We couldn’t contain our favorite listener voicemails in one Ask Nick Anything episode, so we made two! Why does the middle class pay an income tax? Are unions cool? Nick and Trae answer eight more questions in this follow-up to last week’s must-listen episode.
Trae Crowder is a comedian and co-author of ‘The Liberal Redneck Manifesto: Draggin’ Dixie Outta the Dark’. Trae has earned national attention for his “Liberal Redneck” series of viral videos. He has been performing his particular brand of Southern-friend intellectual comedy in the Southeast for the past six years, and is now on the WellRED Comedy Tour with fellow comedians and writing partners Drew Morgan and Corey Ryan Forrester.
Sydney: So I was wondering if you all could take a few minutes to address the issues of tax avoidance in America and offshore tax havens available to corporations.
Paul Lamb: What would be the economic impact of forgiving all U.S. Student loan debt?
Jackie: Hi, my name is Jackie. I am a working business economist in Chicago.
Casey Rogers: Hi, this is Casey Rogers. I’m calling from the unfortunate state of Louisiana.
Speaker 5: From the offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics with Nick Hanauer, where we explore everything you wished you learned in Econ 101.
Nick: So here we are again, in another episode of Pitchfork Economics and I am joined by my friend Trae Crowder.
Trae: Hi Nick.
Nick: Hey Trae. The comedian who, how did we meet? We met in L.A.?
Trae: Yeah. You as far as I could tell, parachuted out of a private jet into my backyard in Burbank.
Nick: I did. I did yeah, that’s how I roll. I carry a parachute at all times.
Trae: We did some video stuff together at my house in Burbank.
Nick: That’s right.
Trae: And yeah, I think I asked you … you were there already and shortly after you got there and we heard a helicopter in the distance and I was like, “A-ha is that Nick’s helicopter or whatever?” And you’re like, “No, mine’s still in Washington” or something like that. Actually, where’s my helicopter? It’s somewhere.
Nick: Yeah. Yeah, exactly. No, I don’t have a helicopter, sad. I wish I had a helicopter. But anyway, yeah we’ve been partners doing stuff having to do with economics and narrative for a while and it’s super fun to have Trae here at world headquarters of Civic Ventures in Seattle WA, to talk about economics and to stumble our way through complicated and baffling listener questions, which is what we did last time and which, what we will attempt to do again now.
Trae: Oh, I’ll stumble. Don’t worry. No attempts.
Nick: We can have a stumbling competition.
Paul Lamb: Hi Nick. Thanks for the great show. My name’s Paul Lamb. I live in Toronto, Canada and I would be interested to know what would be the economic impact of forgiving all U.S. Student loan debt? You see a lot of naysayers claim it would be apocalyptic. I would be curious to know what your thoughts were on the matter. Thank you and thanks for the great show. Bye bye.
Nick: Paul. That’s an awesome question and thank you for calling from my second favorite country, Canada. Trae, do you have any student debt?
Trae: I mean I did, but thanks to you coming to my house and doing those videos with me. No, just thanks to various things. I paid mine off a little over a year ago. But yeah, I definitely had student loan debt and pretty much everybody I know who is college educated does and some of it is pretty outrageous.
Nick: How much did you [tally 00:03:20]? Like at the peak, how much did you owe?
Trae: I mean this sincerely, even though I might sound ridiculous, I only owed about $20,000.
Nick: Oh, that’s not bad.
Trae: No, well look I grew up super poor and made really good grades. So I had scholarships and also a federal grant, pale grants flowing and still worked the whole time I was in college and still had some student loan debt by the time I got out. But yeah, my sister-in-law’s a pharmacist and she has six figures plus of student loan debt, yeah.
