Over the last 50 years, nearly $79 trillion that could have gone to the bottom 90%…didn’t.
Where did it go—and what did that cost you?
Nick and Goldy are joined by Carter Price, senior mathematician at the RAND Corporation, to break down how rising inequality reshaped wages, growth, and even the federal budget—and why the economy feels so disconnected from everyday life. Because this isn’t just about who got richer. It’s about what everyone else lost.
Carter Price is a Senior Mathematician at the RAND Corporation and Professor of Policy Analysis at the RAND School of Public Policy
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Further reading:
Measuring the Income Gap from 1975 to 2023
RAND Budget Model: Groundbreaking insights into the everyday impacts of federal policy
Unlocking the Tax Code with RAND’s Tax Code Analysis Tool
Preliminary Strategies for Reducing the Burden of Federal Debt
Impacts of the Retirement Savings for Americans Act
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Nick Hanauer:
The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory.
Goldy:
The last five decades of trickle-down economics haven’t worked, but what’s the alternative?
Nick Hanauer:
Middle out economics is the answer.
Goldy:
Because the middle class is the source of growth, not its consequence.
Nick Hanauer:
That’s right.
Announcer:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Goldy:
One thing I know about the last 50 years, Nick, is that it has been a tremendous half century for people like you and your friends.
Nick Hanauer:
I know. And nobody has been more effective at demonstrating the breadth and size of that than our guest today, Carter Price.
Goldy:
That’s right. Yeah.
Carter was one of the lead authors of really a seminal study about five years ago that, to be fair, we helped instigate, your money helped pay for it, which showed the… Essentially was a counterfactual, which tried to take a look at what would have happened if the level of inequality that we had in the mid 1970s, in 1975, when the economy was far more equal than it is today, what would have happened if that level of inequality had remained constant? How much better off would the bottom 90% of Americans be? And it turned out, I think the technical term, is a lot.
Nick Hanauer:
Yeah. It’s almost inconceivable how different the country would be if we hadn’t screwed it up so bad.
Goldy:
There’s some updated numbers as of 2024, from 1975 to 2024, had inequality remained constant, the bottom 90% of Americans would have earned $79 trillion more than they actually did. That’s in inflation adjusted dollars. And in 2024 dollars, they would have earned $79 trillion more over the previous 50 years. And in 2024 alone, just 2024, the bottom 94% would have earned an additional $4 trillion. And I know these are big numbers. It’s a big economy that may not seem like… What does that mean?
Nick Hanauer:
But if you spread that out over the bottom, let’s say 100 million workers, which is 75% or something like that, that’s 40,000 a piece.
Goldy:
Right.
Nick Hanauer:
That’s how much.
Goldy:
Imagine what you would do with an additional $40,000 a year.
Now, Nick, I can’t imagine because what’s $40,000 to somebody who’s benefited from the past 50 years of rising inequality. But for most people-
Nick Hanauer:
That’s life changing.
Goldy:
… that’s going from median income of what? Sixty, $65,000 to over $100,000 a year. And that makes a big difference.
Inequality matters. It’s had a huge effect on the economy and as it turns out, not just on the incomes of the typical American, but also on the federal budget.
Nick Hanauer:
Yeah. And today, again, we get to talk to our old friend, Carter Price, who is a senior mathematician at the RAND Corporation, whose research focuses on inequality labor markets and economic policy. We worked with Carter for a long time on a lot of these issues, and he is definitely one of the world’s leading experts in his field.
Carter Price:
Hi. I’m Carter Price, a senior mathematician at the RAND Corporation, and we’ve been doing a lot of work on fiscal policy analysis, budget analysis, and are really working to better understand how the economy works and how to make the economy work for everyone.
Nick Hanauer:
That’s awesome.
Goldy:
Great.
Nick Hanauer:
Carter, we wanted to cover a couple of things today. We wanted to start with your recent analysis of the inequality trends, but later in the discussion, talk a little bit about the new model you’re building, because that’s a very exciting development as well. Why don’t you start just explain a little bit about your updated estimate on the way in which income is being distributed in the United States? You did an update to a report you did a few years ago.
