary "tax me more" fund could be established for those who believed they weren't paying enough in taxes.

An annual Gallup Poll conducted over the course of five decades (the latest in April 2001) found that 65 percent of respondents believed their federal income taxes were too high. That total has ebbed and flowed some over time but shows that people have long hated the tax man, notable in the poll's all-time high of 71 percent back in 1952. Polls in the last two years by the University of Wisconsin-Madison's Survey Center found that about seven in 10 believed Wisconsin taxes are "too high," while just 2 percent believed they are too low.

But that doesn't mean people are willing to forgo government services. Indeed, evidence suggests quite the opposite. Look no further than the recent passage of prescription drug coverage under Medicare—expected to cost at least $400 billion over 10 years—at a time of roiling federal deficits (stemming in part, somewhat ironically in this context, from multiple tax cuts in recent years). In fact, while people widely support the abstract idea of tax cutting, polling data show that support declines when ramifications are outlined in terms of government programs or services affected.

Jim Elliott, a Democratic state senator in Montana, said, "Government prioritizes the squeaky wheel. The squeaky wheel in Montana is cutting taxes." But people have their limit, even in Montana. When it comes to cutting services in that state, Elliott said, "one of the bellwethers ... is closing driver's license stations. They come unglued."

While station closures might induce some hardship—people might have to drive another 20 to 30 miles to the next closest station—most people believe such proposals are mere scare tactics by politicians when plenty of state "fat" money is available to keep stations open, according to Elliott.

At the national level, polls showed widespread support for the federal tax cuts passed last May. But in many cases, people were asked if tax cuts would be "good or bad" compared with generic government spending choices. When given more concrete choices between tax or spend, people often chose to maintain or increase program spending.

When the federal budget was still projecting big surpluses, separate 2001 polls by CBS News and ABC News showed that people wanted to use the excess tax revenue to preserve Medicare and Social Security rather than cut income taxes by a margin of 2-to-1 or better.

More recently, a Harris Poll taken last May found that a large majority of respondents think it is more important to maintain government services like Medicare, Social Security and Medicaid rather than cut taxes—an opinion that cut across political lines. An April 2003 Gallup Poll provided a tidy summary. "[W]hile tax cuts sound good in principle, they are not a high priority for Americans. The public's support for tax cuts drops well below the majority level when poll respondents are reminded of alternative uses of the money."

A Harris Poll last June reiterated that conclusion from a slightly different angle. It found that when the economy grows, most people prefer to see a disproportionate share of that growth going for increased spending on health care, education and defense—items typically associated with government spending—while very little priority is given to more spending on clothes, food, housing, cars, leisure or entertainment—things typically considered private goods.

A summary of the poll stated, "A visitor from outer space who looked at these numbers might conclude that most Americans would be strongly supportive of much higher taxation to spend on health care, education and defense. This visitor would be puzzled by the popularity of politicians who favor tax cuts and, by implication, less money for segments of the economy which the public believes should grow the fastest."

Are we adding or subtracting?

Part of the problem, it appears, is that many taxpayers misunderstand the costs of government services and the taxes necessary to support them.

In a February 2003 poll looking at options for closing Wisconsin's $3.2 billion state budget shortfall, commissioned by the Milwaukee Journal Sentinel and The Capital Times in Madison, about 70 percent said they were strongly opposed to cutting services for the elderly, and only 5 percent said they favored such cuts. Almost 70 percent objected to spending cuts to programs for the poor, and 73 percent expressed at least some opposition to raising tuition at state colleges and universities.

At the same time, 81 percent of respondents opposed higher income taxes, and 71 percent objected to raising the general sales tax. Other state polls showed a majority wanting the deficit addressed mostly through spending cuts.

At times, the public's attitude toward services and costs suggests outright cognitive dissonance. For example, a November 2002 CBS News/New York Times poll found that 42 percent of respondents believed that the federal budget deficit could be reduced while also cutting federal taxes. A Journal Sentinel/Capital Times poll last January found that 46 percent of respondents thought it possible to maintain essential government services in Wisconsin and keep taxes down despite the multibillion-dollar gap in the state budget; only 41 percent said a choice had to be made between the two options.

A poll last June commissioned by the Wisconsin Realtors Association found that 63 percent said spending cuts should be enacted before taxes or fees were raised to balance the budget. However, 67 percent of residents said no spending cuts should be made in K-12, and 57 percent did not want cuts to welfare or health programs. Half did not want to see tuition increases at state universities and colleges. Spending in these areas accounts for about 60 percent of the state's general fund.

