This week, Nick and Goldy are joined by Michael Graetz to discuss his new book, “The Power to Destroy: How the Anti-Tax Movement Hijacked America.” Graetz asserts that while the anti-tax movement is often overlooked, it has shaped policy by intertwining with issues of race and economic ideology, diverging from Keynesian economics in favor of neoliberal supply-side economics that results in extreme wealth accumulation at the top. He argues for major tax reforms, including a carbon tax and the implementation of a value-added tax, as potential solutions to creating a more equitable and sustainable tax code that would benefit the middle class. Their conversation also revisits the historical origins of the anti-tax movement in the United States and highlights how tax policy is not just shaped by economic theory— it’s also shaped by cultural and social differences.
Michael Graetz is a professor emeritus at Columbia Law School and Yale Law School and a leading authority on tax politics and policy. He served in the U.S. Treasury’s Office of Tax Policy and is the author and co-author of many books, including Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth and The Burger Court and the Rise of the Judicial Right.
Further reading:
The Power to Destroy: How the Antitax Movement Hijacked America
The Graetz Competitive Tax Plan, Updated for 2022
Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth
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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.
Speaker 2:
It’s time to build our economy from the bottom up and from the middle out, not the top down.
Nick Hanauer:
Middle out economics is the answer.
Speaker 2:
Because Wall Street didn’t build this country, great middle class built this country.
Nick Hanauer:
The more the middle class thrives, the better the economy is for everyone, even rich people like me.
Michael Graetz:
This is Pitchfork Economics with Nick Hanauer, a podcast about how to build the economy from the middle out. Welcome to the show.
Speaker 4:
Today’s conversation, Nick, is really close to my heart because I know you know, but I don’t know how many of our regular listeners know my origin story, which was we have this guy in Washington State named Tim Eyman, who made a career filing anti-tax initiatives and initially as out of anger, but as a joke between me and some friends, I filed my own statewide initiative to proclaim this guy Tim Eyman a horse’s ass. And weirdly out of that joke initiative, I started getting a lot of coverage in the press and then I started a blog, which took off. Then I got a radio show, then I got hired by an Alt Weekly, and then after they were tired with me, you hired me, Nick. So that’s how I got here. I got here out of the anti-tax movement and my anger at it.
Nick Hanauer:
Yeah. Well, I’m not sure today’s guest is going to make you less angry, because we’re talking to one of the nation’s experts in tax policy, a professor emeritus at Columbia Law School in Yale Law School. Michael Graetz has just published a book called The Power to Destroy: How the Anti-tax Movement Hijacked America and his book tells at least a story about where the anti-tax movement started. He, I think, chose to start the story with Prop 13 in California in the seventies. Obviously, American anti-tax sentiment go back farther than that, but-
Speaker 4:
Which was also the inspiration for our anti-tax movement here in Washington state. The Eyman’s initiatives were initially focused on the property tax.
Nick Hanauer:
Yeah. Anyway, it’s a fascinating story and I think we should just get right into it with Mike.
Michael Graetz:
All right. I’m Michael Graetz. I have taught for many years at law schools around the country, most recently at Yale and Columbia, where I’m a professor emeritus at both places, having now turned into a retired school teacher. The book is The Power to Destroy: How the Anti-Tax Movement Hijacked America. It traces the history of the modern anti-tax movement from the late 1970s until 2023 from its fledgling days as a fringe theory using coded racial language to its breathtaking success in transforming the US government into an underfunded and perhaps unsustainable enterprise.
Nick Hanauer:
Michael, you also served in the Treasury department too?
Michael Graetz:
I did. I served twice.
Nick Hanauer:
What were your jobs there?
Michael Graetz:
I was in the Office of Tax Policy for part of my time there. Well, the first time I was there was when Richard Nixon blew up the Bretton Woods fixed exchange rate system, and I did a lot of work on that with people like Paul Volcker and others. And then the last time I was there, I spent the last six months working for the secretary, the Treasury on whatever seemed to be of interest to him on a daily basis.
Nick Hanauer:
Most recently, under what President?
Michael Graetz:
Under George Herbert Walker Bush.
Nick Hanauer:
Okay. Interesting.
Speaker 4:
So to be clear, we’re getting this from somebody who has served two Republican administrations.
Michael Graetz:
Yeah.
Nick Hanauer:
Yeah. Lay out the central thesis of your book Power to Destroy.
