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Alright, good afternoon everyone. Can
everyone hear me okay? So I'm Kal Raustiala.
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I direct the UCLA Burkle Center, and
it's my pleasure to have you here today
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for our annual Arnold C. Harberger lecture on
economic development. We have given this
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lecture for many years. Past Harberger
lecturers include Jeff Sachs, Jason
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Furman, Melinda Gates, Esther Duflo, last
year we hosted Nobel Prize winner Paul
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Romer, and this year we're really pleased
to have Emmanuel Saez professor at UC
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Berkeley, a leading economist, obviously, an
expert on inequality and taxation, and
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author— I don't want to forget— of The
Triumph of Injustice. I believe there are
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signed copies now for sale, somewhere,
somewhere out there, so feel free to pick
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one up, I recommend it. I'm gonna
introduce Professor Saez properly in a
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moment, but let me just say a word about
how this is all going to run. So once I
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introduce him, he will come up here. He
has a slide presentation, of course. He'll
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give his talk, and then he and I and two
colleagues, Professor Adriana Lleras-Muney
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of the econ department and Professor
Jason Oh of the law school, we're all
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going to sit down and have a
conversation about the talk, and time
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permitting, we're gonna open it up to
questions from all of you. So please keep
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questions in mind. When we get to the
question and answer period, and again I
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hope that we have enough time, it's
always a little tight, but I'm sure we'll
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have time for some questions. Just please
wait for me to call on you. Raise your
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hand, of course, and we have handheld
microphones for that portion. So with
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that in mind, let me introduce our
speaker. So Emmanuel Saez is professor of
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Economics and Director of the Center for
Equitable Growth at the University of
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California, Berkeley. He received his PhD
in Economics from MIT in 1999. I already
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mentioned his most recent book, right
here, Triumph of Injustice, written with
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his colleague Gabriel Zucman, which
narrates the demise of U.S. progressive
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taxation and how to reinvent it in the
21st century,
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a very timely topic if you're following
the election returns from tonight's
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ongoing primary, Bernie Sanders is well
ahead. Professor Saez has, of course, been
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in consultations with Bernie Sanders for
some time. Professor Saez has received
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numerous academic awards, including the
John Bates Clark Medal of the American
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in Economic Association and a MacArthur
Genius fellowship as well. Please join me
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in welcoming to UCLA Emmanuel Saez.
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Thank you very much, Kal, for this very
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generous introduction. So I'm going to
talk tonight about the Triumph of
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Injustice, which is the title of our book,
and it's about inequality and taxation
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in America. So inequality matters because
we humans are social beings, and one way
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you can see that is that we evaluate our
economic situation in relation to others
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in our society, and we do pool a
significant fraction of our economic
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resources through the government, and
that's done through taxation, you know,
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even in a country like the United States,
we pool together about 30% of our
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economic resources when you count taxes
at all levels of government relative to
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national income. And so talking about
inequality, what made me famous is really
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the statistics that we put together on
the evolution of income concentration in
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the United States. So we did that work 20
years ago with Thomas Piketty, and we
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created a chart, you know, tracking down
the share of total income going to the
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top 1%– that has that big U
shape over the 20th century, with first
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the decline in income concentration, and
then since the late 1970s, a very sharp
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rise with a doubling of the share going
to the top 1%. Now those
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statistics were based on income reported
on individual tax returns, but that's an
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incomplete measure of income of people
because it doesn't capture, for example,
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you know, the corporate profits that, say,
Jeff Bezos, the richest man in America, is
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making that doesn't show up directly on
his individual tax return. Lower down the
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distribution, the healthcare benefits
that you get through the university, if
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you work here, also don't show up on the
statistics. So much more recently
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with Thomas Piketty and Gabriel Zucman,
we created a distributional analysis
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of total national income that includes
all sources of income, and we distributed
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that across the distribution. So for the
top 1%, we found a picture quite
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similar, actually, to what was found
directly, you know, just with the fiscal
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income, and certainly in the recent
period you do see a sharp increase in
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the share going to the top 1%, from about
11% to about 20% today. But
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the advantage of distributing all
incomes across all income groups is that
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we could also look at other groups in
the distribution, and in particular the
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bottom. So here in that chart, I show you
the shares of income going to the top 1%
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that we already saw, you know, that
doubling of the share alongside the
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share of income on a pre-tax basis going
to the bottom 50%. And so you can see
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that the two groups followed the exactly
the reverse path, that is, the 8 or 9
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points in national income that the top
1% has gained has been lost by the
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bottom 50%. In other words, there's enough
income that has concentrated, you know, at
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the top to potentially compensate the
bottom 50% for its loss. So what that
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means in practice, you know, their
share falling from 20% to 12%
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since 1980 means essentially
that their real incomes have stagnated.
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Okay, very little growth on a pre-tax basis
has accrued to the bottom half of the
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distribution, even though
economy-wide, incomes have
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grown almost 70% during that
period. And so you can see that a society
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where that has economic growth, but where
no growth happens for the bottom 50%,
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that is half the population, is obviously going
to generate substantial discontent.
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Now, this is the situation
with a pre-tax income. Now, I've
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shown you only the top 1%, but the higher
you go through the distribution, the more
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extreme is the concentration. So here is
totally different data from the Forbes
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400 richest Americans that shows you
that the share of total wealth owned by
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the Forbes 400 has more than tripled from
less than 1% in the early 80s to about
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3.5% today. So this is how income and
wealth is distributed. Now, government
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that represents, you know, the things we
do as a society, collectively, plays a
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huge role in shaping inequality, and the
most obvious way to see that is, as I
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said, you know, we pull together a
significant fraction of those pre-tax
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incomes through taxation. So currently
it's 28% in the most recent years in the
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United States, and it is very important
to know how this tax burden is
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distributed across income groups, and
that's what the book is about. The first
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contribution is describing you know the
progressivity of the tax system in its
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entirety and over a long period of time.
Then we provide some elements to think
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through how we could restore tax
progressivity in the modern world, that
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is in our world with globalization, and
we've also created a website that allows
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you to explore the various policy
options. You don't need to be an expert
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to shape your own tax system and decide
what you think would be a fairer tax
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system. So, you know, on this slide I lay
out, you know, some methodological
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elements, but I'm going to go very fast.