One order of services, hold the tax

A May 2003 poll commissioned by the St. Paul Pioneer Press and Minnesota Public Radio shows some of the swirling contradictions when it comes to the public's beliefs about government services and the taxes that pay for them. Almost three of five respondents said Minnesota taxes were either a little too high or much too high. Asked about the state's $4 billion budget shortfall for the coming biennium, a majority favored spending cuts over tax increases.

But hidden behind that popular opinion was a reluctance to cut services and an interest in passing the tax buck, so to speak. A majority of people in the Pioneer Press/MPR poll said they would pay higher taxes to avoid cuts in state assistance for the disabled or child-care subsidies for low-income people. While that might seem generous, more than three of four people supported a Senate Democratic proposal at the time to raise income tax rates on those earning more than $135,000 or families earning $250,000. Two of three supported increasing the cigarette tax from 48 cents to $1 a pack.

Joseph Heim, professor of political science and public administration at the University of Wisconsin-La Crosse, has conducted opinion polls in the La Crosse region, which he described as "generally conservative." When residents are asked about tax issues, the majority of respondents invariably say they want their taxes cut. But when the subject turns to spending, "the majority said keep it the same or increase spending," Heim said. "Very rarely does the majority favor [service] cutbacks of any kind."

Heim believes there are two factors at work. Many people—particularly those in lower-paying jobs—don't see themselves as better off financially than they were five or 10 years ago, according to Heim, which makes them loathe the idea of more taxes but also be in a position to need services.

The other matter is something of a public relations crisis: "People have trouble understanding what they get from government," Heim said. During the course of a semester, he informally quizzes his students about the public services they've used on a particular day. "Mostly, there's just a blank stare," Heim said, even though students are sitting in a state university classroom, drove to class on government-kept roads and took a morning shower with municipal water. "They don't recognize these things as public spending."

The problem, Heim said, is that "a majority of people feel they pay more in taxes than they get back [in services]." In fact the opposite is much more accurate. According to the Internal Revenue Service, the top 25 percent of income earners paid 83 percent of all income taxes in 2001, while government services are purposefully designed to be consumed more broadly by the entire population.

That "overtaxed" mindset can be seen in the January 2003 poll by the Journal Sentinel/Capital Times. The survey asked who pays their fair share: 44 percent said the wealthy don't pay as much as they should. When asked about the fair share of taxes for people like themselves, 53 percent said they paid their fair share, 43 percent said they overpay, and only 3 percent said they were undertaxed.

Hunting thees behind trees

So when it comes to setting tax-and-spend priorities at budget time, legislators often get what could be charitably called a mixed message.

"People historically feel that it is better to cut services than increase the amount they would pay in taxes," wrote Andrew Maragos, a Republican state representative in North Dakota, in an e-mail. "This is in part due to the notion that someone else is being the beneficiary of the increased spending, so there is no stake in it for them personally."

But the public is quick to recognize its own ox on the table when the budget ax comes out. "I notice that in general the public wants their own services to be maintained or enhanced and other people's services to be cut," according to Mindy Greiling, a Minnesota House Democrat.

Al Juhnke, another Minnesota House Democrat, e-mailed that public demand is responsible "to a degree" for higher spending. "The more money we have, the more amenities we desire and can afford." But the wish list hasn't shrunk despite a state budget in tatters. "We all want services, but we want someone else to pay for them."

Cindy Younkin, a Republican in the Montana House, wrote, "I think the public's desire or expectations are becoming unrealistic." Many people live beyond their means in their private lives carrying high credit card debt, a philosophy that transfers over to their demands for public services, according to Younkin. "People start to live in a fantasy world [of], 'Let the government provide me with more, but by the way, I can't afford to pay more. Someone else can pay more, but not me.' People are also losing sight of the fact that if the government provides more, someone is going to have to pay for it. It is the old, 'tax thee and the man behind the tree, but not me' syndrome."

Younkin believes that people familiar with the state's budget problems, particularly those groups that seek state funding, "recognize they cannot realistically expect more ... [and] weren't surprised when they didn't get more. ... At the same time, the public still expects to have what already exists and doesn't want programs cut. So, it's obvious the public's appetite for government services—especially those which directly benefit them—is pretty high."