Michael Graetz:
Well, the central thesis is described on the first page in which I claim that the anti-tax movement is the most important overlooked social and political movement of the past half century. You may wonder how I got there. I wandered around various places asking people to name the most important social and political movements of this period, and they answered the civil rights movement, the women’s movement, the LGBTQ movement, the Christian Evangelical Movement, the Environmental Movement, more recently, the MAGA movement, but no one has ever mentioned the anti-tax movement. And like all social movements, some of the anti-tax advocates have acted out of self-interest and others out of deep-seated ideological commitments.
Speaker 4:
And I presume some of them out of just pure hypocrisy and political ambition.
Michael Graetz:
Certainly. Certainly. Yeah.
Nick Hanauer:
So run us through it. Well, I mean, as I was looking through your book and thesis, one of the things I was trying to understand was how the anti-tax movement, which has been a strain obviously in American politics for a long time, differs from other places in other countries. Is this a uniquely American thing?
Speaker 4:
Well, you think it’s uniquely American, Nick, to have a revolution opposing taxes?
Nick Hanauer:
Yeah. Well, it was slightly more than taxes, but-
Speaker 4:
Maybe something foundational about the American myth.
Michael Graetz:
Well, [inaudible 00:06:43] is right. The anti-tax movement in the United States has a very long history going back, of course, to the Boston Tea Party, but also to Whiskey Rebellion when Alexander Hamilton decided that the nation needed to impose some internal taxes and decided to tax whiskey, Shea’s rebellion against the state tax issue in Massachusetts. So it’s not new in that sense, although I claim it to be new beginning in the late seventies for a variety of reasons.
Nick Hanauer:
Prop 13.
Michael Graetz:
Prop 13 is the major event that year of 1978. But to set the stage, the 1970s, the economy had stagflation, which was a unique combination of a recession with high unemployment and high inflation, something that Keynesian economics had predicted would never happen, that you could have one high unemployment or you could have high inflation, but you wouldn’t have both. And then of course, as you recall, we had Watergate, we had Vietnam. So in addition to the economy, we had huge failures of our government and we had a loss of faith in government and in Keynesian economics.
And that opened the door to the anti-tax movement along with what I describe in my book, and I think it’s a unique take on the tax story as dramatic resistance concerning racial issues. So while Proposition 13 in California, which was a limitation on property taxes, something that Bob Kuttner long ago described as Revolt of the Haves, the other big issue of 1978 had to do with Christian Evangelicals moving into the anti-tax movement over tax changes regarding segregated schools, which were a very important piece of massive resistance to Brown V. Board of Education in the south.
Nick Hanauer:
So our perspective on these things, I would say is slightly broader in the sense that we think of the economic crisis that has unfolded since the mid-seventies, early seventies into the eighties as a consequence of neoliberalism writ large, and the tax stuff seems like a component of that. And from our perspective, the nonsense that came out of the economics profession in the seventies and eighties was a huge factor in this, right, the Laffer curve, the idea that all this nonsense about efficiency and that if taxes go down, growth goes up, and all of that academic economic nonsense turbocharged what were the preferences of a relatively small group of people at the top.
Michael Graetz:
Well, absolutely. I mean, the vacuum that was created by the failure in the seventies of Keynesian economics and the pronouncements which were widespread, that Keynesianism was dead, premature as it turns out, left a vacuum, and the vacuum was filled by supply side economics of which Arthur Laffer and his curve, which very carefully, it’s a curve that shows that 0%, you collect no revenue and at a hundred percent tax rate, you collect no revenue, and then he’s got a curve. And those are the only two numbers on it. So it allows him and his colleagues to claim that whatever the tax rate is, you’re on the wrong side of the curve and that if you lower the tax rate, they’ll generate enough income to pay for themselves. That was a fundamental premise of the supply side group.
And from the supply side perspective, it mattered whose taxes were cut because the supply siders were focused on entrepreneurs and investors and people at the top. And so it was clear to the supply siders that tax cuts should be focused on people at the top, the people who are supplying capital in particular, and likewise that spending cuts, which were part of their thesis, should be focused on transfers to unproductive, as they described them, people, particularly the non-working poor. And this led to Milton Friedman’s premise about the anti-tax movement, which was that tax cuts would starve the beast and therefore would necessarily produce cuts in spending, particularly on welfare and food stamps or other redistribution of resources.
One other thing about this is that the two claims, Friedman’s claim that tax cuts would starve the beast, and Laffer’s claim that tax cuts would pay for themselves are obviously in conflict. If they pay for themselves, you’re not going to starve any beasts. And if you need to starve the beast, they didn’t pay for themselves. And people hold on to both of these concepts, which is find absurd,
Nick Hanauer:
By the way, neither of which were true.