I've already said that we distribute
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all national income across income groups,
and then we distribute all taxes to
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measure the tax burden relative to the
income in each group, that is, tax
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rates. That national income includes all
the income produced, you know, by
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residents of the country, and we
assign taxes by economic factors, that is,
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the taxes on labor, like payroll taxes,
individual income taxes, fall on the
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corresponding workers. Consumption taxes
fall on the corresponding consumers, and
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the capital taxes on the owners of these
assets. Now, it is a privilege for me to
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give this Arnold Harberger lecture
because Arnold Harberger played a
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pioneering role in describing tax
incidence, and so what I want to make
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clear here is that our statistics
describe the existing situation, that is,
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today, in this year, how much
each group pays in taxes. It doesn't tell
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you necessarily what would happen if
taxes were changed. So for example, if
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you're conservative, you
may think that cutting the
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corporate income tax is good because
it's going to generate a boom in
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investment that will benefit workers
further down the distribution. That's
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what called tax incidence, which for the
corporate tax was pioneered by Al
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Harberger, and that's a legitimate
academic debate. Today, I'm going to talk
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about the distribution of taxes as they
exist, and I'm only going to look at the
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tax side of the problem, but we of course
have to remember that taxes are used for
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the benefit of society, and therefore
they come back to benefit us through
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transfers, you know, public goods spending
etcetera, and I won't be talking about
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that aspect that is also very important to
measure a distribution and redistribution.
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So, this is the picture we got
of the average tax rates by income
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groups in 2018, right after the Trump tax
cuts. So we've lined up
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income groups here on the x-axis,
starting from the bottom 10%, the next 10%,
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and so on. And then we give a bigger
picture, you know, a more detailed picture
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within the top, and especially the very
top. That matters a lot in terms of
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incomes and tax revenue economy-wide,
even though they are small
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demographically. And so what you can see
is that when we count all the taxes, we
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find that the system resembles, you know, a
flat tax, where each income group is
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going to pay something not too different
from the average of 20%. So there is some
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progressivity. The bottom pays less, you
know, than the middle class, less than the
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upper middle class, with a regressivity at
the very top– but remember, because this
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is an exploded view, the regressivity
really happens at the very, very top, the
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top 0.01%, and is more extreme for the
top 400, that is, the billionaires. Now, to
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explain these, it is useful to decompose
the tax burden by type of taxes. In
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reality, we find that the bottom pays
quite a bit in taxes because consumption
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taxes that hardly exist at the federal
level but are big at the state and the
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local level are very regressive, because
the lower your income, the larger your
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fraction of your income that you are
going to spend on goods that are taxed
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by the sales tax and the excise taxes.
The payroll taxes, funding Social
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Security, are also regressive because you
start paying 15% from the first dollar
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when you count employee and employer
contribution, but they are capped. So they
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become small at the top, where also at
the top there is a lot less labor income.
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Now, the individual income tax that you
find for every year is a truly
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progressive tax, but it's only one
element, and when you add it, you see that
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it makes the system go from regressive
to about neutral. The reason why the tax
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become regressive at the very top:
it's because the individual income tax
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doesn't do a good job at taxing the
super-rich. So if you think about Jeff
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Bezos, his income is really his share
of Amazon's profits,
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and he's going to pay some
corporate tax, not that much because
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Amazon is good at avoiding, you know,
corporate taxes, but then if the money
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stays within Amazon, it doesn't
distribute—— the business doesn't
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distribute dividends, and Jeff Bezos
doesn't sell shares. There's going to be
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very little individual income, and that's
why for Jeff Bezos, the individual income
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tax is small relative to his income, and
that's what explains the decline at the
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very top. Now, another element I want to
say is that the U.S. has relatively low
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taxes, relative to national income, 30%.
European countries have much higher
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numbers like 40%, even 45%, you
know, for Scandinavian countries, and
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one reason for the difference, it's
because in those European countries
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health care is funded almost entirely by
the government, while here in the U.S. we
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have a mixed system, where the government
pays for half of the health care, but for
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half of the population, typically workers,
they get their health care through their
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employers. And what we are pointing out
in the book is that the current system
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in the U.S. where workers pay full price
through their employers is similar, you
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know, to a mandatory payment, because it
is actually mandatory for employers to
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provide health care. The problem it
has is that the cost is a fixed amount
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per worker, that is, the health care of
the secretary costs as much as the health
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care of the highly paid professor– let's
say you take the case of a
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university– so it's effectively asking
workers, no matter what their salary, to
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pay the full amount and that's just not
sustainable as a form of financing
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when healthcare costs have become so big
and are now, you know, $13,000 per covered
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worker– a very large amount if your wage
is low, and small if your wage is high. So
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if you have addons, those health insurance
premiums that are paid effectively by
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labor, it would make the tax system look
even more regressive because it would
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look like a huge tax on the working
class, and especially the middle class,
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where it is small at the bottom because
people don't have insurance, or they get
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you know Medicaid, but it's really big
for the broad middle. So that's the
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current situation. Now, when you look
through history, you see that the U.S. is
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something that has been largely
forgotten. The U.S. is the country that
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actually pioneered very progressive
taxation, and you can see it in that
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graph that shows you the top marginal
tax rates for the income tax, the
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inheritance tax, you know, the estate tax,
and the tax rate on corporations, and you
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can see that very early on, the United
States, you know, quickly experimented
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with very high tax rates at the top for
the income, you know, during World War I,
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and that was a world premier, you know,
the U.S. was really the first country to
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do that. Then, this innovation of trying,
you know, very high inheritance tax rates
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was also a world premiere, you know, by
the United States. Similarly, having such
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a large corporate tax was a U.S.
invention. So those are nominal tax rates.