Carter Price:
Essentially, everyone knows, and particularly the listeners to this podcast, know that inequality has been rising for many decades, but it wasn’t always that way. In the 1950s and ’60s, if the US economy grew 5%, then income to the bottom, incomes to the top, and income to the middle grew about 5%. And so it really was a period of rising tide lifting all boats. That changed in the 1970s. And so we took a look at what would’ve happened if that didn’t happen. If the economy kept working such that when the economy grew, incomes grew at the middle, at the bottom, and at the top.
Our first study was a study with Kathryn Edwards, who was an economist, colleague of mine, and we looked at it up to 2018, from 1975 to 2018, and found inequality had essentially was costing people about two and a half trillion dollars a year. And if you added it up from 1975 to 2018, that would’ve totaled almost $50 trillion. A few years later, it’s about five years later, I went back and updated the numbers and because of inflation, because of just adding five more years, and it turned out that things had gotten worse in that time period, as far as the concentration at the top, that we came up with a higher number of $79 trillion, so almost 80.
Nick Hanauer:
Yeah. And just to be clear, what you’re saying is that since 1975, effectively, an incremental $79 trillion in income has flowed from the bottom 90% of Americans to the top 1% of Americans. Is that correct?
Carter Price:
Yeah. From the vast majority of working Americans, the 90% up to… It’s really the top 0.2%, but-
Nick Hanauer:
2%.
Carter Price:
That second percent, they don’t get that much. It’s really the top 0.1% that wound up with much higher income.
Nick Hanauer:
Right.
Goldy:
So congratulations, Nick, on the past half century.
Nick Hanauer:
I know.
Goldy:
It’s worked out very well for you.
Nick Hanauer:
Worked so hard. So hard.
Goldy:
Well, we’ve always said, you clearly work a thousand times harder than I do, which explains why you earn a thousand times more money.
Nick Hanauer:
That’s right. It’s simple.
Goldy:
And that annual increase, you said it was about 2.5 trillion in 2018 when you updated the study, what was it? Three and a half trillion a year?
Carter Price:
Yeah. It was almost four. So yeah, it was about-
Goldy:
4 trillion, I think. Yeah. Very close.
Carter Price:
$4 trillion a year, that’s how much more the people in the bottom 90% of the economy would have earned had inequality stayed constant at 1975 levels.
Nick Hanauer:
What’s $4 trillion between friends?
Goldy:
Yes. And that’s out of an economy of what? About 25 trillion that year?
Carter Price:
Yeah, a little less than… Yeah, somewhere between 25 and 30. Yeah.
Goldy:
That’s a sizable chunk. So you can see why maybe people feel a little upset, like the economy’s not working for them, right? They might lash-
Nick Hanauer:
They might object.
So your research doesn’t really say anything about what caused that.
Carter Price:
That’s right. Yeah.
We looked at what was going on, not why it was going on and so looking at the numbers, looking at the trends. But we didn’t try and do any causal analysis. Now, certainly, there is a lot of economists, a lot of sociologists, and other researchers have been working on that. It is very hard to assign blame and say 30% was because of this and 40% because of that.
Nick Hanauer:
You could do that analysis, but you guys have not done that analysis?
Carter Price:
We have not. Yeah.
Goldy:
You can divide it in terms of some of it is due to the falling share of the economy going to labor as opposed to capital, and part of it is due to dramatically rising incomes at the top with stagnant wages at the bottom and the middle.
Carter Price:
Exactly. Yeah. We can describe the mechanics of what happened, but why did corporate profits go up for the last 50 years as a share of the economy and the labor share go down?
Nick Hanauer:
Carter, can you remind me if this is pre-tax, post-tax, pre-redistribution, post-redistribution?
Carter Price:
This is all pre-tax. This is what you get from your employer. When you get paid, this is what you get. And it does include things that don’t come from your employer. So it includes rents, dividends, interest, [inaudible 00:10:14]-
Nick Hanauer:
All income.
