The Triumph of Injustice


– Good evening? – [Audience] Good evening. – I’m James Muyskens. I’m Interim President
here at the Grad Center and it’s my pleasure to welcome you to this very special event. Tonight were privileged to examine the acclaimed new book, “The Triumph of Injustice” How the rich dodge taxes
and how to make them pay. We will do this examination
with its celebrated authors Emmanuel Saez and Gabriel Zucman. And I suspect many of you saw their Op-Ed in the New York Times two weeks ago. Together we’ll look at the
ways unfair tax systems lead to economic inequality. How inequality threatens democracy and what we can do about it. Since the books released
just a few weeks ago, it’s been a hot topic in almost
every major media outlet. So we’re thrilled that
the authors have been able to come and join us this evening. In fact, they just dashed over
here from an interview at CNN New Yorkers, as we all know,
like to be in the center of the conversation. The Graduate Center is the place to be. Our public programs explore
some of the most critical issues of our time and bring leading thinkers to our stage from CUNY and beyond, including of course our guest tonight. And we of course hope that
you will come back many times to the Graduate Center
for the conversations stimulating conversations, such as the one we’ll see in just a few moments. Our co-sponsor for tonight’s program is the Graduate Centers renowned, Stone Center on
social-economic inequality. Addressing pressing issues is
a hallmark of the Stone Center It’s a leader in analyzing the disparities of income and wealth across
countries and regions and the public policies and institutions that shape those disparities. Tonight’s program is also a part of our two-year deep
dive into understanding the promises and perils of democracy . Last year, we presented
events that examined the foundation of democracy
such as freedom of the press, the role of the judiciary. This fall, we’re turning to some of the significant challenges
to democracy including’ inequality and racism. We’re grateful for the support of the Carnegie Corporation of New York and underwriting this timely
and significant project. Now I’m honored to introduce
the extraordinary panel of scholars that we have here tonight who do a deep dive into the
research bringing fresh insights and understanding to one
of the biggest challenges we face, the causes and consequences of social economic inequality. First Emmanuel Saez, co-author
of “The Triumph of Injustice” He’s professor of economics
and director of the center for equitable growth at the University of
California in Berkeley. In 2009, he was awarded
the John Bates Clark medal of the American Economic Association. He was named a MacArthur
Fellow in 2010 for his research and I quote, in enhancing
our understanding of the relationship between
income and tax policy from theoretical and
empirical perspectives and for reinvigorating the
field of public economics. That’s a mouthful. Gabriel Zucman, the other co-author of “The Triumph of Injustice” is professor of economics at Berkeley. He’s also the author of “The
Hidden Wealth of Nations” and co-director with Saez,
Thomas Piketty and others of the world inequality database which is an extensive database
on the historical evolution of income and wealth inequality. In 2019, he was awarded
the Brunette Surprise which was awarded annually
to European economists under the age of 40 who have
made outstanding contributions in the fields of
macroeconomics and finance. and Lilly Batchelder
is the Robert C. Family professor of law at the NYU School of Law an affiliated professor at the NYU Wagner School
of Public Service. In 2014 and 2015, she
served as deputy director at the White House
National Economic Council and deputy assistant to
President Barack Obama where she was responsible
for tax and budget issues, including tax reform, retirement
policy and income benefits. She’s the co-author of a recent study “Taxing the
Rich issues and Options.” And Paul Krugman, Paul Krugman is a distinguished professor
here in economics at the Graduate Center. A senior scholar and co faculty member of the Stone Center on
social economic inequality. He’s the author or editor
of more than 25 books for academic and general
audiences and Op-Eds columnists for the New York Times. And a prolific tweeter with I don’t know millions of followers. (audience laughing) Krugman is the recipient of
the John Bates Clark medal of the American economics Association. The Prince Asterius Award
from the king of Spain and in 2008 the Nobel Prize in Economics. Our moderator for
tonight is Janet Gornick. She’s a professor of political
science and sociology here at the Graduate Center
and founding director of the Stone Center for
socio-economic inequality. This Center also houses
the U.S. Office of Liss. The widely used cross
national data archive. She is the co-author or
co-editor of three books: Families That Work, Policies for Reconciling
Parenthood and Employment, Gender Equality; transforming
family divisions of labor and income inequality economic disparities and the middle class
in affluent countries. So having introduced our panel, we’ll begin with Gabriel
Zucman who will give us a brief presentation of the highlights of the research of the book and then the panel will come
up here and join them on stage. So please join me now in
welcoming Professor Zucman. (audience applauding) – Thank you. Thank you very much President Muyskens and thanks to all of you for being here. What an honor, what a
pleasure to be here tonight to talk about this book. So what we try to do in
this book is three things. One is that we produce
new statistics about how much each group of the
population pays in Texas today in the U.S and has paid
all the way back to 1913, taking into account all taxes paid at all levels of government. And we studied the long-run
changes in tax progressivity and we try to explain, to tell the story of how the U.S. moved from having the most progressive
tax system in the world, to a tax system today, where you know the very wealthiest Americans or 400 richest Americans,
pay lower tax rate than the middle class. Second is we provide some elements for a 21st century tax system. So many people have become
convinced that tax avoidance, tax evasion, tax competition
are laws of nature and you cannot do anything
against these things. And we want to explain why this is wrong, why this are in fact choices
that governments make and governments make other choices. And if there is a democratic
demand for progressive taxation we can make this work. And the third thing and
probably the most important is that we developed the
website, TaxJusticeNow.org which is a user-friendly
open-source website where everybody can simulate
their own tax reform. You know it is not for economists to say what tax rates should be applied, how the tax system should look like. It is obviously for the people, through democratic
deliberation and the vote and what we try to achieve in this book is to make the tax debate more democratic and that’s you know why
we developed this website. So let me start with the dramatic increase in inequality in the U.S. And one way to illustrate it, this increases this graph
that shows the evolution of the share of national
income that’s earned by the top 1% highest earners versus the bottom 50% highest, the bottom 50% of the income distribution. In 1980 the top 1% earned about 10% of total national income, today earns about 20% of
total national income. The bottom 50 percent, went
in the opposite direction, earning about 20% of national
income in the early 1980s down to barely more than 10% today. So the gains, the relative
