Tax rates on the wealthy have steadily eroded in the United States over the last forty years, leaving us with an upside-down tax code that benefits the rich. And it’s surprisingly easy for powerful people to evade the taxes that they do owe, which inevitably inspires another round of harsh budget cuts from conservative lawmakers. Gabriel Zucman, the authority on wealth taxes, joins us this week to explain how the rich dodge taxes, and how we can fix the tax system.

Gabriel Zucman is an Assistant Professor of Economics at the University of California, Berkeley. His research focuses on the accumulation, distribution, and preservation of wealth, with a global and historical perspective. He is the author of ‘The Hidden Wealth of Nations: The Scourge of Tax Havens’, and the co-author, with Emmanuel Saez, of the new book ‘The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay’.

Twitter: @gabriel_zucman

Further reading:

The Triumph of Injustice:

The Wealth Detective Who Finds the Hidden Money of the Super Rich:


David Goldstein: So we’ve done an episode on the wealth tax Nick, but this is a much broader and more far reaching. That’s right.

Nick Hanauer: The US used to have the most progressive tax system in the world, billionaire at your lower tax rate and every other income group earning 23% of their income in taxes. The proper way to tax the super wealthy is through a progressive income tax [inaudible 00:00:25].

Speaker 3: From the offices of civic ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer. A conversation about how capitalism actually works.

Nick Hanauer: I’m Nick Hanauer, founder of Civic Ventures.

David Goldstein: I’m David Goldstein, senior fellow at Civic Ventures. For years now, I’ve heard that one of the reasons why we shouldn’t tax rich job creators like you and your buddies is that you spend your money so much more efficiently than the government ever could.

Nick Hanauer: Right. And in particular the argument goes, well, if you tax rich people, then they won’t give the money away.

David Goldstein: They won’t trickle down. [crosstalk 00:01:24]. We won’t create jobs.

Nick Hanauer: It’s not even that. It’s just that we won’t donate to charity and that we are so much better at allocating this capital.

David Goldstein: Right. Because clearly you’re so smart to have gained it all. You must be smart in how you spend it.

Nick Hanauer: Exactly. And it is certainly true that there are wealthy people who are deploying assets in effective ways and doing good charitable giving. But the truth is that the amount of giving from very, very rich people relative to our wealth is staggeringly small. So here’s an insane stat. The total wealth of the top 400 wealthiest families in America, Forbes 400.

David Goldstein: Like the people you vacation.

Nick Hanauer: Exactly. It’s $2.5 trillion, but the annual charitable giving by the top 400 is only about 10 billion. That’s 0.4% of our wealth annually. Now $10 billion is a lot of money to give away, but it is an astoundingly small amount of the wealth that we actually have. And so that the idea that when rich people don’t pay tax at an adequate rate, they somehow just give it all away. It’s just a red herring. It’s just absolutely not true. And using this sort of neoliberal reasoning, we’ve let the average top individual income tax rate fall insanely over the last 40 years. In 1950 it was 80% and now it’s 37%. The average top state tax rate was 76%, now it’s 47%. Corporate tax rates used to be 50%, now they’re 34% in the average. Growth rate of GDP per adult used to be 2.2% and now with all these low taxes, it’s fallen to 1.3%.

David Goldstein: Yeah. But apart from that GDP number, all of those other numbers are bullshit because nobody’s actually paying those top marginal rates.

Nick Hanauer: That’s right.

David Goldstein: When you look at the effective rate, it’s even lower, not just because of the way we have a lower tax rates, but because of the way we have not enforced to the taxes, we have now.

Nick Hanauer: Exactly. And no one knows more about this than our esteemed guest. And the focus of today’s podcast, Gabriel Zucman, who is a professor of economics at UC Berkeley focusing on global wealth inequality and tax havens. He’s been named one of the 50 most influential thinkers on the planet by prospect magazine.

David Goldstein: We’re really lucky to get him on Nick, he’s a hot interview our guest right now. He and his co-author, Emmanuel Saez, recently published the Triumph of Injustice, how the rich dodge taxes and how to make them pay. So we’ve done an episode on the wealth tax Nick. But this is a much broader and more far reaching because in that book they go through detail of the entire tax code, how we got into the situation where we are today and more importantly, what we can do to fix it.

Nick Hanauer: That’s right. And they expose all the tricks my people use to evade the tax code [crosstalk 00:04:48] to not end up paying very much.