Carter Price:
Yeah.
Nick Hanauer:
In your experience with both creating and then talking about these numbers, have you gotten any interesting pushback?
Carter Price:
I think so.
I think that one of the primary objections has been this doesn’t take into account people’s careers. So I start off making not that much money, but then over time, who’s in that top 10%? Who’s in that top 1% changes? Maybe I’m not in the top 1% this year but in the next year, maybe I will be in the top 1%. I think that was one of the primary arguments made against this. It turns out I’m not that convinced by that because-
Nick Hanauer:
No. It’s ridiculous.
Goldy:
Well, because 99%-
Nick Hanauer:
It’s a 50-year-
Goldy:
… of people aren’t going to be in the top 1%?
Nick Hanauer:
Yeah.
Goldy:
[inaudible 00:11:03].
Carter Price:
Yeah. The argument that at some point in your career you might be but if you make a million dollars this year, unless it was you won it in the lottery or you sold your business and you’re retiring, then you’re much more likely to make a million dollars next year because, and if you’re making minimum wage, the likelihood that you’re making a million dollars next year, very unlikely. It certainly happens. People go from working a minimum wage job and then they get drafted in the NBA or something like that. But it’s a very small subset of people that do that.
The other argument that I think warrants some consideration is why is this any of my business? Why is it any of your business what people are making? Yeah. I think-
Nick Hanauer:
What?
Carter Price:
That’s an interesting argument.
Nick Hanauer:
What do you mean? You mean why are we paying attention to this?
Carter Price:
Yeah. And it’s like we live in a society and we want to understand how our society works and that’s why it’s our business. But there is-
Nick Hanauer:
So there are people who legitimately object to even doing this analysis?
Goldy:
Well, Nick-
Nick Hanauer:
I’m not surprised but…
Goldy:
… inequality is evidence that the market is working, right?
Nick Hanauer:
That’s fantastic.
Goldy:
Right? That people like you, you’ve just created all this wealth for society, all this good, and you deserve to be rewarded. And so why should we even look at the numbers because then we might unjustly criticize you?
Nick Hanauer:
Yeah.
Carter, this provides a good segue into what I also want to talk to you about, which is the new model, the new macroeconomic model that you guys are building with help a little bit from me and a lot from our friend, Alexander von Fürstenberg. Tell us a little bit about the model and tell us what you’re doing, why you’re doing it, and then let’s come back and talk about the model’s ability to judge what the economy would have been like if this rising inequality had not occurred, which is a really interesting question to answer. So how fast would GDP have grown? What would government deficits be, et cetera, et cetera, et cetera.
Carter Price:
We’re not the first people to build a budget model. You have the Congressional Budget Office, you have the Penn Wharton budget model, and there’s a relatively new model, the Yale Budget Lab. Each of those groups is approaching the problem in a similar way, but maybe with slightly different assumptions and slightly different viewpoints.
And so why are we jumping in this mix? I think part of it is because it’s important to take into account, look at the problem holistically. So not just focus on, okay, what’s the budgetary effect or what’s the effect to the macroeconomy as measured by GDP?
GDP doesn’t capture… You can have the same amount of GDP if all of the money is going to one person or a handful of people or it’s more evenly distributed. And so it’s not capturing those distributional effects. And so that’s something that we think is really important because when it comes to people’s lived experiences of the economy and of GDP growth, people don’t care if the economy grew 5% if their incomes didn’t grow 5%, or if their incomes grew 5% but prices grew 5%. And so we want to expand what’s captured by these models and therefore expand the policy discussions.
The other thing that we can bring to bear here is I’m not an economist. I’m a mathematician. My training is very different than a lot of people that work in this space and mathematicians have different tools that we use when we approach these problems. The co-director of the budget model of RAND’s budget model is an economist, so we’re not just making stuff up.
Goldy:
Oh, come on. Economists make stuff up all the time.
Carter Price:
You said that, not me.
Goldy:
Yeah. But mathematicians don’t make stuff up. That is true.
Carter Price:
We try not to.