gains made by just 1% of the population have been as large as the relative loss of
50% of the population. No group, not by
definition 50 times larger. And the tax system is
one very important way to regulate inequality, but today, here is how the tax system
looks like in the U.S. So if you take into account all taxes paid at all levels of government, the total tax revenue in the U.S. Total amount of tax revenue is 28%. That’s total tax revenue
divided by national income. Now if you compute this
statistic for each group of the population, you know
what’s the effective tax rate for each income group, what you’re seeing is that the working class
defined as the bottom 50% of the income distribution
pays a bit less than 28%. 25, 26, 27%. You have some mild progressivity
with the middle class and the upper middle
class paying a bit more than the average of 28% and then at the very very top end, when you look at billionaires, top 400, people who have modern 1.5
billion dollars in wealth their tax rate falls to 23%. The reason for this is
illustrated on that graph. The reason why the working-class
pays a lot in tax is, you know, there is this you sometimes here the poor don’t pay much taxes in the U.S. You know in 2012 Mitt
Romney famously talked of the 47% of so-called takers, who according to him do not
contribute to the public coffers but this is wrong. The working class pays
quite a lot in sales taxes and in payroll taxes. The very rich you know sales taxes are not very high for them,
the individual income tax is the main tax that they pay, but at the very top it becomes small. You know take the case of Warren Buffett which is the clearest
illustration of the problem with tax progressivity today. Warren Buffett according
to Forbes Magazine is worth about 80 billion
dollars in wealth. His true economic income, what is it? It’s his share of his company
Berkshire Hathaway’s profits. So let’s say he gets a 6%
rate of return on his wealth, his true economic income
is 6% of 80 billion is something like 5 billion dollars. Now what does he pay in taxes. We know that because he discloses this. He pays a few million just two or three million dollars in taxes. How come? he instructs his company
not to pay dividends. So the only income that’s taxable is when he sells a few shares and realizes a bit of capital gains and and that’s it. And his taxable income is
like 10 20 million dollars. He paid two, three millions, that’s an effective tax
rate essentially of 0%. This is a major departure, the current tax system from
the history of the U.S. The U.S. invented
progressive income taxation with very high top marginal
tax rate of more than 90% in the middle of the 20th century. The U.S invented sharply
progressive estate taxation with a state tax rate of close to 80% from the 1930s to the late 1970s. No continent or European country, ever had such high top
marginal income tax rates, France never came close to any of this, nor Italy, nor Spain. And you know sometimes when
you talk about that people say oh but nobody really paid those rights. You know U.S might have
pretended to tax the wealthy and the Roosevelt and
subsequent administration that never genuinely did so. And so we takes that seriously and we try recomputing the book what was the effective rate paid by the wealthiest Americans
and that’s the result here. We find that the top
0.1% highest earners paid about 60% of their income all taxes included during the
middle of the 20th century and then News you had this big
decline in tax progressivity. So the point here is that
the U.S. tax system really was progressive, not only on paper but also in actual facts
and today you know, is basically not
progressive barely anymore. The reason why the U.S. tax system was so progressive in the
middle of the 20th century, something that’s not
really well understood. It’s not essentially because
of the individual income tax, because the reason you know, the 90% top marginal income tax rate, it’s true that very few
people paid those rates. It was by design, you need to remember the history of those rates. you know, in 1943 Franklin
Roosevelt goes to Congress and he made a famous speech. And he says, I think that no
American should have an income of more than $25,000 at the
time after paying taxes. The equivalent of several
millions of today’s dollars. And therefore I propose 100%
top marginal income tax rate above $25,000 on all sources of income. So he makes this speech
and people in Congress, you know hesitate a little
bit and 100% is a lot and they agree 93%. And so that’s the history. Why do I tell you this history, because everybody understands that the reason for these high tax rates was not to collect revenue, the point was explicitly
about reducing inequality. You know making sure
that nobody earns more than several millions in a given year. And so it’s not true the
individual income tax that the U.S. system was very progressive, it’s mostly through the corporate tax and the corporate tax at
middle of the 20th century did generate a lot of tax revenue and because equity ownership
is very concentrated when the corporate tax rate is very high, shareholders in effect pay high taxes. That’s something which is very basic, but we actually discovered
in writing that book which is that at some point, the corporate tax, the
federal corporate tax, corporate income tax
generated as much revenue as a fraction of national income as the individual income tax. That for a brief period of time 1950s. then it declined but,
that’s you know through the corporate tax that
the tax system achieved its huge progressivity and
now the corporate income tax is essentially is almost
dead you know, collects 1% of national income following
the Trump tax reform. So where does this take us and that’s the last
figure before I conclude this brief remarks. The future of tax progressivity, there are many ways to increase the productivity of the tax system. The corporate tax is one tool, but it’s too crude in many ways because it’s just one rate. The US could increase
the corporate tax rate to 50 percent, it is
too crude an instrument. A more powerful instrument is
a progressive tax on wealth. Here this graph shows how the tax system would look like keeping
everything the same but just adding the Warren wealth tax, which is a tax of 2$
above 50 million dollars and 3% above one billion dollars. With just the wealth tax like that, you double the effective
tax rate and billionaires from 23% today to 46%. So let me conclude by saying,
there is this widely held view that external or technical constraints make tax justice impossible and sometimes people refer
to the European experience with wealth taxation and they say, look it was a failure. Most countries abolished
their wealth taxes and that’s true; it was a failure. Very important intellectual
and political failure, but we can learn from that failure. We can design taxes in a different way now in Europe you have tax competition, you move away from France, you
stop being taxed in France. The U.S. is different taxation
is based on citizenship. Europe did very little
to fight tax evasion through tax havens, it
is changing and the U.S. is doing much more. So the point is that there is an infinity of possible futures in
terms of tax progressivity future policy path. And I’ll conclude with this
last week Esther Duflo won the Nobel Prize in Economics. She has a famous paper which is titled, the “Economists As a Plunder”. And we love that. We view ourselves as as plunders. Look the leaks in the tax system. There are things that don’t
work but we can fix the leaks. We can improve the machinery and if there is a democratic demand