Nick: So Paul to your question, if memory serves the accumulated student debt in the United States now, is it about $1.3 trillion and it affects, I think 40 million individuals. And eliminating all that debt would be, in my opinion, a fantastic idea. Something that we could very, very easily do, and here’s how I know we could do it because we just passed a giant tax cut for rich people that will cost about $1.5 trillion and we could afford to do that. So clearly, the reason that we don’t wipe out student debt is that we have persuaded ourselves, again coming back to the theme of Pitchfork Economics and attacking neo-liberalism, that tax cuts for rich people creates growth. Investments in the middle class will bankrupt our great country, right? So take the same trillion dollars. Under this sort of regime of thought, if you give the trillion dollars in tax cuts to rich people and big corporations, that’s good for the economy.
If you take the same trillion dollars and wipe out the debt for tens of millions of ordinary Americans, middle class Americans, that will bankrupt the country. This is crazy and absurd and obviously it will benefit the economy much more to get all these folks, 40 million people out from under this insane amount of debt. I mean forget how it will impact their lives and make it better. Think about what it would do for the economy to free all these people up to actually start buying stuff, right? Not a one of those people can participate fully in the economy today because they’re saddled with all this debt.
And I also want to say for all the people who are listening who are like, “Well, I paid for college, blah, blah, blah.” Here’s the thing I played for college, I did. You know how much it cost me to go to the University of Washington a year? $650 a year. Because in my day, in the olden times we had an economic system where college was treated as a public good and taxpayers pay down the cost of tuition and what happened over 40 years in neo-liberalism is that we shifted that burden from taxpayers on to students. And so anyway, I think it’d be a terrific idea. And so Paul, we are going to go deep on this subject in an upcoming episode of Pitchfork Economics devoted entirely to the idea of debt free college. So stay tuned for that.
Jackie: Hi, my name is Jackie. I am a working business economist in Chicago and love you and the work that you’re doing on Pitchfork Economics, I love you very irrationally. And I would love to hear you talk about the relationship between wages and inflation on your show if you haven’t already done so and also perhaps throw in monetary supply as policy, that would be great. There is someone renewed focus right now around using money supply more aggressively in policy than in the past rather than using just inflation targeting. So it would be great to hear about that and keep up the good work. Thank you.
Trae: I want to say off top Jackie that I don’t think there’s anything irrational about loving Nick, just so you know. It’s not weird at all or anything.
Nick: I was just telling myself that.
Trae: Yeah. Yeah, every morning in the mirror people should love you.
Nick: Yeah, right. What does it, what did Stuart Smalley say? I’m good enough, I’m smart enough, doggone it, people irrationally love me. But thank you so much.
Trae: But [crosstalk 00:08:02] inflation, so it seems pretty out of whack to me. One thing that I used to, I would be so pissed about all the time when I got out of college and got this desk job working for the government that extensively paid well and everything was that I did not have a four bedroom house with a two car garage and a boat and all this shit. I was always told this is how America works if you don’t live in a trailer, like I grew up in. I was like, “When’s my boat show up?” You know what I mean? I thought that was the idea. You used to be able to get a job at a factory and have a wife and family and own your own home and all this. And that just doesn’t happen anymore. And that’s the reason why wages have not kept up with the cost of everything else.
Nick: That’s right. And in particular Trae, the stuff that you mentioned, which is a house or education or health care, the inflation of those things has wildly outstripped wages. But Jackie’s question around wages and inflation is a really interesting one and definitely one that confuses people because it’s easy to think that if wages go up, like if we doubled the minimum wage, wouldn’t that just double the cost of everything and wouldn’t we either be in the same spot or worse off?
Trae: I feel like that’s a general belief that people seem to have. Is that well if you just pay people more, well then everything will just cost more. So it will be totally negated anyway.
Nick: And there are two ways in which that’s not true. The first is that profit as a percent of GDP are almost double today what they were consistently in the middle part of the last century, they’ve gone from about 5% of GDP to about 10% of GDP. And the truth is that companies-
Trae: Isn’t that because of them taking more of the income as profit as opposed to things like wages [crosstalk 00:10:16]?