David Goldstein: You trickle down tricksters.

Nick Hanauer: Yes, exactly. And in particular, Gabriel and Emmanuel are advising a bunch of presidential candidates including Elizabeth Warren and her policy positions have evolved substantially as a consequence of their analysis, both of the degree to which rich people avoid paying tax and the relative economic efficiency of actually taxing them at reasonable rates once again. So should be a fascinating interview.

Gabriel Zucman: I’m Gabriel Zucman. I’m a professor of economics at the university of California, Berkeley, and I’m the co-author of the Triumph of Injustice, how the rich dodge taxes and how to make them pay.

David Goldstein: Let’s start by you just dimensionalizing the problem. Just tell us what problem you’re trying to solve.

Gabriel Zucman: Problem we are trying to solve is essentially the rise of income and wealth concentration. It’s been dramatic. In 1980 the top 1% highest income earners earned about 10% of total US income. Today, the top 1% earns about 20% of total income. You look at the bottom 50% and it’s exactly the opposite. They used to have 20% of US national income, today they have a barely more than 10%. You look at wealth concentration, same thing. There’s been an enormous increase in wealth concentration in the US.

And look, the tax system plays an important role to regulate inequality, but today it’s failing to curb income and wealth concentration, it’s even worse than that. Now it’s adding fuel to the fire. Because when you look at the reality of taxation in the US today, when you take into account all taxes at all levels of government, federal, state, and local, what you see, what’s we describe in the book, that’s the first chapter is that the US tax system now looks like a dry and flat tax where each income group pays the same tax rate of around 28% except for billionaires, for the 400 richest Americans who pay only 23% of their income in taxes. So US taxes, I mean the giant flat tax that becomes regressive at the very top end.

Nick Hanauer: Yeah. And that of course is leading to evermore concentration. As the percent of national income that goes to the wealthiest Americans increases, it also reduces revenue because that same percentage is paying a lower rate.

Gabriel Zucman: Exactly. So you look at what has happened to tax revenue in the US over the last 20, 25 years, and it’s actually declined and declined quite significantly by about four percentage points of national income. So in the late 1990s the total tax paid, total amount of tax revenue in the US was 32% of national income, today it’s about 28%. And might say, a decline of four percentage points, maybe it’s not a lot or maybe it’s a good thing that actually it’s a lot. And actually it’s a bad thing. It’s a lot because the US is the only example of a wealthy nation where tax revenue has declined substantially over the medium run.

Even under Reagan, even in the Fetcher in the UK, that had not been the case. And it’s a bad thing because, it’s not like taxes have declined for the working class or for the middle class. Essentially this declining comes from a lower capital tax rate, less capital taxation, less taxation in the wealthy. So low of taxation of dividends, a much lower corporate income tax rate. A much lower corporate tax revenue. Much lower is state tax revenue. And so generally speaking, a much less progressive tax system.

And given the revenue needs of the country, the needs in terms of early childhood education, US is not spending anything today on that. The needs for higher education, college costs have increased so much. The needs for health insurance, 30 million Americans don’t have health insurance today. It’s crazy given all these revenue needs to be cutting taxes by four points of national income and to be cutting taxes only for the wealthy.

Nick Hanauer: Tell us a little bit about the history of the decline of taxes on the wealthy in the United States. Because this has been on a long sort of sorted neoliberal trajectory.

David Goldstein: At the same time with that, the the rise in taxes on working class Americans.

Nick Hanauer: Yeah.

Gabriel Zucman: It’s a fascinating history. The US used to have the most progressive tax system in the world in the middle of the 20th century. If you look at statutory tax rates, high incomes, wealth tax at 90%, the top marginal income tax rates was or even exceeded 90% in the post world war II years. Large estates were up taxed at 80% on average from 1930 to 1970, the estate tax rate exceeded 70%. The corporate tax rate was 50% on average from 1950 to 1980. And it’s not a need that the tax system looked progressive on paper, what we show in the book is that was progressive in actual facts because sometimes people look at that history of high-top moderate income tax rates and they dismiss those rates by saying, oh, nobody paid those and there was a ton of tax evasion and the US never really had an progressive tax system.