for more economic justice and more tax progressivity,
this can happen. Thank you very much. (audience applauding) Yeah, inviting my colleagues
to join me on the stage. – Thank you president Muyskens for your generous introduction. And thank you Gabriel
for providing highlights from the book and introducing our audience to those rather stunning graphics. So let me just start by
welcoming all of you here on behalf of all of us on the stage. Welcome to the Graduate Center. Welcome to those of you here in the Proshansky auditorium and to those who are
joining us by livestream. So let me start by offering
a very brief outline of the arc of this evening’s conversation. The book that has brought
us here this evening is action-packed as you’ve seen already. It paints a very detailed
portrait of the distribution of the tax burden in
the United States today and historically and it lays out a complex and ambitious set of
proposed policy reforms. So there’s an enormous amount
to consider in 45 minutes. So here’s what you can expect. I’m gonna begin by asking
the authors and the panelists to reflect on the ideal outcomes. What are we aiming to achieve? Second, I’m going to ask some questions about these tax proposals. The overarching question is
will these proposed reforms bring about the intended goals. Third, the book has already
attracted widespread attention as I imagine many of you know, it’s been burning up Twitter especially and I’m going to turn our
attention to some of the critiques that have been discussed publicly and a few that have been
added by our panelists. And finally I’m gonna ask
them to reflect on the theme that also brought us here this evening and that is the interplay
between tax reform, tax justice if you will and democracy. So let me begin with the question of goals and metrics for success. When I was a graduate student
studying public policy, my teachers drilled into
my head the old adage about policy analysis, if
it ain’t broke don’t fix it. So let’s start with the
question, what’s broke? And of course that takes
us to the corollary what are we aiming for. So let me start with Emmanuel and Gabriel. In your book of course
with a focus on the U.S. you highlight two distinct but
intertwined broken elements. Economic inequality has risen sharply and the tax system has grown
increasingly regressive. So my first question to you
is talk to us a little bit about the ideal outcomes. What should we aim for
with respect to levels of economic inequality
and the distribution of the total tax burden and
what criteria or reasoning would shape your answer
to those questions. – Let me get started. We know that our economies grow over time. Thanks you know the
technological progress, all our incomes are rising, that’s what has been happening
over the last two centuries. But for growth to be sustainable, it needs to be equitably distributed and that’s what happened
in the United States after World War II up to 1980, when you look at how economic growth was benefiting each group. It was really the tide
lifting all boats together. Now in the period from
1980 to the present, the picture is totally different. So we crunched all the
numbers and we found that actually the
incomes of the bottom 50% have essentially stagnated. So we are in an economy that doesn’t work for at least half of the
population; the bottom 50%. And while there is macroeconomic growth, that growth is felt only for people you know in the upper-middle class and especially the rich
who are growing like China and that is just not sustainable. And we are seeing you know
the crises coming in protests, you know, disenchantment
with the current situation and our view is that, this is fixable. If society wants to fix the
problem of unequal growth, there are tools that the
government or that society can use through its government and here in our book we
propose a blueprint for that. So our criterion for success, let’s make sure that moving
forward economic growth is equitably distributed. – Thank you. Lily let me ask you to
weigh your on that question. How do you think about the goals in terms of economic inequality
and the distribution of the tax burden and
what are the criteria and metrics for success. – I think it’s hard to say
exactly what the ideal is, but that we are quite far from it. Ultimately that’s a choice for the voters, but there is a lot of space for the U.S to narrow disparities
and income and wealth. And I would add
intergenerational mobility. So we have the second highest level of income inequality among
OECD high-income countries with the highest level
of wealth inequality and we also have very low levels of intergenerational mobility. So another CUNY Professor
Miles Korac has written a lot about this. But to a large extent in the U.S, a child’s economic outcomes are determined by their parents socioeconomic status. And so I think all over those are reasons why we’re at least in my view, very far from the ideal. In terms of you know how to address this, one, I would probably
collapse both the tax and transfer system, there’s also things before either of those
like the minimum wage that are important, but
one can redistribute through either and the
U.S. has tended compared to European countries to
rely a bit more heavily on the tax system than
the transfer system. Rather we rely sort of equally
and in European countries rely very heavily on transfers. And if that’s the way we like
to do things that’s fine, but it does imply that we
then need to be raising a lot more revenue from the very wealthy, because we may not support
as much broad-based taxes like a VAT as European countries do. – Like I think many people
in the sort of center lift I’m basically rolls in. That is basically what I want as a society which is the society I would choose if I didn’t know who I was going to be. And which is means that
strong since money matters relatively little to people at the top and a lot to people further down. It means the society where you try to have relatively low inequality a high safety net and so on. How far you would want to go on that is a tough question. You would start to think about how do you value different
kinds of families. How do you value how
concave is people’s utility and income all these questions. Which turn out I think in
practice to be not important because the one thing that’s clear is that where we are now is way off to the side from where we ought to be. And that anything that is
likely to happen politically in the lifetimes of any
of us on the stage here is gonna fall far short of
where you would want to go. And if we look at those
advanced countries that do a much much more redistribution
than the United States does, none of them appears to be, appears to have gone too far. Even Denmark, there’s no real
sign that any economic damage is done by their redistributive policies. So the answer is just
more as much as we can get and you know, however much
of the your tax before and will however much of the
additional social programs we can get, take everything we can because we’re very unlikely to overshoot. (audience applauding) – What do we want more? Actually Paul that was a great segue because now I do want
to turn our attention to the tax proposals themselves, for those of you who are, get
excited by policy analysis this is the book for you. So we didn’t give Gabriel a lot of time to really describe the tax plan. And I do wanna give them time. So the tax proposals that are
that are laid on this book are assuming I’m reading
it properly essentially, it’s a tax plan with four legs really. And those are the following briefly, they call for reforming corporate taxation aimed at among other goals