Nick: Wages, yes exactly. So wages went down, profits went up. So wages can go up a whole bunch. In fact, wages could go up $1 trillion a year in our economy and profits could go down $1 trillion a year and profits would simply be more normalized to where they used to be, that’s point one. The second point is that wages usually make up a small part of the cost of things. So as I recall, the total cost of labor for Walmart is about 10% of sales. So of course you can raise wages a bunch, but that will only increase profits a tiny bit and Walmart indeed could afford to not charge anything more even if they did that.
John: This is John from Arizona and this is my question. A progressive income tax code comes in varying degrees. How do we know when it’s progressive enough to meet the needs of society?
Nick: John from Arizona, that’s an excellent question and I don’t think that there’s probably a definitive answer to that.
Trae: I appreciate you looking at me just now as though I might have any insight on whether or not there’s a definitive … no, there’s not a definitive answer as far as I’m concerned. Yeah, yeah. It ain’t it right now to tell you that much.
Nick: And so one of the big problems with the tax code right now is that for most rich people, most income is not ordinary income. It’s not the income that you make getting paid from your job, it’s income that comes from investments. And that income isn’t taxed progressively, it’s taxed at the capital gain rates of around 25%. So for most rich, really rich people, most income is taxed at a lower rate than middle-class people are taxed at 33% or something like that. So that’s pretty crazy. And here’s what we know from history is that there was a point in the American past when the marginal tax rates were 70 or even 90%.
Trae: Some good years too. Well for white people really. But we ain’t going to get in all that. That’s a different podcast.
Nick: That is a different podcast. But for sure, during those years, in the 50s and 60s the American economy grew faster than it ever has since. And the rates of political polarization were also lower than they’ve ever been.
Trae: Those are also the same times when those people worked at a factory and had the houses and cars and stuff.
Nick: Exactly. And so what we know from history is that you can have an economy where rich people pay way, way, way, way higher tax rates than they do currently. And you can have an economy that the vast majority of people prefer.
Trae: This time with women and minorities included.
Trae: But yeah, we could do it.
Nick: That would be awesome We could do it.
Frank: Hi, this is Frank from Georgia. I have two questions. One, I was wondering what your opinion on investment apps is like Stash and Acorns and Robinhood. And I was also wondering what your opinion on a sales tax or federal sales tax, like the fair tax or fat tax would be? That’s it. Thank you.
Trae: I mean, I don’t have any idea about this answer either, Frank, but you don’t have an answer for it?
Nick: I have no idea about those investment apps.
Trae: Well how about this? Frank did it. You’re just not an app guy, like in general?
Nick: I’m not an app guy, I have a team.
Trae: I’m more of a team guy than an app guy.
Nick: Yeah, yeah. I honestly can’t speak to the investment apps. I suppose some of them are okay and some of them aren’t, but do not take my advice on this matter. But on your other question-
Trae: Did he say sales tax or [crosstalk 00:14:11]?
Nick: Fat tax, which is a value added to drinks.
Trae: Right, yeah.
Nick: Yeah. So on your other question, which has to do with a value added tax or a national sales tax, I actually think that is a terrific idea in some way, shape or form to replace other taxes because here’s the thing is that there’s a whole ton of taxes that we have that people have gotten really, really good at sneaking out from under. Certainly corporate income taxes, one of those egregious examples where Amazon-
Trae: There’s loopholes and ways to get around doing it, but if you’re taxing a thing that a person’s buying, if you buy that thing you’re going to have to pay that tax. You don’t get a tax lawyer involved when you buy a new car or whatever.
Nick: Yeah, exactly. And I did generally subscribe to the idea that you want to have taxes that are as broad as possible and low and I think that almost every other successfully industrialized country has some sort of a VAT, a value added tax because in general they’re a really good idea to spread the tax burden around and not let people sneak out from under it.
Sydney: Hi, my name is Sydney. I am calling from Knoxville, Tennessee. Big fan of the podcast by the way. My question is, I wanted to ask about taxes. Specifically an issue that I think is being overlooked or that I think should be brought up more going into 2020 before we discuss any new taxation on how to pay for social programs that a lot of the mainstream in America is advocating for right now as far as progressive policies, we need to talk about tax avoidance and tax, offshore tax havens that are available to corporations. So I was wondering if you all could take a few minutes to address the issues of tax avoidance in America and offshore tax havens available to corporations. Thanks so much.
