The “Detective” Behind the Wealth Tax

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S1: Quick warning here at the top. Jordan Weisman and I are going to talk about tax policy and he tried to spice it up by dropping a few f bombs. This conversation is going to be about an economist yes an economist because right now this guy’s ideas are hot even sexy. Exactly the kind of guy Slate’s Jordan Weisman loves to talk about.

S2: Is there such a thing as a sexy ECONOMIST Well is there anything.

S3: There’ve been a few.

S4: I’m not going to name them. This economist is French too. He’s young. He’s like an affinity for 30.

S5: I think he’s 32. He’s you might be a year younger than me. Well maybe 33.

S4: We’re roughly the same age he is vastly more accomplished in this French economist.

S1: He’s right at the center of the Democratic presidential campaign. His name is Gabriel Zuckerman tax on the richest Americans.

S6: Joining us now Gabriel Zuckerman who helped design Senator Warren’s tax plan as a co-author.

S1: Zuckerman has spent a lot of his career talking about inequality.

S6: What I’m saying is that the reality of American society is that for cash constrained people pay a lot of tax. So one of the sun.

S3: He also got really well known for his work on tax evasion and tax avoidance by multinational corporations and who was hiding money in Bermuda as money. He ended up getting on the cover of the cover of BusinessWeek. Actually this year for that which for an economist is like you know landing on the front of Vogue.

S7: Since like. I mean that’s like you you’re on the cover. And as we like it is the BusinessWeek folks are putting you as your cover model. You’re good. So they call. They called him the wealth detective.

S1: But what makes Gabriel Zuckerman so hot is what he wants to do with that wealth. Now these tracked it down.

S8: He wants to tax it. And yes.

S9: It’s time for a wealth tax. This is Elizabeth Warren talking about the wealth tax. Bernie Sanders wants one too. Even the more moderate Democrats haven’t ruled this idea out. You can tell why if you keep watching this Warren rally as soon as she mentions this tax. It’s not just that the crowd goes wild they start chanting two cents.

S10: Yes that is a two cent tax on Fortune’s over 50 million dollars your first 50 million. Don’t worry you’re in the clear. But for your 50 million. And first dollar you’ve got to pitch in two cents and two cents for every dollar.

S8: After that just two cents.

S9: So today on the show we’re going to talk about the economic reasoning behind all this excitement because the economists pushing this tax.

S11: Gabriel Zuckerman his ideas sound good but a lot of people disagree with him. I’m Mary Harris. You’re listening to what next. Stick with us.

S1: That economist we were talking about Gabriel Zuckerman. He and his co-authors have become known for releasing these charts charts that go viral him and his colleague or co-author Emmanuel Sy as were the guys behind all those charts showing the skyrocketing incomes of the 1 percent.

S3: Since this is essentially the late 70s. Sounds like good content. Yeah pretty good content. I mean that was the stuff that kind of fueled Occupy Wall Street. You know you remember we are the 99 percent versus the 1 percent.

S1: And now Zuckerman is out with a new chart.

S3: This one is about taxes and what it shows. But they claim to have found is that the 400 richest Americans now wrote the forward wealthiest Americans now pay a lower tax rate than the bottom 50 percent of the country. Right. So what they found is that Hello Are we talking. So the richest 400 Americans pay twenty three percent tax rate. About right. And the bottom 50 percent pay a twenty four point two percent tax rate.

S2: They find gap I mean 24 and 23. Yeah it seems like it’s within the margin of error. Yeah. And the idea is horrifying.

S3: The idea is horrifying. And what really does make it is like the crossing point was they think is 2018 the year of the Trump tax cut that you know the rate that multi billionaires were paying had been declining over time and then sort of flattened out at a pretty low rate that was still above what the middle class were paying. And then finally after the big corporate tax cut and everything in 2013 it just dropped below.

S1: I think that’s what makes it so virals like you do get that crossing point where all eyes on the billionaires are paying less than the middle class to understand this finding you have to know that Zuckerman and his collaborator a guy named Emmanuel say is they’ve got a very specific way of looking at the economy and adding up who pays how much.

S3: Ordinarily when we talk about taxes and how much we will pay it’s the federal and the federal taxes. All right. Those that’s what you hear about for the most part federal and federal taxes.

S2: Most people agree are pretty progressive overall like you know progressive meaning that you make more money you pay more.

S3: Yeah exactly. What they want to do is they they want to look at the entire American tax system all the way from the federal to the state to the local. I mean they’re talking about everything from the corporate income tax and individual income taxes and capital gains to payroll taxes to sales taxes. I mean they want to look at all of the taxes Americans pay. And then they want to try and put that in the context of the entire economy that you use kind of the same numbers that people used to generate GDP to look at how much income people have.

S2: And the point they make is that if you look at things like sales taxes or income taxes they end up hitting the poor harder. Right. And so you need to account for those things but then the other thing that they do is they don’t account for things like the Earned Income Tax Credit. So stuff like when you make less money and you get a lot of money returned to you by the government they don’t count that well.