Michael Graetz:
Both were false.
Nick Hanauer:
Right?
Michael Graetz:
Exactly.
Nick Hanauer:
Yeah. They’re both false.
Michael Graetz:
Both false and conflicting and yet you see people like Donald Trump’s Secretary of the Treasury in 2017 continuing to claim that tax cuts are going to pay for themselves, but it allowed you to believe whatever you wanted to believe, even though as you pointed out, both were false and they were in conflict, but that didn’t seem to bother anybody at the time.
Speaker 4:
So when a Grover Norquist makes both those claims simultaneously, and I’ve heard him do that, is that out of ideology? And if so, exactly what kind of ideology? Because it doesn’t seem to be a coherent economic one.
Michael Graetz:
Well, Grover would be the first to tell you he was not an economist. I debated him once, which was a fool’s errand, I might add.
Speaker 4:
You know what? So did I.
Nick Hanauer:
Yes, so did I.
Michael Graetz:
But Grover is an interesting character. So Grover has said many times that he wants a government so small that he can drown it in the bathtub, whatever that means, and so Grover represents the anti-government side of the anti-tax movement. But he also said that taxes are the issue that if you win that issue as he puts it, you win all issues, and taxes and the anti-tax movement have become the glue that holds the Republican coalition together. It’s the one thing that the Christian Evangelicals and the fancy business executives and Wall Street and Main Street, everybody agrees on let’s lower taxes.
Nick Hanauer:
Can you take us through the big events in the anti-tax adventure? So starting with Prop 13, that was a big one, right?
Michael Graetz:
So in 1978, there were three that were very important, actually four that were very important. The first was Proposition 13 in California, which limited property taxes, rolled back your property tax values to 1975 or 1976, limited the state’s ability to raise taxes and took away localities ability to raise their main source of taxes for funding for public schools. So that was number one, and it was a great surprise because it was promoted by a guy named Howard Jarvis, who was a pugilistic Republican who spent a lot of time separating the US who pay taxes from the “them who are living off the government fisc.” That has been an ongoing theme of the anti-tax movement.
The second event was the IRS effort to eliminate tax exemptions and charitable deductions, which had been the financial lifeblood of many white supremacy segregation academies, and that brought the Christian evangelicals into the Republican coalition and to the anti-tax movement. And Ronald Reagan was extremely successful in convincing them that he was going to roll this all back. He didn’t succeed because the Supreme Court decided that the IRS was correct after a long period of litigation. But there’s a myth that abortion was the issue that brought the Southern Christian Evangelicals into the Republican coalition, and that’s not true. It was the tax issue that brought them into the coalition.
And then the third thing was that Jack Kemp, a former quarterback for the Buffalo football team and a congressman, a backbench congressman from Buffalo, along with Bill Roth, a senator from Delaware, promoted across the board income tax cuts of 30%. That became the cornerstone of Ronald Reagan’s huge tax cuts in 1981. And then the last event in ’78 was that a fellow named Jeffrey Bell, who had been fired from the Reagan campaign and was a long shot, beat a longstanding Republican senator in New Jersey for the Republican nomination. He beat a fellow named Clifford Case, who had been in the Senate for 35 to 40 years, and Bell beat him on an anti-tax platform. Bell was ultimately himself defeated by Bell Bradley, a relatively liberal Democrat who ran for the Senate after playing basketball for Princeton and the New York Knickerbockers, and then being a Rhodes Scholar.
Bradley plays a very big role in lowering the tax rates during the Reagan administration in ’86. So in the Reagan administration, you have huge tax cuts in 1981, you have a tax reform in 1986, and as a result of those two changes, the top rate on the highest earning individuals went from 70% to 28%, well beyond Reagan’s imagination. Reagan in ’86 was certainly prepared. He said it a number of times to settle for 35%, but he got 28%. So you have this huge tax cut at the top, and yet the bill in ’86, and it’s just worth spending a minute on this, was described as distributionally neutral. And the reason it was described as something other than a big tax cut at the top was that in the late seventies and through the mid-eighties, you had tax shelters that every high wage earner, airline pilots, dentists, doctors, lawyers, they were all investing in these tax shelters. It turned out that in-
Nick Hanauer:
I remember this nonsense. It was crazy, wasn’t it? Yeah.