Trae: So first of all, Sydney, how’s your mom in Knoxville? My old stomping grounds. Go [Vaults 00:16:16]. I don’t know if this is exactly what she was getting at, but I think this is the type of thing that I see all the time and I’m sure she does too, living in Knoxville. But it was just a huge thing around where I’m from, where black people focus on welfare and food stamps, Welfare Queens, people we’re abusing those systems. And that’s where all the wasted money goes or where all the money is wasted at the way they talk about it. But they don’t say anything about corporate welfare or these offshore accounts and all this type of thing we we’re just touching on a minute ago where people get around, the super rich get around paying their fair share in the first place or a huge percent of Walmart’s employees are on food stamps so Walmart is essentially on food stamps.
They’re being subsidized and they’re one of the biggest corporations on planet earth and people on the right where I’m from, at least they never ever talk about that stuff. They focus instead entirely on, “We need to be drug testing these lazy ass welfare people.” Like that type of thing when it’s a drop in the bucket compared to what the corporations are doing in the first place.
Nick: And what truly rich people are doing with their money. And I think tax evasion, of course it’s hard to get your fingers exactly, put your finger exactly on how big it is, but the estimates I’ve seen are that something like one in $6 of taxes collected is actually evaded. So in the range of 15 to 20% of taxes get kind of evaded. I’m not sure if I said that right, exactly but you get the point. And if I had to guess, it would be in the range of 80 to 90% of that would be stuff that rich people did because poor people can’t evade taxes. Like most of the taxes you pay as a poor person are your payroll taxes. What are you going to do? There’s not, you can’t-
Trae: It gets taken out before you ever even see it.
Nick: Yeah, yeah. And or the property tax charged in your rent, right? Or the sales tax charged in your gasoline. So the vast majority of real tax evasion comes at the top and we should put those people in jail and there should be really, really severe penalties for this kind of stuff. And we should fund the hell out of the IRS to make folks who do that live lives in living hell. I just, there’s no other alternative to stop this than that.
Paul: Hi Nick, this is Paul. I’m calling from Texas. I love what you guys are doing. And I have a question and I don’t know if I can explain it as well as you could, but let me just try. I would like for you to do something on subsidies. It seems like the major emphasis on taxation is taxing the rich. They’re talking about taxing everyone. Could we not look at subsidies and try to derive money from that way? Because it doesn’t seem like anybody wants to talk about subsidies. So if you could educate us on it in your way, I would appreciate it. Nick, thank you for all you do for everybody. Thank you very much and have a good one. Bye.
Trae: This is another one of those, Paul, where I’m right there with you in wanting to hear Nick’s explanation of this.
Nick: Yeah. No, I mean I think Paul, you struggled to ask that question, but I think that’s because it’s a complicated question, but you are absolutely on the right track, which is that there’s all sorts of things that go on in our economy that are less obvious than how much tax, what the tax rate is on rich people or whatever it is. There’s hundreds of billions of dollars that we spend essentially in benefits and tax breaks, and the vast majority of those benefit the wealthiest people. So a great example of this is the hundred something billion, $120 billion or something like that that we spend every year on the mortgage interest deduction. Now I know people love them, their deduction, but the only people who get the benefit of that $120 billion are obviously people who buy houses and in particular people who buy expensive houses.
Then if you do the math, what you find is that two thirds of the benefit of that $120 billion, so about $80 billion is flowing entirely to people in the top 20% of the income distribution. And basically none of that benefit is flowing to the people in the bottom 60% of the income distribution because only about a third of Americans even itemize, right?
Trae: And you’re saying that’s like indicative of how a lot of those types of programs or measures often work? They disproportionately impact rich people to begin with?
Trae: Because of the nature of what being poor is?