We’re bringing different tools to bear. So for example, instead of looking at the tax code, okay, if we insert this section of the tax code and look at each part individually, what an economist will do is they’ll apply some elasticity or a multiplier. So they’ll take that number and then multiply it by some other number to tell you, “Okay, this is what’s going to happen.” And they do that generally in isolation or maybe they’ll look at it compared to one other thing.
We’ve developed a tool to look at all 7,000 pages of the U.S. tax code, all 1,900 sections, break it down and see how they’re all connected. So when an individual is filling out their tax form, there are 58 different possible tax forms that an individual can fill out and there are 94 different forms that corporations can fill out. Looking at what does that actually mean? Where does that link up to the tax code and then connecting that to other data sources so that we can get a complete picture of the U.S. tax code of the U.S. tax system.
We’re doing something similar, looking at the spending. usaspending.gov has for something 98% of federal spending. Where did it go? What was it spent on? How much money went there? And so we can look at where those dollars are flowing. So instead of looking at everything at here’s one big number, this is the economy or this program, what is it actually doing to people? What is it doing to our economy? Who’s benefiting and who’s paying for it, and how are they paying for it, and how much are they paying for it?
So using the techniques that computer science and data science have revolutionized a lot of fields and it’s drifting into economics too, but really bringing that to bear on these fiscal models.
Goldy:
And the old fiscal models, the CBO model and the Penn Wharton model, they’re not using these modern techniques and tools?
Carter Price:
They’re definitely starting to, and they’ve been taking steps for a long time to adopt these models. We’re essentially doing it from the ground up and we’re trying to make as much of this open source as possible so that they can use our stuff too. In this case, a rising tide lifts all boats where if everybody is starting to adopt these better methods, then everybody gets better analysis. And that’s, I think, good for everybody.
Nick Hanauer:
Yeah.
Goldy:
Right. So this is where the economists come in, they could use the same tools, the tool that you’re developing right now and then just plug in their old assumptions and get very different outcomes from the model than we might?
Carter Price:
Certainly, our hope is for it to be transparent so that by making this open source, if you want to change one of the assumptions and get different numbers, that’s up to you. But you have to specify, “Okay, I’m going to change this assumption.”
Nick Hanauer:
Yeah.
Goldy:
Yeah. It’s been one of my complaints, by the way, the CBO model, whenever it models what a minimum wage increase would do, it always models job losses because built into their model is the assumption that raising the minimum wage has a disappointment effect. It’s just built in. It has to come to that conclusion and-
Carter Price:
Well, the CBO is starting to make a lot of their models open source also. And so they have a GitHub repository where it’s out there and people can look at them and see them. Everybody’s advancing with the times and it is an exciting time to be doing this research because a lot of those old assumptions, a lot of these old models are getting rebuilt and revetted.
Nick Hanauer:
Just tell us where you are on building the model. What’s the status?
Carter Price:
Yeah. So we’ve been releasing papers for a while now, and I guess probably last August was when we came out with our three biggest papers. One describing our tax tool, one describing our spending tool, and one looking at the debt and deficit.
Essentially, the concept behind the debt and deficit piece was we reached this year, or I guess last year, a national debt of roughly 100% of GDP. We don’t include things that we owe to ourselves like Social Security and Medicare. That’s about where we were in 1946 after the Second World War. We paid down that national debt from the Second World War. In 28 years, we got it down to below 30% of GDP.
It was mostly economic growth, but a lot of that was in spending restraint and actually collecting taxes. We’ve dug ourselves into this 100% of GDP whole over about 50 years. From the same time period that all these other bad things happened that we discussed in those other papers, we got in a lot of debt and we looked at a way that you could reasonably get back to that 1974 level in 30 years. It took us 50 years to get into this problem. I think we can get out of it in 30 years.
Nick Hanauer:
What does it take to get out of it?
Goldy:
I’m guessing taxing you, Nick, but I’ll let Carter explain.
Carter Price:
Well, we looked at different combinations of options. Taxing alone, spending cuts alone, economic growth alone are not likely to get us there. And so it will likely take some combination of that.