consolidating taxation across national borders. A second for reforming income
taxation aimed at again with multiple goals
equalizing tax liability across categories of income in
particular labor and capital. Third and the piece that’s
gotten so much attention in the last week’s launching
a high-end wealth tax with the key goals including
weakening incentives to hide income in side wealth, which I assume you’ll
talk about a little bit and reducing the accumulation
of pre-tax wealth and the fourth is something they call a national income tax specifically to fund health and education. So my question or my request is, to either of you treat us to your, I’m sorry this is a terrible cliche, but treat us to your elevator speech and that is the two minute
summary or maybe three minutes of the logic underlying
the tax reform package. Why these four overarching
components and why not others. – So let me try. The four components are important. The corporate income tax is
important because right now with the low corporate
income tax rate of 21%, there is a danger. The danger is that the
progressive income tax is going to be undermined. The reason for that is when
the corporate income tax rate is too low what rich people do is they incorporate, they become companies, they earn income through
the corporation’s subject to the 21% rate and if they
don’t need the money to consume they keep saving them
money in the cooperation. And so, in effect the
progressive income tax becomes a mere consumption tax. So that’s the problem. You need to fix that. It’s will be impossible
for instance for the U.S. to increase the top modern
income tax rate tomorrow to 70% without fixing first
the corporate income tax. And fixing the corporate tax, means making a serious effort
at fighting tax havens, tax competition and profit shifting. And what we explain is basically. The form of globalization
that would embrace so far characterized by tax competition is not the only possible
form of globalization. Instead of tax competition,
we can have tax harmonization. So for instance we could make an agreement on minimum corporate tax, a condition for signing
new free trade agreements. Putting taxes at the center
of free trade agreements. You can increase no global
corporate tax rates like that and you safeguard the
progressive individual income tax and once you fix the corporate tax, you can fix the income
tax, you can increase the top marginal income
tax rates that’s easy. But if you fix the individual income tax and we get to the third part of the plan, you’re not addressing all the problems. You still have the Warren Buffett problem that I described briefly, which is look, if you had a 90% of modern income tax rate and taxable income, Buffett’s
tax bill would change from 0% of his true economic income to 0% of his true economy income which is still a bit too low. And so the proper way to tax billionaires who can earn a ton of wealth while having little taxable
income is through a wealth tax or to put it differently, there are two indicators of your capacity to pay taxes, income and wealth. And the fourth component is look, if you want to collect much
more revenue in the U.S. and that’s important for health,
for education, for child, you know family benefits. The way that European
countries do that is the VAT value-added tax and we
think it’s outdated. And we think that the U.S.
could leapfrog the VAT and create an attack that’s
broader and less regressive than the VAT which we
call a national income tax which instead of taxing
consumption like the VAT, we tax all income. So that’s the plan. – Before I move on to ask the panelists. Let me ask one specific question and again for Emanuel and Gabriel. The package that you
proposed is is very elegant and the four pieces as
you just suggested Gabriel are intertwined what
happens if it comes apart. If you get the income tax
and the wealth tax fails or you know the corporate
tax is shifted, but the etc. Can the four pieces operate independently because they’re all bold. So what happens if you
get one or two of them and not the other two. Will the mountain collapse. – Let me respond to that one. Fixing just the income tax is the more moderate candidates
on the Democratic platform you know that’s going back to the rates we had under Obama or under
the Clinton administration fixing some loopholes in
the individual income tax and that’s good to do. It’s probably not going to
dramatically change the picture of the problem of inequality
in the United States. Fixing the corporate tax rate
that has been really damaged by the Trump administration, now it raises very little income is a very high priority, because if we fail there the
whole system gets undermined. The wealth tax comes on
top if you’re more radical and you really want to
tackle the accumulation of great wealth more aggressively. The national income tax is important if you want to be ambitious to develop the U.S. social welfare state and we hear a lot in the news about medicare-for-all proposal. So just in a nutshell the reason why the current health
care system in the U.S. is not sustainable, it’s because in the U.S. the worker has to pay full price regardless of his wage. So if you have health
insurance through your employer and now you know, it’s
mandated employers have to offer it essentially
the worker bears the burden because it’s paid by the
employer but effectively it’s part of the labor cost, so it reduces the
compensation one for one. And so, the average cost
of a health care plan is like $13,000 for highly paid professors that’s not that much, but if you make only $40,000
it’s an bearable burden. And that’s why in the book we describe those cost as an extra tax
that’s not run by the government it’s run through employers. The government has told
the employers you have to manage this piece and
it’s a tax per worker, very unfair and unsustainable with increasing health care costs. And if you want to replace
that by your funding based on ability to
pay, you have to develop one of these new you know broad tax. And if you do that well you can
get the workers pay increase buy what they currently
pay or their employer pay and the next change of that
they would have to pay a tax but the tax won’t be as
big if you’re is low. – Lily, let me ask you to to step in. I think of Lily as one of the
great tax geeks over the world So the question would be and of course, I know you’ve reviewed
this four legged stool or such as it is, which components of this Saez-Zucman tax proposal
especially excite you which have the most promise to achieve their intended consequences
and which components worry you? – I think they’re exciting. I think the wealth tax clearly has captured the political imagination. And I think with good reason. It’s a way to raise a
large amount of revenue from the very wealthy,
it has some advantages which I could discuss
relative to other options for raising revenue from the wealthy. It can’t be avoided by
investing in multinationals that shift their profits overseas, because their stock
price will reflect that and so that would also be
taxed by the wealth tax. I’d say my one worry or
one of my worries about it which we may get to is
the constitutional risk, but I also thought the
International proposals were really interesting. So there’s sort of a hybrid
of some other proposals out there, President Obama
had proposed a minimum tax. We actually have a minimum tax now that was one of the elements
of the 2017 tax reform. Although not in the form that
I would particularly support. I think their form would
be much more advisable. And then there’s been a
lot of discussion over time about allocating the worldwide