Nick: And because these subsidies are designed to make being rich easier and you could take that $120 billion and you could divide it by the number of people in households in America and send everybody a check every year, right? So that person making $20,000 a year living in an apartment would get an equal share of that $120 billion a year as the jillionaire living in the giant penthouse. This would be a far fairer way to split up that $120 billion subsidy and I think would benefit the country a lot.
Jonathan: Hey Nick, my name is Jonathan [Leaf 00:22:29] and I’m calling from Richmond, Virginia, and my question is this. Franklin Roosevelt said, “Taxes shall levy according to ability to pay. That is the only American principle.” Let’s think about that for a moment. According to Pew Research, 83.5% of Americans make less than a $100k and that’s households. Those households pay just under 20% of the taxes. They pay 19.5% of taxes. But Americans are drowning in debt. So why do we have any of these households paying any income taxes at all? And if you are curious about finding the research on that, look for Pew Research a closer look at who does and doesn’t pay U.S. Income Taxes. Thanks, take care.
Trae: Well that’s … Why do we have any of these people paying any income taxes at all? It’s like, well hell I mean somebody’s got to pay taxes to this damn country. You know what I mean? Because the rich they’re going to pay as little as they possibly can. But no, I mean what is the answer?
Nick: Yeah. So one of the really … so your point Jonathan, you put out a really interesting thing which is that we have to find a fair tax system that burdens people in proportion to how they can pay. And one of the things folks on the right will always say about the tax system today is, “Well the rich pay all the taxes.” And if you actually look at where the tax revenue comes from, it is true that rich people are paying almost all of it.
Trae: But they have all the money.
Nick: Exactly, exactly. And the reason that so many people in the bottom deciles have so much debt and the reason they have so much trouble paying their bills and the reason they don’t really have the capacity to pay taxes is because their wages have been suppressed for 40 years.
Trae: So that the rich people could have more money.
Nick: Exactly. And so the problem isn’t the way in which we have organized the tax code in my opinion, the problem is the way in which we have organized how we pay people. If you fix the pay thing, the tax problem goes away. If you double the median income from $59,000 to $120,000 which by the way is where basically it would be if the typical family had fully benefited in productivity over the last 40 years, then those folks wouldn’t have any debt and they would be able to pay tax. And that’s the heart of the problem, not the tax system.
Casey Rogers: Hi, this is Casey Rogers. I’m calling from the unfortunate state of Louisiana. And my question is this, do you believe American companies are suppressing wages by labeling workers in entry level positions as unskilled workers, regardless of what education or work experience they bring into the position?
Trae: All right. So Casey I want to say off top that you’re really selling Louisiana short there. Louisiana has the best food in this entire country, some of the best music and funnest people also. So Louisiana’s got some stuff to offer. But having said that, Nick you want to talk about the actual question? [crosstalk 00:26:02] I think the answer to her question is yeah, probably they’re suppressing it. Without even knowing the details, I’m going to say probably because that’d be a shitty thing to do, so I’m sure they’re doing it.
Nick: Exactly. It’s the relentless logic of neo-liberalism. What’s the worst thing we could do? Let’s do that. So absolutely, they are doing that. And one of the most pernicious ideas of trickle down economics is in neo-liberalism and neoclassical economics is that if you’re paid a crappy wage, it’s because you deserve a crappy wage and you’re unskilled, right?
And that is just straight up oppression, right? That’s just exploitation. The truth is, if you’re paid a crappy wage by one of these giant companies that’s mostly doing it, it’s because those people are assholes and are exploiting you. And we have supported that exploitation with our policies. There is no earthly reason why folks shouldn’t earn enough to get by without food stamps and Medicare and the rest of it. And indeed those companies could afford to pay people well and decently. And so definitely one of the most pernicious things that’s happening in the economy is this narrative about how poor people are poor because they deserve it. Because they’re unskilled.
Trae: Right. If they don’t like being poor why don’t they get some skills and get a better job and then they won’t be poor anymore.
Nick: Exactly and that is straight up bullshit. The truth is that the people at the bottom of the pay scale in our society today are not less skilled than the factory workers who worked in Detroit earned.