So keeping the deficit below 3% of GDP and then letting economic growth and inflation take care of the rest would be one way to do it. And then it’s up to policymakers to figure out, “Okay, how do we get our national debt, our national deficit below 3%?”
Nick Hanauer:
But Carter, as I recall, from our earlier conversations, one of the really striking findings was that in an economy where inequality didn’t rise in the way that it did over the last 50 years, and median worker did retain effectively their same share of GDP, we wouldn’t have deficits.
Carter Price:
Yes, that’s very likely true and-
Nick Hanauer:
It’s directionally, I mean, not to the dollar, but it’s directionally correct.
Carter Price:
Absolutely. The tax proceeds would’ve been higher, the spending on safety net programs would’ve been lower.
Nick Hanauer:
Would’ve been lower. Right.
Carter Price:
And we would not be in the same fiscal situation we are now.
Nick Hanauer:
Yeah. Just to expand on that thought, which I think is really, really, really important, in one way, our budget deficits are not a consequence of… By the way, Social Security is threatened, is not a consequence of profligate spending, although we have done that, and it’s mostly a consequence of tax cuts, rich people, and wage suppression for everybody else. And that if people… In round terms, if the median worker had retained their same share of income from 1975, then they’d make effectively twice as much money per year.
Carter Price:
Yeah, in that ballpark, yeah.
Nick Hanauer:
What that means, of course, is that if the median family in America made twice as much as they do presently, they’d probably be paying four times as much tax, right? Because not only… They wouldn’t just pay twice as much in tax, they would probably bump up into a higher tax bracket.
Carter Price:
Payroll tax generation would be higher.
Nick Hanauer:
Yeah. Everything, everything. And Social Security contributions, we hire… Everything. And of course, now people don’t need food stamps and they don’t need EITC and the rest of it.
Goldy:
And housing, heating, oil.
Nick Hanauer:
Well, everything.
Goldy:
Yeah.
Nick Hanauer:
I think what’s important for Americans to understand is that our fiscal crisis is largely a product of our inequality crisis, and that if we had managed our economy in a fundamentally different way, then we would really probably not have the budget deficits that we have today, because everybody would be paying a lot more taxes, except maybe people at the very tippy top.
Goldy:
Also, the economy would’ve grown faster.
Nick Hanauer:
Right. Can you speak to that?
Carter Price:
So that’s not something that we did as part of this. There was many years ago, I did work on a study looking at that, and that there is substantial evidence that more equal economies grow faster than less equal economies. And that’s a really interesting area of study and the economists have put up a lot of ideas about why that is, and that’s-
Nick Hanauer:
Okay, but it’s pretty simple, isn’t it?
Carter Price:
Yeah.
Nick Hanauer:
It’s pretty simple.
If people have twice as much money, they will definitely buy twice as many things. And when they buy twice as many things, people will have to employ twice as many people and so on and so forth. This is not a complicated concept.
Goldy:
Nick has talked about this for a decade, that he may earn a thousand times more than me. He may have a thousand times more than me, but he doesn’t eat a thousand times more food.
Nick Hanauer:
No.
Goldy:
Despite all of his fancy houses, he doesn’t spend a thousand times more on housing. He doesn’t buy-
Nick Hanauer:
More haircuts or-
Goldy:
… thousand times more clothing. There’s just no way for him to spend the money as if you took that and you distributed that out to a thousand people and they would spend the money, more of that money than he does.
Carter Price:
And the economy would look different too, in the sense that if you have fewer people with, at the very top, maybe you have fewer luxury car dealerships or things like that, and you have more mid-market restaurants and better mid-market cars than the high-end luxury stuff.
Nick Hanauer:
Yeah, absolutely.
I think you could very convincingly argue that not only would the economy be bigger, but it would be more innovative because the more robust and diverse demand is, there are more incentive for innovation that exists, right?