According to Phyllis Heineman, a South Dakota House Republican, "When times are good, people are less attentive to levels of government spending. Even as the economy dips, we seem to be more enthusiastic about government spending if we can pass it on to the highest level of government."

The more local the spending, the higher the scrutiny and spending accountability, according to Heineman. "Even state spending, which is a little more remote, is evaluated carefully because state revenue is financed more directly by the majority of taxpayers through sales tax [in South Dakota]." She pointed out that "we are all guilty of requesting higher levels of federal spending" in part because taxing and spending accountability is pretty vague for both taxpayers and government. "If we know we are paying, we demand accountability. If someone else is paying, we are just demanding."

Heineman would have to look no further than the Sioux Falls Argus Leader for such evidence. The newspaper features a forum where a group of the same 20 citizens are regularly polled on their opinions about different issues of the day. At least four times last year the topic had to do with tax-and-spend priorities for state government. When it came to adding new taxes of any type, the group was generally—and depending on the tax, sometimes strenuously—opposed. But when asked in June if a $70 million federal windfall should be spent on programs like education or stuck in a trust fund or budget reserve—which would help keep taxes down—they overwhelmingly agreed it should be spent.

David Fricke would tend to agree with that accountability formula based on his experience as the executive director of the Minnesota Association of Townships. Fricke said he doesn't see the gap between residents' service demands and their willingness to pay. That stems in part from the budget-setting process at the township level, which takes place the second Tuesday of March in all townships across the state.

At these meetings, whoever shows up gets to vote on the township budget. "They get together as a people and make the necessary [spending] decisions and how much they have to raise [in taxes]," Fricke said. With increasingly less intergovernmental revenue to fall back on, township residents know if they want more services, they'll have to vote themselves a tax increase. "They are truly funding for themselves."

Things change quickly as you move up the governmental ladder in terms of jurisdiction size. In cities, Fricke noted, "the real difference is you have a council and a mayor making decisions for the people."

Damn government, I love you

Maybe the best summary of the taxpayer mindset is merely that its deep-seated, love-hate relationship with government appears intact.

Ken Svedjen, a Republican state representative in North Dakota, believed that higher government spending is due in part to "elected officials not possessing the will to say 'enough is enough.'" But he also blamed high public expectations. "Many people are quick to damn the intrusion of government into their lives or businesses until something of an adverse nature happens to them. Then, they are quick to turn to government for a solution and relief almost regardless of the circumstances involved."

Some believe there is a shift under way regarding the public's desire for services and the related tolerance for more taxes. Lawrence Klemin, another Republican state representative in North Dakota, wrote that government services are a matter of basic economics: "Resources are limited; wants are unlimited. It will never change. However, there is growing recognition among taxpayers and even recipients of government spending that we have to live within our means."

One Montana legislator said most voters haven't yet scaled back their appetite for public services despite tough fiscal budgets. "But hopefully the voter will get the picture. I probably won't last long in the Legislature if they don't."

Vote 'yes' for more taxes

Over-taxed? You betcha. Government should get by with less? Amen. School district needs more money? OK, sure.

That's the contrast between public cynicism over taxes and public spending and a willingness to fund specific spending proposals, particularly at the local level.

In Wisconsin from 1994 through spring 2001, voters approved 57 percent of about 1,000 school debt referenda, adding $4 billion in spending (out of $8 billion proposed), usually for new school buildings, according to the state Legislative Fiscal Bureau. An additional 376 referenda were held to exceed school revenue limits imposed by the state; voters approved these at a lower 44 percent rate but still added another $75 million to local taxes.

In 2001 Minnesota voters approved almost 70 percent (130 of 188) of school district referenda to exceed operating levies, according to the Minnesota School Board Association. In the last two years, the approval rate of such referenda has dropped a bit, but voters still passed 117 of 190 proposals, or 62 percent.

The real success rate for referenda is even higher than Wisconsin or Minnesota figures suggest because defeated proposals often reappear on ballots a year or more later. It's believed, for example, that more than 80 percent of Minnesota schools now receive additional revenue from local taxpayers garnered through a voter referendum.

But referenda also reveal different tax attitudes in different states. In South Dakota, local governments have sent voters 71 proposals to increase property taxes since 1996; a majority (37) were defeated, according to data provided by the state Property and Special Tax Division. According to a source there, "Property taxes are still a much heated subject in this state. They have been since the late 1980s, and I don't foresee the atmosphere cooling off anytime soon."

photo of Ronald A. Wirtz
Ronald A. Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.