Trae: No. I don’t know how to do almost any of the shit that they do. I guess I’m pretty unskilled to be fair, but you know what I’m trying to say, those are skills. Every job entails some kind of skill.
Nick: It does, it does. And the person that works at Walmart today is not less skilled than the person that worked for GM in Detroit in the 60s and earned a dignified middle-class wage. The only difference was that the worker at GM had a union in power that could negotiate a fair split of what the company made, and the worker at Walmart has no power. And that’s the bottom line. So that whole, all that skills talk, that’s just exploitation and just being really unfair.
Keith: This is Keith from Vancouver, Canada. Nick, the declining union density equals decline in employee power. When employers have too much power, workers don’t do very well. Are you in favor of reforming labor laws to increase union density to European levels or do you see good alternative to unions that will restore the balance of power and lead to living wages and decent benefits?
Trae: Okay, before you answer this real quick, I’m just want to say you’re kind of starting to freak me out because it’s like you anticipate what some of the next questions are going to be or whatever. Because you were just touching on unions at the end of the last question, then we go straight into this guy who wants to know about unions.
Nick: It all fits together in this magical way, doesn’t it? Yeah. And we have been rolling these ideas around in our heads for a really long time. And Keith from Vancouver, thanks for asking the question about union density. So for sure there is a direct correlation between declining union density and the shittiness of the lives of ordinary people.
Trae: Before unions were a thing, people were literally, like a worker would fall into a meat grinder and they’re like, “Well, I guess he goes in the next shipment of Spam or whatever.” You know what I mean? They didn’t give a shit about the people that worked for them until unions became a thing and forced them to start in the first place. You have to … without unions man, we’d all be in rough shape.
Nick: And the economy isn’t this physical entity. It’s a set of relationships based on power and unions are the only thing that we’ve ever come up with really to give workers power, except when we use laws that people pass to substitute for power, like raising the minimum wage, which is just sort of the national union, you could sort of think of it like that. So I am wildly in favor of laws that increase worker power. But Keith, the American version of unions is an imperfect one because it organizes on the basis not of industry or region, but a firm.
And so we ended up in this really crappy spot where you, if you have a situation where one firm in an industry gets unionized, it is existentially threatened if the other firms don’t get unionized, right? Because if I pay 20 bucks an hour and you pay 10, then that’s super bad. Now if we’re both paying $20 an hour in the same industry. Well that may be inconvenient and we may complain and whine-
Trae: And they tell all their employees that type of stuff. They’ll tell them directly. It’s like, “Look, you try to unionize, you’re just going to lose your job, all of you.” So what would you rather do? Have a job and not be in a union or try to unionize and just lose your job altogether? And of course most people are going to be like, “Oh, I guess we better not then.”
Nick: Exactly, exactly. And so there are forms of unionization and worker organization that are way better. Like sectorial bargaining, regional bargaining. These are way, way better ideas because they lead to more stable outcomes and frankly they lead to situations in where labor and business owners can collaborate more rather than fight more. And I think that ultimately that’s where we have to get to. We have to have policies that head in that direction.
Thanks again everybody and thank you Trae.
Trae: Thank you.
Nick: We’ll see you on down the road.
Trae: That was good.
I feel kind of weird now because that’s a thing that I say to people a lot and I didn’t realize it was that you know …
Speaker 14: Pitchfork Economics is produced by Civic Ventures. The magic happens in Seattle in partnership with Larj Media. That’s L-A-R-J Media and the Young Turks Network. Find us on Twitter and Facebook at Civic Action. Follow our writing on Medium at Civic Skunkworks and peak behind the podcast scenes on Instagram at Pitchfork Economics. And one more, you should definitely follow Nick on Twitter @NickHanauer. As always, a big thank you to our guests and thanks to you for listening from our team at Civic Ventures, Nick Hanauer, Zach Silk, Justin Pharell, Jasmine Weaver, Stephanie Ervin, David Goldstein, Paul Constant, Steven [Pelini 00:00:33:23], and Annie [Finkley 00:33:24]. See you next week.