April 15, 2024

Economix: Rich People Don’t Realize They’re Rich

There’s a movement afoot to mail every taxpayer a “taxpayer receipt,” a breakdown of how the government spends its money. The goal is to educate people about where their taxes go, since Americans are famously unaware about such matters.

But as long as we’re talking about educating Americans about fiscal policy, why not start with what they actually pay in taxes, and what they earn, relative to their fellow Americans?

I am constantly amazed by how little Americans know about where they stand in the income and taxing distribution. The latest example is evident in a recent Gallup study, which found that 6 percent of Americans in households earning over $250,000 a year think their taxes are “too low.” Of that same group, 26 percent said their taxes were “about right,” and a whopping 67 percent said their taxes were “too high.”


And yet when this same group of high earners was asked whether “upper-income people” paid their fair share in taxes, 30 percent said “upper-income people” paid too little, 30 percent said it was a “fair share,” and 38 percent said it was too much.


So members of a group that is, statistically speaking, “upper income” are very unlikely to think their  taxes are “too low,” but are five times as likely to say that “upper-income people” as a group pay “too little.”

I blame this disconnect on the fact that upper-income people don’t realize they’re upper income. It’s the “Middle Kingdom” effect.

Everyone thinks they’re middle-class partly because of cultural reasons, and also partly because of the way the income distribution is skewed. The greatest income inequality is at the very top. As a result, people who are rich but not the richest — in the $250,000 zone, say — see they have more than lots of poor people, but also much less than a few very visibly rich people. Then they conclude they’re in the middle, so they must be middle class.

As a result, many Americans are  misinformed about how reliant the country is on their tax contributions, and what kinds of additional sacrifices they might have to make to help get the nation’s fiscal house in order, at least if they hang onto their previously professed beliefs about who should shoulder this burden.

As with the “taxpayer receipt,” I’m not sure it’s really the Internal Revenue Service’s duty to notify Americans about where they stand in the pecuniary pecking order (or the best use of I.R.S. funds, for that matter). I would probably place that responsibility with the media and the nation’s education system.

So far both have done a miserable job of enlightening Americans about their good (or bad) fortune.

Article source: http://feeds.nytimes.com/click.phdo?i=4e2466bb0e526e587269da844ee01ffc

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