Michael Graetz:
It was crazy, and there were all sorts of things. I ended up actually involved in a criminal defense of a guy who claimed to have been the largest tax shelter promoter ever, who was promoting a tax shelter called Gold for Tax Dollars. And there was no gold, but there were plenty of tax dollars chasing as if there was gold. And people above a million dollars in 1985 paid less than 10% of their income in taxes because they had all invested in tax shelter, some of which were just shams like the one I mentioned, but others were in real estate and oil and gas and a whole series of other things, rose bushes in California, almonds in Hawaii, macadamia nuts and so forth, all of which had tax preferences, which were ridiculous. It’s not as if we were in the throes of a rosebush crisis in the 1980s.
And so this bill could be described as distributionally neutral, and it basically ratified all of the tax savings from all of these tax shelters at the top. And so you had a huge cut at the top during the Reagan administration, and revenues went from just over 19% of GDP to under 18% of GDP. And when Reagan left office and somebody asked him what was the thing that you were most disappointed in, he said the deficits. And of course, the federal debt tripled during Reagan’s administration from $900 million to 2.7 trillion. He ran up more debt than all of the presidents who preceded him, and that’s really when the anti-tax movement became the hallmark of the Republican coalition. And Reagan, who was governor of California when Proposition 13 was enacted, became the key president bringing it to the federal government. And so that gets us to 1990, and I’ll pause, Nick, in 1990 because I could go on for the next 30 years, but I know you don’t want me to.
Nick Hanauer:
Well, it is pretty fascinating. So at some point we’re going to pivot to what to do about this mess, but I’m really interested in your perspective on how this group of people managed to bamboozle the majority of citizens who have not benefited from this.
Michael Graetz:
Well, it’s a fascinating story. I did a book earlier called Death by a Thousand Cuts: The Fight Over Taxing Inherited Wealth, in which 60% of the people in the polling data we looked at said that they wanted the estate tax repealed, and the estate tax at that time applied to the wealthiest 2% of people who died in any year. It had never applied to more than that. Now it applies to a small fraction of 1% because the Republicans have been very successful in whittling it down, beginning in the 21st century.
And I got in a cab in Boston and I talked to the taxi driver, which is my want about what was on his mind, and he said he was very worried about the death tax and how you’d have to pay the death tax. And I laughed and I said, you should worry about something else. You should find something else to worry about because you’ll never be paying the estate tax, which you’re referring to as the death tax, which is how the Republicans managed to characterize it. But they were incredibly successful at putting the undertaker and the tax collector side by side, hovering over the deathbed of average Americans, which of course is a false portrait, but it was successful.
But in the nineties, during the George Herbert Walker Bush administration and the Bill Clinton administration, deficits were significantly reduced by the end of the nineties due to the work of both of these presidents and the Congress during that period, and a very strong economy due to the information revolution at the end of the nineties. We had a big surplus. And so in 2001, this I think is the huge turning point. In 2001, when George W. Bush was made president by the Supreme Court of the United States, he had run for office proposing a large across the board tax cut. And Alan Greenspan, who was the head of the Federal Reserve, went to Congress and he told Congress in March of 2001 that if the Bush tax cuts were not enacted, all of the federal debt would be paid off and the federal government would have to start investing in corporate stock, something which Greenspan was very worried about.
The good news is that you don’t have to worry about that anymore because George W. Bush enacted a huge tax cut in 2001. It was before September 11th, and then when he went into the War on Terror, it was the first war, the so-called war on terror, it was the first war that the federal government had not raised taxes to pay for in its history. And then he helped enact a prescription drug benefit for Medicare, and that was the first entitlement that was not paid for.
And then in 2003, he cut taxes again. And so George W. Bush basically set off this process, and there was a moment when Paul O’Neill, who was his secretary of the Treasury, got worried about the debt and deficits. And Dick Cheney who was, as you remember, Bush’s vice president, told O’Neill that Reagan proved that deficits don’t matter. And then Bush or Cheney, it’s never clear which one fired O’Neill and brought in a Secretary of the Treasury, who wasn’t worried about deficits either. And so that’s where the 21st century anti-tax movement really takes off was during the George W. Bush administration. The chapter about that in my book is called Sometimes the Apple Does Fall Far From The Tree, because he really rejected almost everything that his father had done both in domestic and foreign policy.
Speaker 4:
Oh, man, I’m so depressed and we haven’t even gotten to the Tea Party yet.
Michael Graetz:
Yeah.