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When you match the tax, the actual tax
burden paid, you know, by income groups,
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you do find that the combination of
those taxes was creating a tax system
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that, in the middle of the 20th
century, say 1951,
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very progressive, with significantly
lower rates for the working class
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middle class, and very high tax rates at
the top of the distribution that were
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achieved, you know, by having a big
corporate tax where people, the very rich
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were paying half of what they
were making in profits, and on top of
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that steep, you know, individual income
tax and estate tax. And you can see the
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demise of progressive taxation through
the decades in this chart, with the
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striking fact that in 2018, we've reached
the point where the very wealthy now pay
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probably less than average, and that is
driven, you know, in large part
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by the big corporate tax cut that
cuts the tax that the rich have to pay
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at source, you know, through the profits
of their businesses. So the way we tell
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the story in our book is that that
evolution of eroding progressive taxes
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took the following form. It's not that
politicians said, you know, the rich are
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paying too much, they should pay less,
What happened is that they first let tax
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avoidance fester, and once the system had
a lot of tax avoidance, tax evasion in,
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they were saying, look, it's impossible to
tax the rich anymore, let's have a more
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rational system where we cut tax rates
instead of having those high rates that
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actually people are not paying. So in the
income tax, you saw that with the
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development of tax shelters for
partnerships in the early 1980s, where
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you could buy a business making losses,
you know, to reduce your taxes, and after
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that, Reagan came in and said to
Democrats, look, let's make a deal and
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reduce tax progressivity and close those
tax shelters, and effectively during the
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Reagan administration, the top individual
tax rate went down from 70% down
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to 28%. On the corporate tax side,
essentially what has happened is that U.S.
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multinationals have been
able to shift a growing
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fraction of their foreign profits to tax
havens. You may have read in the press
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recently that Microsoft has most of its
profits in Puerto Rico, Google in Bermuda.
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It's not like business happens in the
Bermudas or in Puerto Rico, but
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Microsoft and Google are able to buy tax
accounting services that are going to
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say, you know, that actually the profits
effectively happened legally in
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these jurisdictions. And the U.S. is not
the only country where that happens, and
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seeing these, the response of countries
in isolation, was to say, look, we have to
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cut tax rates, our corporate tax rates, so
that we can keep profits –– at
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home, and that's what happened with the
Trump tax cut, actually. The US was the
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last big country to significantly reduce
its corporate tax rate, and that's a real
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risk in the sense that if you no longer
have a corporate tax, the rich are going
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to be able to incorporate their economic
activity and accumulate wealth in their
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corporation. So what we are saying is
that that state of affairs is in
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the end a social choice and not a law of
nature. That is, corporate taxes are
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failing, but that's because we let big
corporation report profits in tax havens.
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There are other ways you could tax
corporations, for example, if you were to
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tax U.S. multinationals on their
worldwide profits, you could solve the
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problem, that is, even if they report profits in a
jurisdiction where they don't pay any
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taxes, they would have to pay taxes to
the U.S. Wealth taxes had existed in
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Europe and they largely failed and have
been abandoned, but it's because they
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were poorly designed— they were easy to
avoid and evade. The U.S. could invent, you
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know, modern wealth taxes that
could work, for example, in the U.S.——
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in Europe it was very easy to avoid the
wealth taxes by just moving to another
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European country. In the U.S., if you have a
tax based on U.S. citizenship, even if you
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move abroad as a billionaire, you would
still be liable for the tax. So you can
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see that the tax doesn't succeed or fail
in absolute terms, it's going to depend
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on design and context. Now, what I want to
say, you know, in this world of flat taxes,
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the wealth taxes are probably the most
powerful tool to quickly restore tax
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progressivity, and here I've just shown
you what happens when you add to the
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current system the Warren wealth tax
as she initially proposed it, you know,
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two cents above 50 million and then 3%
on billionaires; and the Sanders wealth tax
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that has much more progressivity, you
know, from five, it starts at 1%, 5% on
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billionaires and goes up to 8% on deca-
billionaires. And you can see because
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it's tax on the stock measured relative
to income, it has a huge impact on the
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tax burden relative to income. So that's
one example. On our website, we use the
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tax simulator to approximate the
various tax plans that the candidates
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are proposing. So this measures the tax
system including, you know, the health
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care insurance as a tax because that's
the way you can understand the need, you
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know, or the virtue, the distributive
virtue of having government financing. So
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in red, you have the existing tax system,
you know, what we call the Trump tax
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system here in black. You had what
existed under Obama, so you can see the
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Trump tax cut lowers taxes at the top,
but it's not a very large amount
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relative to what the various candidates
are currently proposing, you know,
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regarding taxing the rich. So even a
moderate candidate like Joe Biden
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would go, you know, in light blue,
substantially above what Obama is doing,
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because he wants to tax–– realize
capital gains, you know, at full rates.
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Buttigieg goes even beyond because it
extends payroll taxes to top incomes, both
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labor and capitals,
so that's an extra 12%.
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Warren and Sanders are even more extreme
because they have those very progressive
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wealth taxes for the very top, and that's
why the tax rates shoot up very
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significantly at the top. The Medicare
for all, here you can see, what it does is
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that it lowers taxes for the broad middle
class because the workers no longer have
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to pay, you know, the health care
insurance premium, so they get a big wage
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increase. Now they have to pay extra
taxes to fund the thing, but it's made
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in a progressive way and so in net, it
alleviates the cost to the middle class. So
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just to say that what is very clear in
this election cycle is that the range of
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options that you have really covers a
span that we haven't seen in decades. The
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U.S. system used to be very progressive,
but not quite as progressive as Warren
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and Sanders proposed to make, knowing
that there is, of course, a long distance
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from proposing something to seeing it
enacted. Thank you very much.
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Okay, well thank you very much.
So maybe we could start off,
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Jason, do you want to kick
us off–– either way?
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Sure, I'm happy to kick things
off, I only have a few comments.
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I guess, I'd like to start by saying—
there seems to be some feedback—
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I'd just like to start by saying that part
of the reason why, you know, these
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instruments are in the policy debate is
thanks to Emmanuel and his collaborators.
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It's quite an amazing thing, and one of
the things that I most admire about
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Emmanuel is how much time he's
taken to educate people about these
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issues, and that's why
events like this, thrown by
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the Burkle Institute are so great. It gives us
a chance to really talk to someone
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who's had a real policy influence, I mean,
we haven't seen a wealth tax yet, but
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maybe we will. So I have just three kind
of big thoughts that I'd love your
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reactions to. So the first one
is income inequality versus
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wealth inequality, right, and I guess
I would frame the question
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two ways, which is one: in a world with
perfect information, where we both know
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income inequality and wealth inequality
with precision, which of the two is the
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better input to policy decisions, right, and
then I guess the follow-up question to that
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is in our current world of imperfect
information where we, despite your best
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efforts, know a little bit more about
income inequality than wealth inequality,
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how do you think of those two as inputs
into policy decisions? The second
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question relates to a thing you
mentioned at the bottom of one of your
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slides, and I want to give you an
opportunity to talk about it further,
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which is the idea that the fiscal system
isn't just the tax system, right. I know
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this project is really focused on on
distribution of the tax, but we all know
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that the fiscal system has both a tax
side and a spend side, and there are
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some—— there's some, like, arbitrariness in
general, as to trying to figure out where
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the tax system ends and where the spending
side begins, and in fact there's some
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arbitrariness, I think, and this isn't a
critique of your work, but just in
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general, theoretically, as to
where the fiscal system ends, right.