I do think it’s, Carter, maybe you guys know the number, but I believe now something like 80% of the consumption in the economy comes down to the top 20% of Americans, or maybe it’s top 10% of Americans today. It’s some crazy skewed number. And of course, that concentration diminishes the reason that businesses have to either create themselves or to be created or for people within businesses to create new products for large and robust markets. And so you slow down that feedback loop between innovation and demand that is what the economy really is.
Carter Price:
Yeah. And one of the other risks that that has is when your economy relies so much on so few people, any disruption there can be really problematic.
So as part of a different study, we looked at what would happen if AI resulted in mass layoffs and particularly among white collar workers. Well, white collar workers are the highest earnings segment of the population. And if you had a big disruption among that top, somewhere in that top 10%, that could really damage the broader economy because the segment is responsible for a large share of consumption. And when you put all your eggs in one basket and then something disrupts that basket could be very painful for the economy broadly and how the pain would trickle down if the-
Goldy:
It will do more than trickle down.
Carter Price:
Yeah.
Nick Hanauer:
Yeah. Yeah, it will.
Tell us a little bit about the future of this model.
Carter Price:
We have maybe next week, maybe in two weeks, we’ll put out another big installment of the tax tool. For that, we can look at the complexity of the tax code, how the tax code has changed over the last hundred years, do a lot of, I think, very innovative work about how the tax code fits together as a whole, and so that will be coming out soon. And then we’re doing more work on how might investments in different segments of the population pay off in the long term.
So we had a study on the Retirement Security for Americans Act, RSAA. About half of Americans don’t have access to 401ks from their employer and so if there were a government program that helped there that provided matching support for those workers, what would that look like? One of the things that we found was that it would greatly diminish the needs for supplemental security income for seniors and also Medicaid for seniors. That those first few years, if people have assets, as soon as they retire, they don’t need to hop on these safety net programs.
And it turns out that if you get enough participation in these accounts, that that could lead to net savings for the federal government. So that could be deficit neutral, not in the 10-year window that’s typically used to assess these things, but by 20, 25, 30 years out, these things could wind up paying for themselves. Essentially after you have people that are participating for long enough in these programs that when they actually do retire, that you see the benefit.
Nick Hanauer:
What you just said raises another, I think, really interesting point that people should know about, which is that one of the profound weaknesses of a lot of these conventional models is they only look out 10 years.
Carter Price:
Yeah.
Nick Hanauer:
So any long-term investment, the canonical example being a preschool for little kids will look like a dead loss if you only look at it 10 years, because obviously a 12-year-old who got great preschool is not going to be generating a lot of GDP or benefit in the broader economy, but if you go out 30 years, that investment may look like the smartest thing you ever did.
Carter Price:
Yeah.
Nick Hanauer:
Yeah.
Goldy:
The 10 years is longer than the actuarial estimate for remaining lifespan for the average senate committee chair. So why would you want to look out any longer because the world won’t exist for them beyond 10 years?
Carter Price:
One thing I’ll note on this Retirement Savings for Americans Act is that President Trump in the State of the Union address announced they Trump retirement account, and so that’s a variant of this Retirement Savings for Americans Act that captures some of that. And so that may wind up being something that could benefit that 50% of American workers that don’t have access to a 401k.
Nick Hanauer:
Yeah. Tell us what else you’re working on. I know you’ve got some other pretty interesting things that…
Carter Price:
Yeah. I think the budget model, one of the other studies we have on the budget model is looking at science and technology spending across the federal government. And so really understanding how the federal government invests in science and technology, how does that affect local communities in terms of if you have a research university in your community, there’s a lot of money that’s flowing to those universities from the federal government and that has an economic effect on those communities.
But in addition to that, we don’t invest in science and technology purely because it’s cool. We also expect things from it. And so it has larger effects on our economy and helps us have such an innovative economy. That aspect of our economy is in many sense as the enemy of the world, really understanding how that works.
Nick Hanauer:
Can we go back to the tax model that you’ve created? I just want to ask a couple of followup questions about that. Can you tell us, so we understand it better, what kind of questions you can answer with that model?
Goldy:
And how is that different from the traditional models?
Nick Hanauer:
Yeah.