Nick Hanauer:
Exactly, and Trump and the rest of these clowns, it just-
Michael Graetz:
Well, the Tea Party is a great story if you like stories. It’s a horrible set of events. But as you know, Obama comes into office and he, in 2009, has the worst economy of any president who entered office since Roosevelt due to the financial crisis, and a couple of things about that. One is that when Obama and Hillary Clinton were running for the Democratic nomination for President in 2008, they were interviewed by George Stephanopoulos and Stephanopoulos asked them about their position on taxes, and both Obama and Clinton said that there would be no tax increases on anybody below $250,000.
And Stephanopoulos asked him if that was a Read My Lips pledge, harkening back to the pledge that George Herbert Walker Bush had broken earlier, and they both said it was. Then, of course, in 2010, the Tea Party begins having its anti tax rallies. TEA at that time stood for taxed enough already, if you read the posters, and it like the 1978 effort had very serious racist overtones. I mean, one of the major points I’m making in the book is that tax policy reflects not only economics, but also the culture. And the Tea Party basically produced a major Barack Obama called a shellacking of the Democratic Party in the 2010 midterm elections. And Obama had toyed, I have to say toyed, with reducing the principle on mortgages for people whose houses had collapsed in value and whose value was below their debt.
And Rick Santelli, an unknown Chicago Mercantile reporter for CNBC said, let’s have a tea party, and Fox News picked it up with a number of their folks and promoted the Tea Party. And the Koch Brothers, the Kochtopus as Jane Mayer has called it, created a huge amount of resources and all sorts of support for tea parties across the country, and they were a very important force in 2010. So in 2010, when Obama had the ability to basically eliminate all of the Bush tax cuts because they expired in 2010, he basically kicked the can down the road for two years and extended all of them and allowed some other gimmicks from the estate tax to be expanded, and it was really a disaster, but Obama had other priorities in the lame duck session after those 2010 midterms because he knew that he was going to face a Republican Congress.
After his re-election in 2012, when these tax cuts expired, once again, Obama sent Joe Biden to negotiate with Mitch McConnell, who was the head of the Republicans in the Senate, and they basically agreed to extend all of the Bush tax cuts, make them permanent except for people with more than $400,000 of income. And that’s how the Democratic policy became no tax increase on anybody below $400,000 that Joe Biden has repeated many times since he became president. And so you basically have the Democrats surrendering in 2012, early 2013, it turned out in January to the anti-tax movement, and so the Republican position is they don’t want to raise taxes on anybody. They want a tax cut no matter what the circumstances are, and the Democrats only want to raise taxes on people over to $400,000, and that’s 98% of everybody is not subject to taxes. And so there’s a lot more overlap now between the Democratic policies and the Republican policies than there ever had been.
Nick Hanauer:
Don’t you think it’s fair to say that at least probably close to 50% of aggregate income is above 400,000 if you include cap gains and so on and so forth?
Michael Graetz:
Well, it depends on what you include. I mean, certainly if you’re looking at wealth, more than half the wealth is in the top 1%. If you talk about income, the real question there is are you talking about unrealized gains that has gains on stock that is held but not sold by the Musks and the Bezos and so forth? If you count unrealized gains, you may get close to 50%. I’d be surprised if it was quite that high, but it’s pretty high. But sure, any quality at the top has become a huge issue and a huge problem, and it has been faced. Of course, just one point about this top 1%, you remember the Occupy Movement had as its slogan, “We are the 99%.”
Nick Hanauer:
Yeah.
Michael Graetz:
So Nick, you or Goldie, tell me one thing that 99% of Americans agree on. I mean, it’s not an effective coalition for legislative politics. That’s my point, and so 99% aren’t going to get anything done because they don’t agree on anything. But the question then is how are you going to get those taxes? And on that point, one of the things that was a surprise to me was that in 2022 when Joe Biden proposed a significant tax increases on what he called the millionaires and billionaires, including a minimum tax and other things, and we had a Democratic Congress, the only tax increases they were able to enact were on large corporations for stock buybacks and a minimum tax on income abroad. But he got none of the taxes with a Democratic Congress, House and Senate, on the top 1%, and it is a testament to how distorted our legislative politics are in terms of the desires of the average American versus the desires of the wealthy.
Nick Hanauer:
Amazing. It is a depressing story. So what to do?
Michael Graetz:
Well, I’m an optimist. I’ve always been an optimist, but I have to say that when I finished this book, I was looking for a solution, and it’s a political book. It’s not an economics book, even though there is some economics, and it’s a political story, and it’s a story about characters like Howard Jarvis and Arthur Laffer and Grover, who we’ve talked about who’ve made this bizarre fringe movement into the centerpiece of American politics in domestic terms. So what to do? Well, when deficits were high in the 1980s, Herb Stein, who was a chief economist for the Ford Administration and a professor of economics at the University of Virginia, was testifying before the Senate, and he then coined what has been known as Stein’s Law. And what he said was that if something can’t go on, it will stop. And so I’m a believer in Stein’s law. If something can’t go on, it will stop. But if you ask me how it stops, then I’m as puzzled as you are.