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And I think two good examples of that in
your work are this idea that health care
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costs should be included as a tax,
and I'm quite sympathetic to allow the
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rationales you have for that, but I'd love
your thoughts kind of fleshed out on
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that inclusion. And then, I think, in
your work you exclude the EITC as a
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spending program –– Will you define that,
Jason? Earned Income Tax Credit.
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Sorry, the Earned Income Tax Credit is
pretty much how we do federal welfare
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now. It provides wage support for
people of low income. It primarily helps
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those with with children, but it's the
major federal cash benefit that
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we use to support low-income families.
And so that's actually run through the
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tax system, right, it's part of your 1040
if you are claiming the EITC, but I think
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it comes out of your charts with respect
to taxes spent. So just the idea of,
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like, where does the tax system end I
guess is the big question. And then the
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last question— I can't help because I'm a
law professor to ask— there is this pesky
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constitutional requirement for
apportionment of direct taxes. No one
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knows what that means, right. There
are some cases from decades and decades
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and decades ago talking about the
constitutionality of wealth taxes, but
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they really only apply to real property taxes.
And so people–– there's some, I'll call
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constitutional ambiguity about the
constitutionality of an annual wealth
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tax, and I was wondering if that
constitutional uncertainty makes you...
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how that makes you think about the inner
wealth tax versus other ways to tax
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capital, like, you know, I know Buttigieg
I think has talked at least about a
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mark-to-market system or something else.
But – that's a lot – yeah, that's good,
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sorry, I thought it wasn't gonna be much
and then it just... But if I could just
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point out something that came up earlier
in discussion which I thought was a
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really interesting point was that– you
kind of alluded to this– that we have a
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kind of wealth tax already, it's called a
property tax. And so while there may be
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constitutional ambiguity, there's already
some concept of this, so this is
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essentially an extension. Is that a fair ––
Well, I mean, so there's no question that
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property taxes at the sub-federal level
are constitutional, right. So I know some
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states have talked to Emmanuel about
maybe implementing state wealth taxes.
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So right now, property taxes are primarily
a local instrument, right. So cities
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and counties – Right, there's no
national – There's no national.
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So it's a very interesting question, so
income versus wealth for the vast
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majority of the population, the bottom
90%, income is the much more
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important element because you need
income, you know, to be able to live.
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A lot of the population lives, you know,
with very little wealth. Now, when you go
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towards the top of the distribution,
income comes more and more from
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capital, and at the very top it's
really wealth, you know, that is the
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00:31:08,280 --> 00:31:13,050
defining element. You can see the
magazine Forbes 400 is interested in
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wealth, not income, and wealth at the very
top is really power, you know, that tells
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you what you control, what you earn, and
that's why if you have an issue of
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excessive concentration of economic
resources at the top, it's going
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to be a wealth problem, and that
naturally calls, you know, for a wealth tax
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solution. The taxes versus transfers–
it is absolutely true that there
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are two sides to what governments
do. They take in the form of taxes
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to spend in the form of transfers,
and our demarcation, what is a tax, what
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is a transfer is very simple. A tax is
something individuals and businesses
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pay to the government. A transfer is
something going in the other direction.
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That's the usual definition.
Now, it's true that for
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economies, if you take what we call the
budget set,
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taxes and transfers are not well
defined, you know, one is a negative
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number and the other one is a positive
number, but I would say that's a
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limitation of our model because in the
real world, it means something very
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different to actually, you know, pay your
positive amount to the government versus
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receive something. You should study both
sides. What we were pointing out is that
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official statistics that include in
their measure of tax progressivity some
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transfers, like the Earned Income Tax
Credit because it's administered as tax
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refunds through the tax system, is not a
clean way to do it because they do the
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Earned Income Tax Credit in their
statistics so it looks like the bottom
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is really not paying much in taxes. But
why stop there? Why not include other
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transfers that people receive? So that's
why we think that separation is
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important, and again I want to emphasize
studying transfers is very important.
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Lots of us economists do study
them as well. In our book we talk about
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about taxes. The constitutionality issue–
it's true that there is ambiguity, so
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in the end it's going to be up to the
nine Supreme Court Justices to say what
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they think, and they could vote both ways
and justify it with elaborate statements.
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They are able to craft those, but in the end,
yes, it's it's uncertain. It will depend
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on the people, and that's why I think
you need a backup, an idea that if the
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straight wealth tax is judged
unconstitutional, how do you do something
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similar that can be presented
as an income tax? But I think it's too
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early to worry about it, and certainly you
shouldn't emphasize that in the public
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debate because I think the key virtue of
the wealth tax, the reason why the
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Warren campaign initially got so much
wind, was that here was a policy
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proposal that everybody could understand.
You're going to pay your tax if you have
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wealth more than 50 million, you know,
of 2%, it's very clear. As soon as
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we start talking about existing options,
like Hillary Clinton, you know, was
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proposing in the previous campaign,
removing the loophole of the
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step-up of bases at dance for realized
capital gains, you've lost 80%
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of the public. It doesn't mean anything,
and again, if we think what's
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important is taxes, you know, are what
people pay, how we pool our resources
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together, how we do it, it needs to be
intelligible, so that's why the wealth
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tax, even though there is this
constitutionality asterisk as enormous
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virtue, you know, for clarifying the debate,
and by the way, the implementation, we
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were thinking about it, and actually there
will be a conference right here at UCLA,
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mid-March, where we are going to start
planning, look, if this happens, how do we
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do it in practice? And we'll have
the law school scholars,
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you know, the economists, right here
starting to, even before we know
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whether it has any chance,
you know, to be –
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We want to be ready,
we need to be ready –
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But that's for the experts,
the public doesn't need to
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know all of those details –
Can I ask for both of you: the estate tax is
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something you mentioned, we talked
about, I know it's, you know, it's had
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different roles over time in our U.S.
system. How does it fit into this
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question about whether wealth taxes of
some form are either constitutional,
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politically feasible... On the politically
feasible side, it seems like–– it's
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interesting to me that people seem
receptive to a wealth tax right now, but
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yet the estate tax, which the Republican
Party has very cleverly rebranded as a
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00:36:12,900 --> 00:36:17,700
death tax, does not have a lot of support
and has seen a big decline, but to the
400
00:36:17,700 --> 00:36:21,280
constitutionality as well. Does that
tell us anything? How does that work?