profits of multinationals by their location of their sales. And this is something that
OCED is actively considering. What I thought was
really clever in the book is they talk about sort
of combining these two and saying let’s have a minimum tax and then let’s say the U.S. if we get 20% of the sales of a company, we can collect 20% of,
tax on 20% of that income plus 20% of however they fall short from a global minimum tax. And so, that way we can
sort of pick up the extra if other countries don’t
impose the minimum tax which is a way to induce more cooperation. So I thought that was really interesting. I’d say one other component I mentioned that might slightly worry me although it’s really just a friendly amendment is the proposal to tax
capital gains at the same rate as ordinary income, which in general I think is a fabulous idea. My one concern is the way
that Congress’s estimators estimate increasing
the capital gains rate. They think that if we increase it even by maybe six percentage points from now that it might start losing
revenue because of something we have called the realization role, where people don’t have to
pay the capital gains tax till they sell the asset. There is an indication that
revenue maximizing rate would increase quite dramatically, if we repealed a loophole
that allows all capital gains to be tax-exempt upon death. And I’m guessing that would
be a friendly amendment. If you went above maybe 50%, then you need to start
thinking about something called an accrual tax which is
taxing gains as they accrue rather than waiting till they’re realized. So those would be some other things I might put on the table
as compliments to that. Although I generally love the
idea of taxing capital gains the same as ordinary income. – Thank you very much
and we’re gonna come back to the questions of both constitutionality and also revenue maximization. And talk a little bit about
some of the critiques. We’re not gonna just have
a lovefest all evening here ’cause that wouldn’t be interesting. There’s been quite a lot of debate online about many aspects of
this and I wanna raise a few of them, three actually, but before I do, I actually
have a question for Paul. We’ve been talking about the book, actually the whole Stone
Center has been talking about the book kind of around the clock for the last at least two days or more. So Paul as we were talking you you raised a fundamental methodological
question or challenge. You suggested that the book, the size document approach
might be producing clear and consistent answers
perhaps to the wrong question. So would you elaborate on that. – Yeah, so let me just say
that this is a fabulous book, it’s incredible work and is
eye-opening on many fronts which is, so nothing I say should be taken as diminishing in any sense the praise. This is a landmark piece of work. Here’s my concern. What a lot of people are going
to take away from the book is basically the giant flat tax chart. And that chart is now there’s a whole that’s quite different
from what many other people in the tax area would say and
there a lot of that has to do with painfully technical issues, which the Stone Center and I have to say, I don’t sure I can definitions
of income and all of that and I really rather not think about those, but anyway that it’s a sort of
16 tylenol level stuff there But there’s a there’s a
fundamental difference between the way you guys do it and
the way most people do it, which is that most
estimates do things like try to allocate the corporate tax, saying that some part of the corporate tax is borne by workers and they
do this, we do this all along we do estimates of tax incidence and you guys have a very
principled explanation. I found that October working
paper extremely helpful of why you don’t want to do that. You just want to say this
is what people actually pay which is a way that is consistent with the national income accounts and I understand all of
that, but in some sense it’s and you want make
very clear distinction between the distribution of taxes and the effects of tax reform. Trouble is that almost
all policy questions are about the effects of tax reform which is what you deliberately
you’re still doing. I mean, I battled joke about the guy who’s in a balloon that’s
been blown off course and he passes over somebody on the ground and yells down to him, where am I and the guy says you’re in a balloon. And it’s a… This specific case here is, what what do we want to
say about the 2017 tax cut. Big cut in corporate taxes,
the theory of the case which some not entirely
crazy economist bought was that this would lead to
massive inflow of capital from the world which would drive down the rate of return on capital, drive up wages so that in effect that it was really a tax cut for workers. I believe that that was not true and I think evidence is
suggesting that’s not true, but that is a question
that involves exactly the kinds of behavioral
responses that you guys leave out and I think that’s something
that there’s you do not do this but there’s a kind of a
structural bait-and-switch that might happen as
people look at your chart, use your tool and think
that it is telling them what the effects of tax
reform are going to be which it doesn’t necessarily do. – Now that’s a great question and we’ve thought very hard about that. And let me try to defend
the methodology that we use. So we totally agree that
taxes effect behavior. The corporate tax the
standard theory says, you tax profits and
investment is going to fall and there’s going to be
less capital in the economy and capital makes workers productive and so with less capital
wages will be lower. And that’s fine you know,
that’s a plausible theory. It’s difficult to test
and we’re not denying that this is possible in theory, but you cannot study the world as it is or as it was last year with that framework. That is last year there
was a certain level of national income, a certain
distribution of income that already reflected all the
behavioral responses to taxes So maybe if the corporate
tax had been lower last year, wages would have been
higher, but the corporate tax was what it was and wages
were where they were and to analyze that world, the real world the real data
not a counterfactual world, to analyze the world
as it is and as it was, the only meaningful way is
to say look wages adjusted, taxes had all sorts of effects
and after these adjustments took place, what the corporate
tax did is very simple, it reduced the amount of dividends that shareholders could receive and it reduced the amount of profits that shareholders could
reinvest in their companies. And so, in effect it was
taxed on shareholders and by the same logic,
you know payroll taxes whether remitted by employers
or employees is irrelevant they reduced the labor compensation. There was a wedge between
the labor cost for employers and what workers received. And so they reduced the wage of workers. So that’s how we think that
you should study the past. Now the future and I agree with you, we care both about the past
and kind of putting numbers and creating series that
reveal how the U.S. has changed and we also care about the future and to analyze the future
you want to do differently. You want to have behavioral responses, you want to say if the
corporate tax was increased, not only the tax rate of
shareholders would change but also the incomes of the various groups of the population would change and you need to be explicit about that. But you can only make that
to think about the future, about the counterfactual world and you can do that to
think about the actual world with its actual level and