Nick Hanauer:
Yeah, that’s a-
Speaker 4:
A Collapse of our democracy would do it.
Nick Hanauer:
Yeah.
Michael Graetz:
And I do want to make one point short of collapse of democracy, which of course will do it, and that’s collapse of the role of the dollar in the worldwide economy and collapse of the Treasury market or even some major hiccups in the market for government debt. The Republicans, when there’s a Democrat in office at the presidency, they have taken on this crazy, destructive effort to not raise the debt ceiling and therefore to call into question the ability of the federal government to pay its debts. And we now have interest on the federal debt that is greater than any expenditure in the federal government, including Medicare or defense or anything you can name other than Social Security. And it’s larger than economic growth this year or any year projected in the next decade, and it’s supposed to more than double over the next decade or so.
Every dollar that we pay on interest, which is a hidden tax in my view, 35 cents or so of it goes abroad, some of it to countries that we’re not necessarily friends with. And so it’s the one expenditure that has to be paid, and yet we’re not willing to raise taxes to pay for even all of the other expenditures without regard to interest. And if you look at the projections of the Congressional budget office, they’re projecting large deficits over the next decade and more, and they’re projecting that the federal debt will continue to grow as a percentage of the economy, and that interest over a significant period of time will grow from 3.1% of the economy to 6.7 or 7% of the economy, which is unthinkable.
So something has to give, and I don’t think you’re going to solve it on the spending side. Even the Republicans have, after a long time of wanting to reduce or privatize Social Security or privatize Medicare or get rid of Obamacare and other healthcare provision, their party platform since Trump has been don’t touch Medicare, don’t touch Social Security, and so we’re not going to cut spending enough to solve this problem. And so the answer has to be at least significantly in raising taxes. But how we get there, given the strength of the anti-tax movement, its role as the linchpin of the Republican Party and its coalitions, as I said earlier, and its new role as the $400,000 threshold of the Democratic Party and the Democrats, to be clear, they controlled Congress until 1994. So they participated in this.
There was an effort in 1981 by the Democrats to outbid the Republicans on tax cuts, which talk about a fool’s errand, that was not possible. But they’ve participated, so it’s both parties and both parties are dependent on money in all sorts of ways. And so I’m not sure how we get there, maybe some quiet bipartisan negotiation will get us somewhere. It’s certainly not likely to happen in 2025 when extending the Trump tax cuts, which I think is very likely, will cost another four and a half to $5 trillion, and the tax cuts were not necessary in 2017 when Trump enacted them. We had a strong economy and we didn’t need any tax cuts, and we almost certainly won’t need them in 2025, but my assumption is that we’re going to see most of them extended.
Nick Hanauer:
Which brings us back to Stein’s law.
Michael Graetz:
Exactly.
Speaker 4:
You’re not cheering me up today. I needed some cheering up-
Nick Hanauer:
No. No, no, no, no. Okay. I acknowledge you’re not an economist, but if you were in charge, this is our benevolent dictator question, if you were in charge, what would you do?
Michael Graetz:
Well, I’d do at least one of two things. One is I’d enact a carbon tax so that if you want to solve climate change, which of course the Republicans continue to deny exists, which is … I’m in Connecticut, and it’s about 98 degrees here at the moment, but we’ve been able to address climate change only through the subsidies that Biden and the Democratic Congress got through in the so-called Inflation Reduction Act, and some tax on carbon would make a lot of sense and begin to lower our emissions of carbon dioxide without requiring us to spend a lot more money.
But the other thing, if you look at countries around the world and you say, what’s the big difference between the US tax system and everywhere else in the world? What you see is that every other country has a national tax on sales of goods and services called either a goods and services tax or value-added tax. It’s a form of national sales tax. Over 170 countries have such taxes. The United States and Greenland are the two largest countries that do not. And I now, more than a decade ago, wrote a book which proposed that we enact a value-added tax and eliminate almost all Americans, 150 million Americans from the income tax so that the only tax they pay would be the value-added tax. And then the IRS could probably collect taxes from higher-income people, which they have trouble doing today, even with their advanced funding, which the Republicans would like to get rid of.