401
00:36:24,020 --> 00:36:31,980
So there's no question that the estate
tax is constitutional. There's some, I
402
00:36:31,980 --> 00:36:35,309
think, some lessons to be learned. So one
of the interesting things about the
403
00:36:35,309 --> 00:36:43,589
estate tax is given how much political
air it takes up, how few people
404
00:36:43,589 --> 00:36:49,020
pay it right, and how little revenue it
raises. So to give you a sense, at the
405
00:36:49,020 --> 00:36:55,319
federal level, the estate tax each year
raises less than 1% of revenue. It hits,
406
00:36:55,319 --> 00:36:59,430
you know, the current exemption is
almost 24 million dollars for a
407
00:36:59,430 --> 00:37:03,690
married couple, and if you're well
advised, that 24 million dollar
408
00:37:03,690 --> 00:37:09,450
exemption might as well be 200
million dollars. And so, there have been
409
00:37:09,450 --> 00:37:14,670
people who, I think maybe unfairly, have
pointed to the estate tax and said well,
410
00:37:14,670 --> 00:37:18,390
the estate tax is failing, like, why do
you think a wealth tax would be any
411
00:37:18,390 --> 00:37:22,380
different? I think there are some lessons
we can learn from the failures of the
412
00:37:22,380 --> 00:37:26,250
estate tax, right. One thing I really
appreciate about Emmanuel's presentation
413
00:37:26,250 --> 00:37:31,710
is this idea that tax avoidance isn't
a law of nature, and I think that's
414
00:37:31,710 --> 00:37:38,760
right. But tax avoidance is a very
persistent behavior, and so there
415
00:37:38,760 --> 00:37:41,730
are, I think, some important lessons we
can draw from the estate tax. It's one of
416
00:37:41,730 --> 00:37:44,860
the things we're going to talk about
at our conference in March, in terms
417
00:37:44,860 --> 00:37:48,940
of particular structures that we've seen
to avoid accumulated wealth taxes.
418
00:37:48,940 --> 00:37:52,680
Great yeah. Adriana –
Okay, so I'm more of an economic
419
00:37:52,680 --> 00:37:58,589
historian, so I wanted to know more about,
kind of, the rise and the demise of a
420
00:37:58,589 --> 00:38:03,119
progressive tax system, and in particular
what kind of caught my attention is this
421
00:38:03,119 --> 00:38:08,459
idea that it all got started in the
1910s, 20s, 30s, and the demise in the 70s,
422
00:38:08,459 --> 00:38:13,380
and spending also increases quite substantially in social programs, and
423
00:38:13,380 --> 00:38:17,939
then falls, and kind of makes me
think, so what–– where does the
424
00:38:17,939 --> 00:38:24,779
willingness of people to pay taxes, or to
at least make others pay taxes come from?
425
00:38:24,779 --> 00:38:31,499
And one thing that is striking to me is
thinking, is this kind of evolution
426
00:38:31,499 --> 00:38:36,029
partly driven by, kind of, the fear of
communism and the desire to provide an
427
00:38:36,029 --> 00:38:42,499
alternative non-communist society, which
then somehow in the late 70s, early 80s,
428
00:38:42,499 --> 00:38:47,849
starts disappearing, and therefore
there's no more of this, we need to worry
429
00:38:47,849 --> 00:38:51,239
that there's to be revolution, or that
people are going to, you know, want to
430
00:38:51,239 --> 00:38:56,999
take over the government. And in kind of
a related question, which is, you know,
431
00:38:56,999 --> 00:39:00,900
economists tend to separate expenditures
and taxation, and they talk about this
432
00:39:00,900 --> 00:39:04,079
completely different– how do we raise the
money, how we spend the money?
433
00:39:04,079 --> 00:39:08,400
But in my view, that's wrong because
people care about how the money's spent,
434
00:39:08,400 --> 00:39:12,479
so I think, say in Colombia, a lot of
people avoid taxes because the
435
00:39:12,479 --> 00:39:17,130
government is corrupt and steals taxes,
and who wants to pay taxes if they're
436
00:39:17,130 --> 00:39:22,259
gonna be stolen? And relatedly, so
if people don't think that the
437
00:39:22,259 --> 00:39:25,559
programs or the things that the
government do are worth paying for, then
438
00:39:25,559 --> 00:39:30,059
they're not gonna want to pay, so in some
sense, are those two things related? Is it
439
00:39:30,059 --> 00:39:33,329
that now, today, people don't think that
the things that the government are doing
440
00:39:33,329 --> 00:39:39,119
are worth it, and why? And my third
question was going to be, you know, you
441
00:39:39,119 --> 00:39:44,519
have some proposals that I think for
some people are seen as very extreme,
442
00:39:44,519 --> 00:39:50,640
taxing wealth, so I'm gonna ask you about
two more minor proposals that I thought
443
00:39:50,640 --> 00:39:53,640
were interesting in your book.
So you mentioned in your book
444
00:39:53,640 --> 00:39:57,300
that originally the taxes that
people pay, particularly
445
00:39:57,300 --> 00:40:01,590
millionaires were to be posted, and I
think, I was wondering whether that
446
00:40:01,590 --> 00:40:05,370
eventually became illegal, and I was
thinking it would be kind of interesting
447
00:40:05,370 --> 00:40:10,350
if that was the case again. I mean, I
think a lot of people would feel rather
448
00:40:10,350 --> 00:40:14,280
bad about saying that they actually pay
zero taxes in the United States. So I
449
00:40:14,280 --> 00:40:18,630
wonder if we can shame people into
participating into the system. And
450
00:40:18,630 --> 00:40:24,750
similarly, you know, there's a bit of
attention today about these proposals,
451
00:40:24,750 --> 00:40:29,250
about taxing wealth and inequality,
getting a context where the standard
452
00:40:29,250 --> 00:40:34,590
economic indexes show that the economy
is doing really well, and then of course
453
00:40:34,590 --> 00:40:38,190
the question is doing really well for
whom? And so I guess another question is,
454
00:40:38,190 --> 00:40:45,600
can we propose that we track other
economic indexes? Because today, things
455
00:40:45,600 --> 00:40:49,760
look really well by the traditional ones,
the unemployment rate, in per capita GDP,
456
00:40:49,760 --> 00:40:57,510
so if we were to make other indexes
regularly reported and the contributions
457
00:40:57,510 --> 00:41:03,720
of all people publicly available, perhaps
that would change the norms of what
458
00:41:03,720 --> 00:41:13,260
is acceptable, even for millionaires to do.