distribution of income. – Can I just say I think the distinction between past and future
is not that clear here. If we if you’re comparing
the progressivity of the tax system in 1960,
with the progressivity of the tax system in 2019, the question we truly want answered is how did those changes in
taxes affect where we are, which is in effect it’s
a tax policy change. It’s just saying these are
the facts on what was paid does not answer that question. – Very quickly what I would say is, maybe you know when the
corporate tax was very high in the 50s and 60s, maybe depressed wages, who knows maybe, if we
believe the standoff theories, but if you want to say that then you need to be explicit about the fact that wages could have been higher
in the 50s and in the 60s and the do corporate
tax reduced those wages and no that’s not what we are doing. What we are saying is the
wages they were may be lower than they could have
been and in that context, where the corporate tax
did know was reducing how much shareholders could get in income. – Can I just have 45 more seconds. This can sound like it’s
always behavior arguments are always in favor of the right, but not necessarily,
one of the areas that, one of the the best case
I’ve seen for minimum wages as opposed to purely wage
subsidies is the claim that wage subsidies may be
partially passed on to employers and so you would be missing in this frame we’ll be missing that
case for minimum wages. – 30 seconds just to
answer another follow-up and just on this and what
would be the effect of if we followed like the
standard methodology because it’s an interesting question. Can you redo your series
with the standard methodology and what you would get is
that the tax system would be even less progressive
in fact more regressive, because if you allocate
part of the corporate tax to workers instead of
allocating it all of it to shareholders, then you’re going to have a higher tax rates for ordinary workers and lower tax rates for shareholders. And so these giant flat
tax that becomes regressive at the very top will in fact
be even more aggressive. – Thank you. I’m gonna just push this onto our that’s what we’re gonna
continue later clearly. There are two issues that have come up in a lot of the public
reactions to the wealth tax and they’re somewhat unrelated, but I’m gonna pose them both to you Lily and a two-part question because I know you’ve written about both of these. I think everybody obviously
can pick up on this it’s the wealth tax piece in the book that’s gotten so much
attention and it partly because the plan that they have described is now one that’s been
supported by Senator Warren and something as sort of, something related to
it now also by Sanders. So to critiques that have
gotten a lot of airtime. The Economist Larry Summers argues that the revenue
estimates are wildly high. In fact he claims that the
revenue estimates are high by a factor of eight, that’s a big number. So partly drawing in other
countries experience Summers and its colleague Natasha
Sarin have reestimated this and again as I said they think that Emmanuel and
Gabriel’s revenue estimates are just absurdly high. So Lily I know… So my first question is
can you relatively briefly help our audience to sort of
sort out fact from fiction. Who’s right? And the second question
which you alluded to which is a completely
different area of discussion is the argument that the
wealth tax is unconstitutional. So could you comment on both of those. – So in terms of the
Sarin and Summers critique this is something she
mentioned that I am a tax geek which I proudly agree with. This has been a subject to
great about being a tax geeks But there’s really sort of five
issues in trying to estimate how much a wealth tax would raise. So one is just how much
wealth is there in the U.S. and how is there distributed, how is it distributed before taxes. And before we really got into this debate, I have not realized how uncertain that is. We don’t have great data on wealth and there’s sort of three different ways to try to estimate it and you end up with very different results, both for the aggregate amount of wealth, but particularly for how its distributed across the wealth distribution. The second is how a wealth
tax would affect this figure. So would there be real
behavioral responses of people saving less. The third is what would be tax avoidance and evasion to a wealth tax. And then the last two are sort of, how could a wealth tax
proposal get watered down. Either through the legislative process or through the regulatory and lobbying process that follows. So as Janet mentioned
Sarin and Summers estimate much lower revenues raised
from a wealth tax depending on which number you’re
focusing on 60 to 88% less. I should have sighs that
none of these as far as I can tell our revenue estimates
in the congressional sense of assuming real behavioral responses. And that’s not a terribly
crazy idea in the sense that savings isn’t terribly
responsive to taxes at current levels, but
if you’re actually going to put this proposal through Congress, the estimators would incorporate some real behavioral response. But the big difference
between Sarin and Summers and Gabriel and Emmanuel’s estimates, a lot of it is methodological. They are extrapolating Sarin and Summers from a state tax data
which just systematically generates lower estimates
of how much wealth there is at the very top. There are some methodological differences that might be 16 tylenols also, I would say several of them, I think probably Gabriel and
Emanuel have the better case. And so, that would you know
maybe reduce the differential to 30% less revenue rather
than 60 88% less revenue. The remainder is really about
tax avoidance and evasion and they assume a 15%
avoidance evasion rate, you know nobody knows for
certain what that’s gonna be. The one caution I would give
about the sarin and summers estimates is they are looking
at the estate tax evasion rate And there are ways in which
one can evade the estate tax that don’t really work with a wealth tax. So at the estate tax and the gift tax, they’re part of the same thing are only imposed once per generation and a lot of the avoidance
techniques involve taking that one point in time and artificially and temporarily devaluing
the value of assets that are transferred and then
lifting those restrictions and that just doesn’t work
under an annual wealth tax because then you need to keep
those restrictions in place. So I tend to think the estate
tax for a bunch of reasons is not a great model there, that said, so much will
depend on if a wealth tax was enacted how it is drafted what regulations are issued under it and I think another critique that they’re sort of implicitly raising is that it will be drafted poorly and
there’ll be lots of loopholes And I don’t think that’s really, I don’t think it’s fair
to assume that a proposal will be changed in ways that
the person is not proposing, but I do think as we
think of different options for taxing the wealthy,
we want to think about which ones are most
likely to get watered down through lobbying et cetera. I personally think on
this score a wealth tax is actually pretty good because
it enables policy makers to write on a blank slate. And a lot of the income tax
has a lot of preferences that if you went that route
are likely to be incorporated. So I’ll shift to constitutionality. Constitutionality, so this
all goes back to a provision in the Constitution that
says that all direct taxes must be apportioned among the states. And this provision originate well and that’s a problem because
then you would be saying that if there’s a wealth
tax and it’s a direct tax, then people in Mississippi on average have to pay the same amount of wealth