S3: So you’re hitting on like one of the big things that all the economists are fighting about right now like this is like what I like the AHA thing that people are. And also I think that I kind of disagree with them on this. I kind of I can’t take the critic side on on this issue but yeah I mean you brought up the Earned Income Tax Credit. Right. And this is a really important part of the tax code is central to middle class Americans or lower middle class Americans really. A lot of upper middle class don’t think about it what it is is it’s it’s refundable right essentially. It is a tax credit. And if it’s worth more than you actually owe to the IRS you get back the rest in cash. So if you only like a thousand dollars and your earned income tax credit is worth three thousand dollars you’ll get the two thousand dollars back given given certain circumstances. Again these numbers are kind of made up. So most people would think of that as lowering your taxes some people would say that person paid a negative tax rate. Now to get into the wheezy part that I swear to God you can forget after I’ve said it just so you can feel like you’ve had a taste of what economics reporters have been dealing with for weeks now essentially XYZ and Zuckerman don’t actually really count that refundable portion as a tax break what they counted as is a transfer like food stamps or something. They say it’s the same thing as a cash payment you get from the government that’s like or a welfare check or a or SNAP benefits something along those lines. But a lot of other tax accounts from saying no no no this thing is part of the tax code and it’s actually intended purpose. The reason this thing was passed was to offset payroll taxes. It is meant to do that that is what it was designed for. And so counting people’s payroll taxes towards their tax burden if they got the ITC is like totally misunderstanding how the U.S. tax system was designed and etc. etc. This is the kind of disagree. And if you do believe the critics right. If you do think their critics are right then it actually lowers the tax rate.

S5: The bottom 50 percent are paying by a bit like maybe three or percentage point something along those lines and suddenly the viral graph doesn’t look quite as viral. The reality is this question of how much taxes do people pay is is hard to answer.

S3: And the way they approach it is different and they will tell you they are trying to come up with a new technique that is their thing is coming up with new techniques of ways to look at this problem are these problems about how much income do people have and how much taxes do they pay that they think are an improvement overall techniques and may or may not be but they think are so Zuckerman and his co-author took this new way of thinking about the economy and made a bunch of plans.

S1: The wealth tax is just one of their ideas. I’d also like to see corporate tax reform.

S3: People have figured out how to stop paying the corporate tax by frickin incorporating in Bermuda and Ireland and whatnot. And we have this entire international tax system that just is designed to allow companies to kind of evade it evade paying what they owe. And that’s sort of a policy choice right. There’s no reason that we couldn’t have had trade deals instead. Actually we’re all going to agree on a minimum tax rate and figure out a way to enforce it around the world and countries that won’t agree to go along with it are going to face sanctions.

S1: The thinking here is there’s no reason we couldn’t have trade deals with other countries that would just say we’re going to agree on a minimum tax rate for corporations and enforce it around the world.

S3: Plug the leaks right. That’s what they say here. They have a bunch of suggestions to plug the leaks to keep the money from getting out of the country and from all the countries because again it’s disappearing into these tax havens. And that is you know that’s sort of what they’re building to politically. And part of what building too politically and then the other thing is this wealth tax where they’re saying here’s the proper way to go up billionaires which is tax the wealth if you really want to get at like Bloomberg Coke brothers Jeff Bezos esq moolah you’ve got to get the wealth.

S2: Can you tell a story of like here’s how it would work. Like let’s say you are Jeff Bezos or you are well if you’re Jeff Bezos.

S3: I mean actually let’s let’s say if you’re like Mike Bloomberg right.

S2: Was very opposed to this plan.

S3: Yeah. And so one of the questions that like has come up is like OK what do you do with private companies that aren’t there isn’t really a market value for right. Like your tax wealth you have to decide how much wealth somebody has to sell fine and good in theory but some things are really hot some assets are really hard to value. How do you value a private company that doesn’t have shares selling. How do you value that painting in the closet like that that that Picasso you have hanging on your private yacht like. Well it hasn’t got to auction yet. So what do you think it’s actually worth like you know these are these are tricky things right.

S2: Look at Mike Bloomberg. He’s got businesses and charities and horses and all sorts of things that you need to value if you’re going to understand his wealth.

S7: Yeah how much is that bear skin rug. He’s got a heart. Once they’re gone for.

S3: And so you know these are questions that they have to answers like how are you going to implement this. And so for Mike Bloomberg it might be like well the you know they say OK well there’s going to be an IRS unit that’s in charge of trying to evaluate these companies and like assess the B worth of Bloomberg LP whatever and suddenly you are getting hit with this wealth tax you might have to sell off some of your equity and relinquish control in order to pay it off. Well that’s like his new reality. It’s like he’s got a debate like whether to sell pieces of his company or just pay the cash which obviously is really unappealing to genius.

S2: Yeah I mean they don’t pay us in cash pay us in stock then and we’ll just take control of your company or sit back or sell it off to whoever else you know.

S3: So sell us some equity instead. And this is this is the flip side is that having the IRS go in there and actually force people to decide how much they’re worth and you know assess the value of their assets would give us a better sense of of all these academic questions right. Once you actually start taxing something we can record all the wealth and actually finally know we don’t have to have methodological debates about whether or not you’re tracking or uncovering this stuff correctly instead you can just you know look at the data.