So I would enact a value-added tax, and that would then give us the kind of tax system that would promote economic growth. You can do it. I’ve done this with the Tax Policy Center even recently. They’ve got a new paper on my plan. You can do this in a way that does not redistribute income down the income scale. You have to give large child credits and you have to give a credit for payroll taxes for single workers and others in order to do that, but it doesn’t have to be regressive tax. It can be a progressive consumption tax system, and you keep the income tax above 100,000 or $150,000 of income. And then we’re in a position that we can raise the taxes we need without inhibiting economic growth, which is the engine actually of tax revenues no matter what we think about it. That’s where most of the tax revenue comes from, is through growth.
Speaker 4:
And the value-added tax, I know it’s paid by consumers, but it functions as a business tax too that is impossible to avoid by pushing your profits overseas because-
Michael Graetz:
Exactly. It’s a tax that it exempts exports, it taxes imports, and we now have imports that are much, much larger than our exports are. So you produce an awful lot of revenue by taxing imports, and it’s collected at every level of production. It’s like withholding on your income taxes or your payroll taxes. Businesses before the retail level are withholding part of the tax. So retailers can’t avoid the whole tax, or your plumber who asks for cash doesn’t avoid the tax on all of the equipment that he had to purchase from the plumbing supply company, for example. So it’s very effective in terms of its ability to be enforced, and it operates very much like a sales tax, a national sales tax, and we have the lowest sales taxes. There are only state sales taxes. Now we have the lowest sales taxes of any country in the OECD of developed nations, and we have lower sales taxes than most countries abroad.
Speaker 4:
Well, I don’t know if it’ll go over well in Seattle where we’re already paying over 10% in sales tax, but that’s because stupidly, we don’t have an income tax.
Michael Graetz:
Yeah, exactly. Exactly, exactly. You’ve got to have both, actually. And then you could have a 5% sales tax, which is the national average in Washington, and you could have a 5% or 6% income tax, and you’d be collecting probably more revenue than you are, especially in Seattle, from a sales tax where as I understand it, Seattle’s filled with rich people.
Speaker 4:
Yeah, Nick. Do you know any rich people in the Seattle area, Nick?
Nick Hanauer:
A couple, three. One final question.
Speaker 4:
Final question?
Nick Hanauer:
Yeah. Why do you do this work?
Michael Graetz:
Well, I got into the tax business accidentally. I’ve tried to explain to my children that life happens and you don’t often make choices, but I ended up at the Treasury right out of law school during the Vietnam War when I was ineligible, and the other person who was interviewed for the job that I ended up getting had to go … He ended up going to the Air Force JAG because his lottery number was low, and we had a draft at the time. So I ended up at the Treasury and I realized that tax policy is, as I said earlier, it’s partially economics, but an awful lot of tax policy depends on the culture and cultural attitudes at the moment, and your view of government and what it is government should be doing, and I stayed in it.
I did a lot of work for a long time on social security and health insurance and social insurance, unemployment compensation, and the like as well, but I’ve spent much of my time on this. Ian Shapiro and I did a book, it was published. If you want to publish a book at exactly the wrong time, this is the gold standard. It was published in February of 2020 just as the COVID crisis hit. So I think it sold about six copies, but it went to people’s offices who didn’t have it. But it was about economic insecurity and how to address economic insecurity, which we felt was a big issue, not only in the Trump Coalition, but also in Brexit and some other for sure movements to the right in the rest of the world.
And we focused on economic insecurity. We didn’t ignore inequality at the top, but it wasn’t the focus of the book. So I’ve worked on all of those things and they ultimately deal with tax policy, and I had been around it. I was in California when Proposition 13 was passed, and so I’d been around it for a long time and decided that I would write this book on the anti-tax movement because as we started, it is the most overlooked, important social and political movement, I think, of the last 50 years.
Nick Hanauer:
Well, Michael, thank you so much for being with us today. It was interesting, but not uplifting.
Michael Graetz:
Yeah. I’m sorry for that. I’ll try and write an uplifting the next time.
Nick Hanauer:
Yeah. We need the sequel to be more positive.
Michael Graetz:
Exactly, exactly. If you think you need something positive, I need something positive myself. So I’m going to take your words to the rise and focus on something positive. The question I have at the moment is, where exactly am I supposed to be looking for it?
Nick Hanauer:
Yeah, no, I agree. Well, thank you again for being with us, and thank you for your work. It’s absolutely fantastic.
Michael Graetz:
Thank you both for having me.