tax as someone in New York even though New Yorkers are
in general more wealthy. So this goes back to the
three-fifths compromise, not a great period in
our nation’s history, where we decided to say that
people who were held in slavery were only counted as
three-fifths of a person for purposes of congressional seats and also for revenue purposes. So that in and of itself
might be a reason a court would say you know, it’s been a long time we’re not sure if there’s ambiguity that we want to strike down a
wealth tax on those grounds. But if they don’t feel that
way the big issue is that it’s just not clear what a direct tax is. So during the constitutional convention, Madison wrote in his
notes that someone asks what do you mean by a direct tax and then he writes, no one answered. (all laughing) There have been some cases, I won’t go through the gory details, but it’s really unclear what
is meant by a direct tax and whether it includes a wealth tax. And I think when you have
that degree of ambiguity, it leaves it up to the large extent to the Supreme Court justices
to vote their conscience and given how the court has
is currently constituted I think that creates a real risk that this could be struck down. Justice Roberts has already said something in a prior case suggesting he might think a wealth tax was unconstitutional. On the other hand I could also
see him taking the approach that he did in the ACA
legislation of this is major bill passed by Congress, I’m gonna
respect what Congress has done and especially when the
Constitution is ambiguous, I’m gonna do that, but I
think all of this means there’s a real risk that in
my mind counsels for reasons that I could go into that a
wealth tax should be framed as a part of the income tax
which is clearly constitutional under the 16th Amendment or
potentially there should be a hybrid where you say,
we’re enacting a wealth tax and if the Supreme Court
says it’s unconstitutional then our backup is we’re
doing an accrual tax or something that’s very
similar to a wealth tax, but is even more clearly part
of the income tax system. – Thank you, thank you. That’s why we have a law professor here. And we do still have a Constitution as of this morning, I hope so. I haven’t heard any news today. So I don’t really know. I’m gonna be speaking of, I’m gonna turn our attention
to the question of democracy and again that’s the framework
that has brought us here, this evening, the Graduate Center as President Muyskens
mentioned is in the middle of a two-year initiative supported by the Carnegie Foundation on the question of the promise and perils of democracy and the theme for this autumn is what are the current threats to democracy. This book is really, I think
fits just extremely well in this discussion. So Emanuel and Gabriel
throughout the book you argue squarely that inequities in
the U.S. tax system represent a fundamental threat
to American democracy, the tax system you described
as a system of plutocracy and you note that the wealthy have an ever-increasing capacity
to shape policy making in government for their own benefit. So let’s just take a closer look. In your discussion
beyond the Laffer curve. I think most of you probably
remember from econ 101 the Laffer curve famously
drawn on a napkin is the curve that’s supposed to tell us which tax rate is going
to maximize revenue, you argue in the book that
deconcentrating inequality may justify designing a tax system that does not maximize revenue. Isn’t that economic heresy, are you gonna lose your
licenses to practice economics and have to become plumbers. How will you defend a tax
plan that is designed not to maximize revenue. What’s the argument in terms of– – We are going to be excommunicated, I think from the economics
profession for that chapter and other things that we do in the book. But we’re doing this for good reasons. And what we’re trying to do in the book is to help the public
reconnect with the history and the tradition of tax progressivity and tax justice that’s been
so important in the U.S. You know you have two traditions and we start the book
by telling this history. there is a strong
anti-tax, anti-government, anti-democracy tradition that’s
largely enrooted in slavery and you see that when you
look at the tax systems of you know Virginia in the 19thcentury. And there is also a progressive tradition that says look an extreme
concentration of wealth in and of itself is a bad thing. It’s corrosive for society,
for the social compact. And so one of the roles of the tax system, the main role of the tax
time is to generate revenue and for that you don’t want
to be on the wrong side of the Laffer curve when revenue falls, when you increase the tax rate. But another very important
role of the tax system and historically that’s played a big role in U.S. society is to limit
the concentration of wealth. You see that with the
the speech by Roosevelt that I mentioned, you
know this idea that nobody should earn more than a certain income, why what’s the reasoning behind that. The reasoning is that for
most of the population wealth is safety, security is a good thing, but for the very very rich wealth is not safety, wealth is power. And so an extreme concentration of wealth means an extreme concentration of power. The power to influence policy making, the power to influence markets and you want to use the tax system, you might want to use the tax system to reduce this power and
to regulate inequality. And we think that’s an important rational. – Emmanuel do you wanna add to that before we turn to our other economists that seem to please the audience through (audience applauding) Paul let me ask you to to comment on this sort of larger topic. Are there trade-offs between
standard fiscal policy goals, implementing optimal tax
rates and balancing budgets and maximizing growth on the one hand and reducing economic
inequality in the service of strengthening democracy
on the other hand. And if so, how should fiscal policy makers address these trade-offs. – So first of all, I
think is there’s your case that that in some sense
increased wealth at the top is not only sort of irrelevant
back to your positive bad. That’s a very American tradition. I mean Woodrow Wilson I think said if there are men big enough
to buy the government, they will buy the government and to just curbing
extreme wealth at the top is a valuable goal in itself. The fact that no one would
in American politics today would dare say such a
thing when they would when people you doesn’t
think of it as radicals where will need to say this a century ago it’s telling us something. And I also think, I think
is tremendously important to say that you know GDP is not a goal. the economy is about people. And one of the things that
I really learned before this work but from manual from
your work with Peter diamond is that if we want to think about how much should we
tax people at the top, the first thing we should be
saying is we don’t really care how much income they have and
really they don’t care either at a fundamental level. And so, the goal is basically
to extract as much revenue and if that reduces GDP, but
doesn’t reduce the incomes of anybody below the top
point 0.1% no one cares. We shouldn’t care. I actually thought maybe this is more of a vague impression from the book, but I actually ended up feeling
a little more optimistic about the role of wealth and politics, because a lot of the history you give of how tax rates came down so much is, it was not so much there
was crude influence wielding by I mean, there clearly there is that but it’s not just that that you know, the Koch brothers bought
