Survey Shows Consumers see Future Tax Increases and Expansions of Government Assistance and Insurance Programs as Increasingly Unlikely

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NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the April 2022 Public Policy Survey, which is part of the broader Survey of Consumer Expectations (SCE), and provides information on individuals’ expectations regarding future changes in a wide range of public policies.  Tracking individuals’ subjective beliefs about future policy changes is important for understanding their behavior as consumers and workers. These data have been collected every four months since November 2015 and have been released publicly since October 2019. In addition to several assistance programs, the survey measures respondents’ expectations about social insurance programs, labor market policies, taxes, and fees. For each program or policy, the survey asks respondents to assign the percent chance of an increase/expansion, a decrease/reduction, or no change over the next twelve months.

The April 2022 survey shows several interesting changes in the public’s expectations regarding federal assistance and social insurance programs. Following the outbreak of the pandemic in March 2020 and the 2020 general election, and lasting until about August 2021, there was a steady rise in the average likelihood respondents assign to an increase or expansion in housing, welfare, and unemployment benefits, in subsidized preschool education and in federal student aid. Since then, the survey shows a strong reversal in the average likelihood of expansions in these programs as respondents increasingly expect no changes in these policies over the next twelve months. As shown in the interactive charts on the survey website, largely similar patterns emerge for expansions in Medicare, social security benefits, parental leave policies, and for an increase in the federal minimum wage.

While expectations of future program expansions in April 2022 remain somewhat above pre-pandemic levels, this is a notable turnaround in the general public’s beliefs, one that followed the implementation of large economic stimulus and relief packages and coincided with a gradual improvement in economic conditions and a changing political landscape less conducive for such expansions. Interestingly, this pattern also appears for expectations of increased student debt forgiveness. While current readings of an average 32 percent chance of such an increase remains well above the December 2019 level of 18 percent, it has seen a meaningful decline since reaching a peak of 43 percent in April 2021, revealing a considerable decline in optimism about an increase in student loan forgiveness.

With the recent reductions in perceived prospects of future expansions in government support programs, the survey also reveals a decline in the reported likelihood of future tax increases. Following a steady rise in the perceived likelihood of an increase in capital gains, income, payroll and gas tax rates between December 2019 and April/August 2021, the survey shows a decline in such expectations since. For most tax rates, consumers consider it increasingly likely that these rates will remain unchanged in the year ahead. In the case of gas taxes, in addition to an increased expectation of no-change, the survey also shows a considerable uptick in the perceived chance of a cut in gas taxes.

Finally, the results reveal little change in respondents’ expectations regarding future changes in the mortgage interest deduction and in public college tuition, and a slight rise in the prospect of higher public transportation fees.

Key findings from the April 2022 Survey are:

Expectations about Public Assistance Programs

  • The average perceived likelihood of an increase in housing assistance and affordable housing over the next twelve months declined to 37 percent in April 2022, from a peak of 52 percent in August 2021.
  • The mean probability of an expansion in free or subsidized preschool education dropped to 34 percent from 40 percent in April 2021, and a peak of 43 percent in August 2021.
  • The average probability assigned to an increase in federal student aid or Pell grants dropped to 28 percent from a series high of 39 percent in April 2021, with the average percent chance of no change in student aid increasing by about the same amount. The mean probability of an expansion in federal student debt forgiveness fell to 32 percent from a series high of 43 percent in April 2021.
  • Prospects of an increase in welfare or unemployment benefits declined sharply over the past year, with the average probability assigned to an increase falling from, respectively, 49 percent and 45 percent in April 2021 to 35 and 26 percent in April 2022.
  • Similarly, the average perceived likelihood of a rise in Medicare or social security retirement benefits dropped to 24 and 25 percent from series highs of 31 and 29 percent, respectively in August 2021.
  • The mean probability assigned to an increase in the federal minimum wage declined to 39 percent from a series high of 50 percent in April 2021. In contrast there was no meaningful change in the perceived prospects of a rise in the state minimum wage.
  • The average likelihood of an expansion over the next twelve months in paid parental leave fell to 26 percent, from a peak of 34 percent in August 2021.
  • The recent declines in the measures above were largely broad-based across age, gender, education, and income groups.

Expectations about Taxes and Fees

  • The average perceived likelihood of an increase over the next twelve months in the capital gains tax rate declined to 42 percent in April 2022, from a peak of 52 percent in August 2021.
  • The mean probability assigned to an increase in gasoline taxes decreased sharply to 47 percent from 61 percent in December 2021 and 63 percent in April 2021. The average probability of a gas tax decline jumped to 15 percent from 7 percent in December 2021.
  • The average perceived likelihood of an increase in the average income tax rate declined to 45 percent from a series high of 53 percent in August 2021. The average likelihood of an increase in income tax rate for the highest income bracket declined to 49 percent from a series high of 65 percent in December 2020.
  • The average probability assigned to an increase in the payroll tax rate also declined to 40 percent from a series high of 50 percent in August 2021.
  • Expectations about year-ahead changes in the mortgage interest deduction were largely stable over the past year.
  • Similarly, the mean perceived likelihood of an increase in public college tuition was mostly unchanged.
  • Finally, the average probability assigned to an increase in the cost of public transportation increased to 49 percent from 42 percent in April 2021, a new series high.

Detailed results are available here.

Source: Federal Reserve Bank of New York

23 May 2022

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