Nick Hanauer:
Yeah. So what’s really interesting about that conversation and about Michael’s perspective is how he zeroes in on anti-tax and how our perspective, I think I would call it a slightly broader perspective about neoliberalism being the problem, how those two ideas intersect.
Speaker 4:
In a way, Nick, I think actually our perspective is more narrow when you actually look at the arguments in the book, because what he’s saying is it’s not just about economics. It’s very tied in well with race, amongst other things, and the evangelical movement and how the anti-tax movement really went and exploited the racial and social divisions we already had in the United States and sucked these other movements into it. So it’s more than economics, which is what generally our focus is.
Nick Hanauer:
Yeah, no, it’s really true. And one of the things that I think is really worth examining about the anti-property tax movement in California, for example, is that that wasn’t an imagined problem that was generated from fast rising property values, right? I mean, California was growing like a weed and people’s houses went up in value tremendously, and as a consequence, their tax bills went up tremendously, and you can understand where the animus comes from.
Speaker 4:
Yeah, but also, Nick, understand in that period, what California was known for was having one of the best highway systems in the country, having one of the best public school systems in the country, having a public university system that was the envy of the world and was virtually free for California residents and a university system that created … Essentially, it was the engine of the wealth that’s still driving the state. The Silicon Valley comes out of that university system, having that educated workforce and having all this research there in the state, that’s what those property taxes paid for, and that’s what they no longer pay for. And that whole system is crumbling, not because there isn’t the will to continue to do these things in California. It is overwhelmingly a very blue and progressive state. It’s just that at the state and local level, they don’t have that tax base anymore. And so now California is known for having, is it the highest income tax in the country? Because they don’t have the property tax to fall back on.
Nick Hanauer:
Yeah, I suppose it is a uniquely American story in so many ways, and I’m coming back to Stein’s Law, which I think I like a lot.
Speaker 4:
You won’t like it when it comes to fruition.
Nick Hanauer:
Yeah, exactly. What is it? Anything that cannot continue will stop eventually.
Speaker 4:
The question I didn’t ask him, I think clearly he thinks the answer is yes, is whether Cheney was right when he said deficits don’t matter. I think-
Nick Hanauer:
They don’t matter in politics.
Speaker 4:
They don’t matter in politics. That’s right.
Nick Hanauer:
They don’t matter electorally because the pain of the deficit is always in the future, and the benefits of the policy in the near term are always near term.
Speaker 4:
Right. We can have these deficits and this debt indefinitely as long as the economy is growing faster than the debt, or at the very least at the same pace. It’s not a problem, and the arguments that you didn’t actually want to pay off the debt, that not having-
Nick Hanauer:
That is so bonkers.
Speaker 4:
Well, no, it’s true. You need a federal debt because you need a safe place to put your money. That’s what US debt has always been for the world. It’s one of the reasons why we’re the reserved currency. So having some sort of debt makes sense. You want to have these treasury bonds that people can buy and park their money in. The issue in the early aughts when we had these surpluses is there was a solution other than cutting taxes, and that was investing in America.
Nick Hanauer:
Yeah, exactly.
Speaker 4:
All this infrastructure that needed to be replaced.
Nick Hanauer:
Exactly, there was no problem.
Speaker 4:
Yeah.
Nick Hanauer:
Yeah.
Speaker 4:
There weren’t things that we didn’t have. It’s not like we didn’t have anything to spend it on other than the forever war, which Bush started. We could have had that so-called peace dividend. So God, when you look back, assuming there will be people to write the history books, oh, my God, the past 30 years, what a fucking disappointment.
Nick Hanauer:
It sure is. It sure is.
Speaker 4:
Oh, there we go. Now I put the profane rating on our podcast.
Nick Hanauer:
Oh, well.
Speaker 4:
Anyway, fascinating stuff though.
Nick Hanauer:
It really is.
Speaker 4:
Yeah. If you want to read more from Michael again, Michael Graetz, his book, the Power to Destroy: How the Anti Tax Movement Hijacked America, and oh my God, it really did, you can find a link in the show notes, and of course, you can buy the book at your favorite online monopolist or your favorite local bookstore.
Speaker 5:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to follow, rate and review us wherever you get your podcasts. Find us on other platforms like Twitter, Facebook, Instagram, and Threads at Pitchfork Economics. Nick’s on Twitter and Facebook as well at Nick Hanauer. For more content from us, you can subscribe to our weekly newsletter, The Pitch, over on Substack. And for links to everything we just mentioned, plus transcripts and more, visit our website, pitchforkeconomics.com. As always, from our team at Civic Ventures, thanks for listening. See you next week.