themselves a lower tax rate. A lot of it is the
perception by technocrats, by policy people that there’s
too much tax avoidance that we’re engaged in
international tax competition and that we need to bring down the rates. And to that to the extent
that that it was is sincere and I think at least is
to some extent sincere. If we can make the case
that that is not true that there’s much more scope
for taxing corporate profits that’s much more scope
for taxing high incomes than people have been claiming, then that can make a big difference. I think probably the best argument for higher corporate taxation we can make is the discovery that all of
those overseas investments or a very large part of
those overseas investments are not real, that that
all of the the money it’s not that people are,
it’s not the corporations are building factories and
in in low tax in Ireland, they’re just recording
their profits in Ireland and that’s a pretty
empower full revelation. It suggests that the
need to have low taxes to keep business in the United States is much less than that has been claimed. – Thank you. Just a couple more questions
on this under the rubric of thinking about democracy
in a sort of larger way. So another question for
Emmanuel and Gabriel and then for the others if they’d like. The book is of course
about tax policy largely and you say much less about social policy. So I want you to reflect
a little bit on the link between achieving these tax reforms and winning social policy
and labor market reforms, you know, on the one hand the tax reforms and social policy and
labor market reforms. So what I mean by that
is that many observers of the United States
argue that U.S. workers and their families need many things access to universal health
insurance, universal pre-K affordable housing, sick pay and a host of labor market
regulations and reforms. The U.S. meager Social Protection system also corrupts the democratic process. So my question for you is
do you feel some obligation to link your proposed
tax reforms to proposals for social and labor market policy reform. And if I could add to that,
do you think the candidates you’re advising on tax policy
should also be obligated to spell out these links. – Yeah, so this is a very good question. So governments they reflect
you know the values of society and they do many things. So on one part we pull
together a significant fraction of our income through taxes
even in the U.S. you know where we don’t like taxes that merge, we still pull together you
know 28% of our incomes and we do that to do a number of things; pay for programs,
transfers, fund education, healthcare, retirement. And our book is about taxes. It’s one aspect of government, we are not claiming we’re capturing everything that’s critical. taxes are going to be central
at the high in command because they really regulate concentration of income and wealth, but
obviously many other aspects of current policies, how
you use government funds which programs, you funded more broadly what sort of regulations you have , you know to increase the
power of the workers, to negotiate better wages,
minimum wage, union, power is very important and candidates, I should say you know just me
they look at all those things. Their platforms are not only about taxes. So it’s not like we’re
claiming those things are not interesting. We are tax experts inequality
experts, we wrote about taxes. We’ve done working on how
transfers affect the distribution of income and maybe that would
be the topic for another book – Paul or Lily any comment on that. Not on their next book but
on the larger question. – I’m looking forward to that. I mean, I think a lot of
why it is so interesting and important to be raising
taxes on the wealthy is to fund programs that are gonna benefit the middle class and low-income workers. And so, it’s really important to keep those two goals in mind. And I think a political candidate would not necessarily
be advised to only talk about the spinach and
not about the dessert, but in a serious book
those are two big issues to explore and I think it makes sense to peel off one of them. You know going back to your
revenue maximizing question, I think reasonable people
can disagree on the one hand there clearly are cost to our democracy and to our sense of community for having real extreme
concentrations of wealth at the top. On the other hand if you go
past the revenue maximizing rate you have less revenue potentially than you could otherwise
for social programs. The good news I think is that
we are nowhere near that level So going back to Paul’s comment, I think we can go a lot further on taxing, the wealthy before you need to be worried about exceeding the
revenue maximizing rate. – So this is time for
my last question then, taxing the wealthy. So a political question. It’s election season, again I hope we’re still
having an election. One worries I haven’t heard
any news since this morning. So I think we’re still having an election. – You missed a lot. – We are? Yeah I get that. Assuming we’re still having an election, Gabriel you and I were
talking about this yesterday. For the first time in quite
a long time Americans seem to be willing to discuss
the idea of a wealth tax and obviously at least three candidates are now supporting that. Why now? Why do we think we have
this openness specifically to wealth tax and do you think that this is politically sustainable. And I’m curious to hear from you and the others if you
have a thought about that. – I can start, I think one
reason is the growing realization that wealth inequality has
increased tremendously. It was not super clear
and a few years ago, now it’s very clear, you know the data you know with the survey
data, tax data you’d rise in wealth concentration
over the last decades. The second thing is there
was the trend tax reform in 2017 kind of forced
all Democrats to come up with an alternative and since there is so much wealth at the top, it’s natural to to think
about wealth taxation. Third is the the power of ideas. Thomas Piketty’s book 2014, makes the case for global wealth taxation and people talk a lot about that and ideas matter in the world. – Last couple of thoughts,
Paul and Lily last thoughts. – I wanna grab our
colleague less than we call and bring her on stage here, because my understanding is that polling has pretty much always
showed strong support for higher taxes on the wealthy. – [Janet] A wealth tax? – I’m not sure that people understand the distinction between a wealth tax and just higher taxes on the wealthy. But they the idea of making
the tax system substantially more progressive at the top has long been politically popular, the question is why politicians
are willing to say it now. It has been always something
that would play well. I think that comes to issues about the changing structure
of the Democratic Party, the decline of the if you like
the neoliberal establishment and maybe also in a weird way, the fact that our politics
are now so awash in money that any candidate is going
to have plenty of money to saturate the airwaves past the point of boredom and intolerance. So the candidates don’t need
the support of billionaires to be a you know serious contenders. – Emmanuel can I give you the last word. – You know that taxes are
of the people for the people and they are to be decided democratically. So please use our tool build
your favorite tax system, explore what the candidates are doing, complete their plans engage
in the tax policy debate. – Well, it is my sad duty
to bring us to a close. So if I may say so, thank you. (audience applauding)

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