Carter Price:
For example, one of the things that changed as part of some recent tax legislation was the depreciation, how research and development is depreciated, and instead of being immediately depreciated, it’s over five years. And so that’s something that, okay, it’s the same amount of money, it’s just spread out a little differently so what kind of effect would you expect that to have? Well, it turns out that you had big layoffs among R&D staff at Microsoft and other places like that, that were tied to that.
And so linking these changes in the tax code to the IRS forms, so we know, okay, who is actually exposed to this? So when you tweak this section, what other things does it touch? Understanding how changes in one part of the tax code affect other things because section 199A is all about qualified business income and deductions associated with that. And so if you tweak something there, that’s really important to S-corps. It’s really important to a lot of different types of businesses. And so understanding how the small change here might flow into other parts and affect behavior elsewhere. That’s something we’re hoping to capture.
Nick Hanauer:
Just using the example that you raise, are you saying that it seems likely that because it effectively got more expensive to do R&D because the depreciation was spread out more over five years, people reduced their budgets. Is that the causal or correlative link that your data suggests?
Carter Price:
Yeah. That’s something that the news reports at the time attributed to that. And that makes sense from a business standpoint that if I can’t expend something in the year that I incur it and I have to spread it out over five years, if there’s a lot more uncertainty there, then I might want to change my behavior and reduce the spending so that-
Nick Hanauer:
Okay, lower my risk and so on and so forth. Interesting.
Carter Price:
Yeah.
Nick Hanauer:
Okay. Can you think of other examples?
Carter Price:
Yeah. It turns out that there were three different programs associated with alternative fuel vehicles and electrical vehicles. So there’s three different programs that were on the books and you only actually saw action in one where people were participating in one and not so much in the other two. Similarly, you’ll have different types of credits that are available for different groups and understanding how many people are claiming these, do you actually need these other two special carve outs, or why have three when you could just have one?
We also looked at by industry, all of the different sections of the tax code that are devoted to different sectors, and unsurprisingly, the insurance and finance sector of the economy has by far the most special sections in the tax code and they pay on the lower end of effective tax rates. If you look at the profits, they pay less on taxes than, say, manufacturing, where you have many fewer special carve outs for manufacturing.
Goldy:
They’re the most productive members of the society, the finance people. So why wouldn’t they pay a lower effective rate?
Carter Price:
Yeah. And so understanding how different industries are treated differently and what effects does that have on businesses on our economy more broadly. So really-
Nick Hanauer:
So you could effectively print out a table of effective tax rates by industry?
Carter Price:
Yeah, I have it.
Nick Hanauer:
Do you really?
Carter Price:
I’m not sure I can pull it up right right now-
Goldy:
Nick is going to ask for that.
Carter Price:
… but I might be able to pull it up right right now.
Nick Hanauer:
Well, send it to us and we’ll put it in the show notes. That’s fantastic. Yeah.
Carter Price:
It’ll be in the document that comes out in a few days, next week or two. So yeah, I’ll make sure to send out to you.
Nick Hanauer:
Yeah. Great. Is it embarrassing?
Carter Price:
Embarrassing to whom, I guess.
Goldy:
I don’t know. What’s the think tank industry look like?
Carter Price:
So we’re, I think, fall into professional services, but RAND is a nonprofit, nonpartisan research organization so 501(c)(3) actually do have a lot of special provisions in the tax code, but it’s more things that prevent us from doing certain things. I can’t do political activity. I can’t do things like that.
Nick Hanauer:
I love the idea of the tax rate by industry. That’s a great thing to know about. Just a great thing to know about.
Carter Price:
We have a figure that shows the… The way we mapped it was the number of special provisions in the tax code and then the effect of rate.
Nick Hanauer:
I cannot wait to see it.
Goldy:
Nick, we should probably get to the final question.
Nick Hanauer:
Why do you do this work?
Carter Price:
I’m from Arkansas originally, and Arkansas is consistently one of the poorest states in the country and I couldn’t do the kind of work that I want to do if I stayed there. And I think it’s really unfortunate that our country can’t work for everybody.