– So very, very good remarks. So the rise
459
00:41:13,260 --> 00:41:19,580
in tax progressivity happens, you know, at
historical junctures that are kind of
460
00:41:19,580 --> 00:41:24,360
exceptional, you know, so you saw it on
the chart, the big crank up, the invention
461
00:41:24,360 --> 00:41:28,230
of the very progressive income tax is
World War I, a time, you know, where
462
00:41:28,230 --> 00:41:34,740
people are asked to sacrifice their life
in a war, so it may become then
463
00:41:34,740 --> 00:41:38,460
socially acceptable to say to the rich, you
don't have to fight the war because
464
00:41:38,460 --> 00:41:41,460
you're too old, you know, you've
accumulated wealth, but you are going to
465
00:41:41,460 --> 00:41:45,930
contribute significantly through your
economic resources. Then you have
466
00:41:45,930 --> 00:41:51,390
the disaster – Emmanuel, is that true
across Europe as well? – It is true that
467
00:41:51,390 --> 00:41:56,370
yes, the big increases tend to happen
with wars, and actually, there were Stage
468
00:41:56,370 --> 00:42:00,840
and Stankovic— one of whom, one of
those scholars I think is at right here
469
00:42:00,840 --> 00:42:06,270
at UCLA, right, who wrote a book about
when do those very progressive tax
470
00:42:06,270 --> 00:42:09,590
systems happen and it is
systematically correlated
471
00:42:09,590 --> 00:42:16,010
with the onset of wars. Now, that's
what has happened historically, so there
472
00:42:16,010 --> 00:42:21,380
needs to be a concern about society that
we are doing, you know, there needs to be
473
00:42:21,380 --> 00:42:25,520
resources, we need to mobilize
resources, you know, for good, so it's not
474
00:42:25,520 --> 00:42:32,030
an easy thing to achieve –
Jason, do you want to jump in on that?
475
00:42:32,030 --> 00:42:35,390
No, I was just gonna say it's
two of our UCLA colleagues –
476
00:42:35,390 --> 00:42:37,360
Oh, I thought it was like
a two finger question.
477
00:42:37,360 --> 00:42:42,320
Yeah, yeah, no, it wasn't a two finger question,
Steve Bank and Kirk Stark.
478
00:42:42,320 --> 00:42:50,900
Foreign taxes, yeah. So to mobilize
people, you need–– they need certainly to
479
00:42:50,900 --> 00:42:55,760
trust in the common project,
the things we do through our
480
00:42:55,760 --> 00:43:01,930
government, so your second point about
trust in the government is fundamental.
481
00:43:01,930 --> 00:43:07,160
Government is what we do
collectively together, and you need to be
482
00:43:07,160 --> 00:43:12,200
excited about that idea, think that it
can really add value to society to be
483
00:43:12,200 --> 00:43:18,350
willing you know to pour economic
resources into it, and I think that the
484
00:43:18,350 --> 00:43:23,840
things go together, you know, when you
distrust government, you don't want to
485
00:43:23,840 --> 00:43:28,700
support taxes and that's why from the
point of view of conservatives, they like
486
00:43:28,700 --> 00:43:32,540
it when people have little trust in
government because it means
487
00:43:32,540 --> 00:43:41,780
that they are less likely to support
tax increases. The proposal
488
00:43:41,780 --> 00:43:47,290
about posting taxes on millionaires or
billionaires– actually, we start our book
489
00:43:47,290 --> 00:43:52,790
with the debate, you know, between
Trump and Hillary Clinton, where Hillary
490
00:43:52,790 --> 00:43:58,580
Clinton was telling Trump, from the tax
returns that have leaked, which saw that
491
00:43:58,580 --> 00:44:03,350
you were a billionaire and you didn't
pay any taxes. And then Trump responds,
492
00:44:03,350 --> 00:44:10,730
that makes me smart, and ––
and then Clinton doesn't have a good
493
00:44:10,730 --> 00:44:16,010
way to answer back. She couldn't say, you
know, wow, with my wealth tax that's no
494
00:44:16,010 --> 00:44:19,430
longer going to be the case if I'm
elected president.
495
00:44:19,430 --> 00:44:24,250
She had technical fixes that
she couldn't explain right
496
00:44:24,250 --> 00:44:29,980
there, and so it shows you that stuff had
totally switched, you know, it became a
497
00:44:29,980 --> 00:44:34,990
plus for a billionaire to go there and
say, I'm a billionaire, one of the richest
498
00:44:34,990 --> 00:44:40,839
men in America, I don't pay taxes and
that makes me smart, and that's the
499
00:44:40,839 --> 00:44:44,740
person you need to elect, you know, to
represent the government that's supposed
500
00:44:44,740 --> 00:44:51,309
to manage taxes. It was a pretty
incredible moment. So we need to shift
501
00:44:51,309 --> 00:44:57,789
the paradigm so that billionaires
see, you know, the taxes they
502
00:44:57,789 --> 00:45:02,349
pay as a contribution to society. Many of
them, and actually I do meet a fair
503
00:45:02,349 --> 00:45:07,599
amount of billionaires, have grand
ideas for what they want to do with
504
00:45:07,599 --> 00:45:11,829
their wealth to make the world
better. Typically, you know, contributing
505
00:45:11,829 --> 00:45:18,759
to the community through taxes was the
classical way, and we need to
506
00:45:18,759 --> 00:45:27,430
restore that view. And so, the last
one on tracking other indexes
507
00:45:27,430 --> 00:45:32,980
than just GDP per capita and an
unemployment rate, yes, that's what those
508
00:45:32,980 --> 00:45:38,890
statistics on distributing income across
income groups and tracking growth by
509
00:45:38,890 --> 00:45:44,980
income group is about. That is, the
growth of the vast majority of the
510
00:45:44,980 --> 00:45:50,799
population. If you accept the top is
nowhere close to the growth of GDP per
511
00:45:50,799 --> 00:45:54,279
capita and that's what our statistics
show, so you can have an economy that
512
00:45:54,279 --> 00:45:59,680
looks like it's growing, but in reality
it leaves behind a large fraction of the
513
00:45:59,680 --> 00:46:05,660
population, and that's a very
important element to bring to the debate.