S2: Let’s talk about some of the criticisms of a wealth tax which is something that Elizabeth Warren and Bernie Sanders are both advocating for. Yeah so one criticism is that other countries have tried this yeah and they’ve immediately pulled it back or not immediately but quickly pulled it back. It happened in Denmark happened in France. Yeah. Why isn’t that an argument against this idea.

S3: I mean you know while in countries try things it doesn’t work. Try it again. Switzerland still has its wealth tax. It’s smaller than what Warren is proposing. But it wasn’t necessarily implemented ideally and you’d try to learn from failure like that’s kind of. That’s the honest answer right. These guys tried it it didn’t work there. You know also they’re sort of in the last couple of decades there’s been a pretty strong anti-tax streak in ascendant in Europe. You know among EU technocrats just because it fell out of favor there doesn’t mean we couldn’t try it here. That’s part of what you know Warren and Bernie and also you know sighs and Zuckerman are arguing now is that you while you try to learn from history.

S2: I was interested to read that the fact that these wealth taxes had gone away you know was strategic on some countries parts. They said we’ll get rid of this wealth tax his rich people don’t really like it. And the idea is that then we know there’ll be some rising inequality we don’t love that but it’ll boost the income. Rich people will come here and they’ll create jobs.

S3: Yeah. Well part of the problem for Europe is also that you can just like fuckin move anywhere that’s like you know great you can to become a tax refugee really easily and European countries don’t reach out and tax their citizens wherever they happen to live. That’s what makes the US different is that wherever you go unless you give up your citizenship we will tax you or we’ll try to tax you. And so the.

S1: In Europe there is this element of tax competition back in the U.S. the biggest criticism of a wealth tax is that it would be hard to do. The IRS would need to staff up find people to appraise all this wealth. It would also be hard politically not just because lots of people with deep pockets oppose this kind of tax. No that’s true for Democrats embracing a wealth tax means thinking about money in a new way. Back when he was running for president Bill Clinton reportedly said having more millionaires would make the world a better place a wealth tax. That is a whole different idea.

S3: That was the late 90s. That was when being rich was good. Everyone’s getting rich. Everything was great. We had the new economy. We’ve now had 20 years since then and we’ve had a lot of years of economic research by the likes of XYZ and Zuckerman showing that you know the rewards of the economy and our wealth is concentrating at the top. And there’s been a lot of frustration over that. There’s a lot of frustration that you people seem to be benefiting so outrageously while a lot of people can’t afford their medical bills now.

S2: But I don’t think there’s good evidence that this has gotten more politically feasible.

S3: Let’s. It’s popular like it polls well like there’s like. I think it’s like a 70 percent approval rating or something for Warren’s plan. Like people I mean they’ll probably go down because of like partisan salience like once people once they realize that this is Elizabeth Warren’s plan that more people will oppose it. But most people think as a matter of fairness the rich should pay more. That’s a constant in polling that everyone thinks the rich should pay higher share. And the way you target the rich is by going after wealth there’s only so much money you can raise by taxing their income because they’re good at deferring it.

S1: This last point is important. There is no wealth tax is so novel and advocates say so vital is because taxing income which is what we do now it’s hit a bit of a wall. The bulk of many wealthy people’s net worth is locked up in investments well out of the IRS is reach. And as long as that’s the case all that money it’s just making more money. And the inequality gap it’s getting worse.

S3: To me the idea of a wealth tax is it’s a little bit like single payer. It’s a really good focusing mechanism for. Okay. How do we get at this kind of money. How do we get at Capital. You know how do how do we get at these fortunes and maybe the actual proposal is you know a little bit sci fi a little bit fantasy but it also has encouraged a lot of thinking about other ways to do it. And you’re actually seeing politicians and other academics saying well OK well tax is impractical for x x and x reasons because no one’s going to able to evaluate this and people are going to get it this way. But here are things we can do with capital gains taxes right. I mean so it’s an Overton Window argument a little bit of an Overton Window argument but I think it’s it’s not just it’s like focusing it focuses people it says it gets people to not just rethink the possible but it gets them to care about the topic and say OK well if we if we can’t quite do this but it has a really noble goal. How can we kind of get at that goal in a way that’s a little bit more feasible.

S12: JON WEISMAN Thank you so much. Thanks for having me on for this weed whacking journey.

S13: Jordan Weissmann covers the economy and business for Slate. All right. That’s the show. What next is produced by Jason Leone. Mary Wilson Danielle Hewett And Mara silvers. I’m Mary Harris. Catch me on Twitter. And not Mary’s desk and see me back here tomorrow.

S7: You know I’ve been joking that like Elizabeth Warren at the DNC she is the nominee should just show up at the DNC with like put it like paper planes playing. Well actually you’re welcome. I know it’s 9:00 to 5:00 but I think like I think some MRA like you know take her oh I want to do is take your money. Well that’s her jam. I feel like that would it would be she should at least do a web video like with it if anyone’s out there. Please please please do it. Her jaw and humor me.