Nick Hanauer:
Well, thank you. Thank you. And it’s always super interesting to talk to you, Carter. You’re always working on such amazing and interesting and consequential things, and we can’t wait for the next update but for sure, send us the new stuff. Can’t wait to see it.
I must say. This modeling stuff is so complex that it’s hard to hold it all in your head and if you’re not working on it every day, really hard to conceptualize what the challenges are and what the benefits are of taking different approaches and so on and so forth. But it was fun to hear Carter talk about the kinds of questions that they could answer by doing this stuff in different way.
And in particular, I’m just on pins and needles waiting to hear what… I love that stack rank of tax burden by industry and connected to the number of exemptions in the tax code that these folks get. That’s shining a light on a thing that I’ll bet you a lot of people would prefer no one knows about.
Goldy:
What would be interesting, Nick, would then to be combined that with lobbying dollar expenditures per industry, and then we can see the return on investment of lobbying.
Nick Hanauer:
Yes. Yeah. No, that’s a good idea. That’s a great idea. Yeah.
Goldy:
I’ll tell you what stood out to me from this conversation.
We started off talking about the past half century of rising inequality and how that has stagnated the incomes of the bottom 90%. And then we also talked about when we got to the budget models, the past half century of rising national debt that we had gotten from that post-war level of a debt equal to 100% of GDP, all the way down to 30% of GDP during that era, the three decades where we had the most… We built the largest and most prosperous-
Nick Hanauer:
Surprise.
Goldy:
… middle class the world has ever seen. We had incomes at the bottom, the middle, rising actually a little faster than those at the top, but at all levels, roughly with economic growth, we had the lowest levels of income and wealth inequality the world had ever seen. And then in the half century that followed, when inequality took off and we created a world of billionaires and centibillionaires, oh my God, at the same time, we’ve seen debt as a percentage of GDP rise back up from that 30% level to 100% of GDP and got to wonder if the two are a little related.
I know-
Nick Hanauer:
Obviously.
Goldy:
… correlation does not equal causation.
Nick Hanauer:
No, it’s obvious. It’s obvious. Of course, it’s obvious. It can’t not be. It can’t not be true, right? Again, if people made twice as much money, they would pay way more tax. They would need way less support.
And of course, the other thing that happened at the same time is that the tax burden, the tax rates on the biggest corporations fell in half, we went from a 45% tax rate for corporations to a 20% tax rate for corporations. We went from a 50% effective tax rate for rich people to effectively a 20% effective tax rate on rich people. And the rest is history, right?
Goldy:
Right. Remember near the end of the Clinton administration-
Nick Hanauer:
No. We were paying down the deficit.
Goldy:
We were paying down the deficit. We were paying down the debt.
Nick Hanauer:
Yeah. That’s right we did. Yeah.
Goldy:
We had certain pluses. And there was a study a couple years back that if you took out the extraordinary expenses of dealing with the 2008 financial collapse and COVID, there were some extraordinary expenses there, if you took those out, those were emergency measures that all of the deficit of the past 25 years were due to the attributable to the Bush and Trump tax cuts, that if not for those tax cuts, we would have had no deficits in those intervening years. And of course, if you didn’t have deficits, you wouldn’t have had rising interest on the debt, so you would have had lower overall debt across the board.
So a lot of it has to do both with rising in equality, the upward redistribution of income and wealth to the very top and then at the same time, lowering the top marginal tax rates on these people that now hold so much more of the nation’s wealth than they did 50 years ago. Obviously, it’s related in many ways, both in terms of reducing growth and increasing deficits.
Nick Hanauer:
That’s right. Milton Friedman-
Goldy:
So I guess my-
Nick Hanauer:
… would be so proud.
Goldy:
This is the world he wrote…
Nick Hanauer:
Yeah.
Goldy:
Oh, well, anyway, we will provide some links in the show notes if you want to learn more about how… I’m assuming most of you listening to this, you’ve been screwed by the past 50 years of the economy and you can read more about the work that Carter has been doing.
Nick Hanauer:
All right.
Freddy:
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