514
00:46:05,660 --> 00:46:10,280
– A moment ago, you mentioned
billionaires wanting to use their money
515
00:46:10,299 --> 00:46:14,109
for good– sometimes, some of them do– give it away and philanthropic
516
00:46:14,109 --> 00:46:18,549
purposes. Burkle Center is an example,
we have a billionaire donor. There's a
517
00:46:18,549 --> 00:46:22,329
lot of billionaire donors. Is that a good
thing in your mind, or how do you view
518
00:46:22,329 --> 00:46:26,079
the tax deduction that we have in the U.S.
system for philanthropy, how does that
519
00:46:26,079 --> 00:46:29,859
fit into your general views on wealth
taxes? – Yeah, so it's always a good thing
520
00:46:29,859 --> 00:46:32,930
when a billionaire spends the
money on a good cause, not on
521
00:46:32,930 --> 00:46:38,330
a bad cause, that everybody can
agree with. Now, the modern
522
00:46:38,330 --> 00:46:43,099
billionaires, it's true they give to
institutions, you know, like UCLA, some of
523
00:46:43,099 --> 00:46:49,119
my research even has been funded, you
know, by billionaires wealth, strikingly.
524
00:46:49,119 --> 00:46:55,820
But they really want also to deploy, you
know, their wealth, being very hands-on on
525
00:46:55,820 --> 00:47:02,270
how the money is used, what the cause
exactly I am supporting, and therefore
526
00:47:02,270 --> 00:47:07,369
they have influence. They use
their wealth to influence society so
527
00:47:07,369 --> 00:47:13,580
it's almost like a privatized, you know,
collective good. There should be room for
528
00:47:13,580 --> 00:47:18,740
that, but it cannot be a substitute for
government– what we do through a
529
00:47:18,740 --> 00:47:24,849
democratic process, where we decide
what we do with our pooled resources
530
00:47:24,849 --> 00:47:29,960
through taxes, so it's perhaps good to
have some encouragement. Right now I
531
00:47:29,960 --> 00:47:34,940
think the tax system is tiled way
too much to giving huge deductions
532
00:47:34,940 --> 00:47:40,670
for the very rich that they don't
give to the middle class... and I
533
00:47:40,670 --> 00:47:48,170
don't think –– I think it has moved
too much in in favor of tax
534
00:47:48,170 --> 00:47:53,180
deductions for charitable giving.
When the charities is not pure charity,
535
00:47:53,180 --> 00:47:58,740
you still use your resources you know to
influence things in the way you want...
536
00:47:58,740 --> 00:48:02,900
on the left and on the right. – But you
wouldn't eliminate it. If you could
537
00:48:02,900 --> 00:48:06,220
design the perfect tax plan in the
United States, you wouldn't eliminate it?
538
00:48:06,220 --> 00:48:14,720
– Not entirely, but I would certainly
restrict it much more than it is currently.
539
00:48:14,760 --> 00:48:20,540
–Jason? – So one of the things that I think
is interesting about your proposals is
540
00:48:20,540 --> 00:48:25,040
how there there's kind of a tension between
two goals. There's the goal of– so Warren
541
00:48:25,040 --> 00:48:29,930
has talked a lot about how a lot of her
policy proposals will be paid for by the
542
00:48:29,930 --> 00:48:33,830
wealth tax, and so there's this idea of
revenue raising. And then, and I'm gonna
543
00:48:33,830 --> 00:48:37,160
–– and I'm caricaturing their positions,
but like Bernie has been much more
544
00:48:37,160 --> 00:48:41,599
upfront about 'I don't care how
much revenue is raised, this is
545
00:48:41,599 --> 00:48:44,960
really about reducing inequality,' right?
So, and I think both of them kind of have
546
00:48:44,960 --> 00:48:50,060
both goals, but there are times, I think,
where kind of decisions you make about
547
00:48:50,060 --> 00:48:54,619
how to design the instrument depend on
which of these two goals is primary. So
548
00:48:54,619 --> 00:48:58,040
let me give you an example. So how you
think about charity and a wealth tax,
549
00:48:58,040 --> 00:49:05,030
right. So if your goal is to displace
control of financial resources, when
550
00:49:05,030 --> 00:49:08,990
money moves into the charitable sector,
as long as the the donor doesn't have
551
00:49:08,990 --> 00:49:13,920
day-to-day control, you're fine with that,
right. Whereas if you're really worried
552
00:49:13,920 --> 00:49:17,660
about revenue raising, you've got
to somehow attribute that charitable
553
00:49:17,660 --> 00:49:22,280
wealth to some person who will then pay
the tax or tax the charity directly.
554
00:49:22,280 --> 00:49:26,810
I was just kind of curious how you see
these two goals in tension. – I think that
555
00:49:26,810 --> 00:49:32,089
you have to see it on a spectrum. If
you're a centrist and you are worried
556
00:49:32,089 --> 00:49:37,250
that the tax system is not quite fair at
the very top for the reasons we've
557
00:49:37,250 --> 00:49:42,200
described, you might say look a moderate
wealth tax is good to restore some
558
00:49:42,200 --> 00:49:47,150
fairness, and it brings in some revenue,
and I can do good things with the revenue.
559
00:49:47,150 --> 00:49:53,330
That's how Warren started. Now, if you're
more left, you may decide 'actually, I want
560
00:49:53,330 --> 00:49:58,430
the wealth tax as an active tool to
reduce the concentration of wealth,'
561
00:49:58,430 --> 00:50:02,839
extreme, one is "abolish billionaires,"
you know, you've heard that expression.
