A Flat Rate Income Tax

As the figure indicates, in 1972 the local property tax was clearly considered worst. By 1993, however, the federal income tax had moved well into the forefront. Meanwhile, dissatisfaction with state income and sales taxes has remained low.

What explains this growing hostility toward the federal income tax compared to state income taxes? One possibility might be that many of our largest states have flat rate tax systems.

These include Colorado, Connecticut, Illinois, Indiana, Massachusetts, Michigan, New Hampshire, Pennsylvania and Tennessee. In addition, North Dakota and Rhode Island levy a flat rate tax based on one's federal tax liability.

The preference for flat rates over progressive tax schedules may also explain the relatively low level of dissatisfaction with the Social Security tax, even though the median family pays almost as much payroll tax as income tax $1,878 vs. $2,171 in 1992, according to the Census Bureau). Yet in the ACIR's 1994 survey, only 12 percent of Americans considered the Social Security tax to be the worst tax. (The 1994 data are not comparable to those in the figure.) The reason may be that the Social Security tax has always been a flat rate on all wages up to a maximum, with no deductions whatsoever.

In any case, support for a flat rate federal income tax is growing. A Fabrizio-McLaughlin poll taken just after last fall's election found 63.3 percent of Americans in favor of a 17 percent flat tax and only 19.5 percent opposed. This poll did not clearly indicate, however, that many deductions would have to be given-up in return.

A more recent poll taken in January by Frank Luntz did tell people that they would lose their deductions for mortgage interest, health insurance and state and local taxes. Nevertheless, 51 percent of the people surveyed said they still favored a flat tax, with 37 percent opposed.

Interestingly, the Luntz poll found that the main reason why people support a flat tax is because of fairness. This runs counter to conventional wisdom in Washington, which views fairness as the flat tax's greatest vulnerability, since a rich person would pay the same marginal tax rate as someone with a moderate income. (Because of a large personal allowance, low-income families would pay nothing under a flat tax system.) Yet the American people view this as the essence of fairness. In fact, focus groups clearly believed that abolishing all deductions is the best way of making the rich pay their fair share.

Economist Bruce Bartlett is a senior fellow with the National Center for Policy Analysis and former deputy assistant Treasury secretary for economic policy.