562
00:50:02,839 --> 00:50:09,760
And in which case you're going to go for
a more extreme version like the Bernie
563
00:50:09,760 --> 00:50:14,570
Sanders version, and which one you want
depends on where you fall, you know, on
564
00:50:14,570 --> 00:50:18,830
that spectrum. Now Warren, because she
needed more money for the Medicare for
565
00:50:18,830 --> 00:50:24,349
All switched her wealth tax to a
Bernie Sanders tax, and the problem is
566
00:50:24,349 --> 00:50:28,609
that perhaps it was more like a
technical fix to get revenue rather than
567
00:50:28,609 --> 00:50:33,260
a change in the philosophy, and that's
why suddenly, you know, it didn't
568
00:50:33,260 --> 00:50:39,170
necessarily fit as well into her
initial narrative, while Bernie was clear
569
00:50:39,170 --> 00:50:43,300
from the beginning. The tax is
there really to change the
570
00:50:43,300 --> 00:50:47,320
concentration of wealth in the country.
– Emmanuel, do have a view on
571
00:50:47,320 --> 00:50:50,220
whether the concern with
revenue raising–– one of
572
00:50:50,220 --> 00:50:52,840
the things I'm struck by just
looking at politics over the last
573
00:50:52,840 --> 00:50:57,160
few decades is at times in this
country we seem focused on debt and
574
00:50:57,170 --> 00:51:02,089
deficit, and at other times, like right
now, we don't seem to care at all. And you
575
00:51:02,089 --> 00:51:05,900
know whether you believe in modern
monetary theory or whether you think
576
00:51:05,900 --> 00:51:09,530
deficits matter, it's sort of a
bipartisan thing at times. It seems that
577
00:51:09,530 --> 00:51:13,310
people say it doesn't matter and voters
don't seem to care at all. So how does
578
00:51:13,310 --> 00:51:17,119
that relate to this concern with revenue?
So I can imagine in a world where we
579
00:51:17,119 --> 00:51:20,000
really are worried about deficits, we'd
really be focused on revenue raising. But
580
00:51:20,000 --> 00:51:23,060
we don't seem to be in that world, so
then the Bernie approach that you
581
00:51:23,060 --> 00:51:26,740
described seems more attractive because
we don't care about revenue. Does that ––
582
00:51:26,740 --> 00:51:31,460
is there a connection there?
– It is true that the way the more
583
00:51:31,460 --> 00:51:35,690
radical candidates Sanders and Warren
have approached taxing the rich
584
00:51:35,690 --> 00:51:40,520
goes beyond just revenue raising.
They are thinking about it as a
585
00:51:40,520 --> 00:51:45,890
social engineering tool, you know, to
reduce income and wealth concentration.
586
00:51:45,890 --> 00:51:52,270
And what we see with deficits,
you know, certainly in the short run,
587
00:51:52,270 --> 00:51:57,260
nothing bad seems to happen, you know, if
you run a large deficit, and you can pay
588
00:51:57,260 --> 00:52:01,920
very low interest rates on your
government bonds. And we have a debt
589
00:52:01,920 --> 00:52:07,240
of 80%. Perhaps we could keep going
for quite a few years, you know, like this
590
00:52:07,250 --> 00:52:12,500
and if you want to start a big, new
spending program like Medicare for All,
591
00:52:12,500 --> 00:52:18,770
that looks very attractive to ease, you
know, the transition into that. Now the
592
00:52:18,770 --> 00:52:23,869
candidates, I was surprised that actually
Bernie Sanders, we talk about modern
593
00:52:23,869 --> 00:52:27,589
monetary policy, but at least when we're
talking to his/their advisers, that's
594
00:52:27,589 --> 00:52:32,480
not the view they were taking. They were
really anxious, and the Warren campaign,
595
00:52:32,480 --> 00:52:36,950
you know, even more so to find tax
revenue so that they could say we are
596
00:52:36,950 --> 00:52:41,630
fine. And somehow they were–– they
hadn't caught up to the fact that
597
00:52:41,630 --> 00:52:49,869
deficits don't seem to matter anymore.
And you know, in the long run,
598
00:52:50,100 --> 00:52:56,400
the deficit is not –– we cannot consume
more than what we produce, you know.
599
00:52:56,400 --> 00:53:00,600
There needs to be an equality so
debt is a way of saying we get
600
00:53:00,600 --> 00:53:05,310
indebted, you know, but then people
would have a claim on future income
601
00:53:05,310 --> 00:53:10,110
stream. So while interest rates are low,
that looks like an attractive deal. If
602
00:53:10,110 --> 00:53:14,370
interests become really high, and then
the government has to pay a lot in
603
00:53:14,370 --> 00:53:20,610
from the tax revenue to bondholders who
are wealthy, it will generate tensions.
604
00:53:20,610 --> 00:53:24,390
But I don't know how those tensions are
going to end up, you know. Will they
605
00:53:24,390 --> 00:53:30,300
expropriate the bondholders? Will they do
inflation? It's very uncertain. With the
606
00:53:30,300 --> 00:53:34,940
tax, you know what you're getting because
you know who is paying them right now.
607
00:53:34,940 --> 00:53:40,860
– Great, okay, before we open it up, last
comments from either panelist. Questions?
608
00:53:42,380 --> 00:53:45,740
– I think I have one last thing to
say, and it's just, I know Emanuel knows
609
00:53:45,750 --> 00:53:50,310
this, the polling on the wealth tax is
incredibly popular, even among
610
00:53:50,310 --> 00:53:55,710
Republican identifying voters, it's
above–– I think it's a plurality of even
611
00:53:55,710 --> 00:54:01,260
Republican identified voters are in
favor of a wealth tax. And it's 75 or 80%
612
00:54:01,260 --> 00:54:06,300
of Democrat identifying voters.
And so I was surprised to see that when
613
00:54:06,300 --> 00:54:09,150
the polling first came out, but it's been
pretty consistent through the campaign,
614
00:54:09,150 --> 00:54:14,070
just how how much popular support there
is. And I like this idea of 'it's easy to
615
00:54:14,070 --> 00:54:17,340
understand,' right. You know, Warren's
always out there talking about 2 cents.
616
00:54:17,340 --> 00:54:22,200
I totally agree. That's why I asked
about estate taxes. I also, I support both
617
00:54:22,200 --> 00:54:26,190
of them at a high level, but I'm
surprised that–– why is this seen as
618
00:54:26,190 --> 00:54:29,880
so different? I don't totally understand.
Somehow it was branded in a different
619
00:54:29,880 --> 00:54:33,110
way or it's a different
time or something.