But that’s not true. When we are we doing the book is we compute effective tax rates for each group of the population going back to 1913. And what we find is that from the 1930s to the late 1970s, the effective tax rate of the wealthy were really high in excess of 50%, 55% or even 60% under Eisenhower, for instance. At the same time, the tax rate, the effective tax rates for the middle class were much lower than today, where were around 15%, 20%. So what has happened is taxes for the average has collapsed, taxes for the working class and the middle of that have increased. One of the reason why taxes for the working class have increased, essentially because of the rise of payroll taxes.

Nick Hanauer: Yes.

Gabriel Zucman: Today, no matter how low your wage is, 15% of your wage goes straight into taxes because of payroll taxes. And it used to be only 5% in the 1950s now it’s 15% and or the most spectacular of that during the same period of time, the minimum wage has collapsed. So if you’ll get minimum wage workers, if you were employed full time at the minimum wage in 1950s you earned about half of the average income in the economy and you’re paid 5% in payroll taxes. Today if you’re employed full time at the minimum wage, you earn the equivalent of only 20% of the average income in the US and you pay much more taxes, you pay 15% in taxes under that minimum wage salary. So that’s the main reason why taxes have increased for the working class.

Nick Hanauer: Yeah, it’s just, it’s absolutely astonishing.

David Goldstein: But on the bright side, Nick, that means you have more money to create jobs, right?

Nick Hanauer: Yeah.

David Goldstein: Because I remember my ECON 101 textbook and they tell me that you want low taxes particularly on the wealthy, the job creators like Nick so that they can invest in creating good paying jobs for people like me.

Nick Hanauer: Yeah, exactly.

David Goldstein: That hasn’t worked out that way. And we’ve seen that burst into economic growth, that orthodox economic theory tells us would be there.

Gabriel Zucman: Why not? I mean, that theory has some consistency in it. Like any ideology, it has some plausibility. So this idea that you tax the wealthy less and we work more, they will invest more, they will innovate more, they would create drugs and this will trickle down to the rest of the population. It has some plausibility until you look at the data. So what we can do now is 40 years after the beginning of this process of tax cuts for the very rich, we can look at what has happened.

So let’s look at what has happened to first of all, economic growth, overall economic growth from 1950 to 1980 when the US tax system was very progressive. GDP per adult grew at 2.2% a year on average. Now look at the latest 30 years. Now, if you just mentioned [inaudible 00:14:11] years, let’s look now at 1990 to 2020, another 30 years period of time. The tax system was much less progressive. Taxes under rich have been slashed. GDP per adult has grown at 1.3% per year on average, much less than from the 1950s and 1980s.

Second, let’s go beyond just overall economic growth. Let’s look at growth for the various income groups. Let’s look at the working class, the bottom 50% of the income distribution. The whole trickle down experiment was predicated on the notion that eventually it would be good for workers, it would boost their wages, it would boost their income. The average income for the bottom 50% in 1980 was $18,000 per adult adjusted for inflation. The average income for the bottom 50% today is $18,500 per adult. So there’s essentially been zero growth for half of the population for the bottom 50% of the income distribution. The working class has been excluded from economic growth.

And that is very important to realize that $18,500 per adult, that’s the average income today for health of the US population. It’s extremely low and it has not increased at all since 1980. And I think, now that’s evidence that trickle down is not working as it was supposed to.

Nick Hanauer: Of course, our podcast is devoted to exposing the lies which are neoliberalism and trickle down economics. But as you talked about the decline of GDP growth rate from 2.2% per adult when taxes were high, both personal and corporate taxes were high too.

David Goldstein: The taxes were high on people like you, lower on people like me. [crosstalk 00:16:13]

Nick Hanauer: That’s right.

David Goldstein: Let’s keep that straight.

Nick Hanauer: But you also point out in the book that it’s not just that we’ve lowered, dramatically lowered tax rates on corporations and the wealthy. We don’t enforce the taxes we have. Explain what a big bite that takes out and how it’s done.

Gabriel Zucman: Yeah. Since the 1980s you’ve had a surge in the tax avoidance industry. So the new deal era tax system worked well. Paid very progressive taxes because it was accompanied by an effort on the part of successive administrations to reduce tax avoidance to a minimum, to reduce tax evasion to a minimum. So for instance, Franklin Roosevelt, he spent his time going on the radio shaming tax dodgers, explaining how important it was to pay taxes. This was a price to pay for a civilized society, creating the social norms that make progressive taxation work. And you can contrast that with Reagan. When he takes office in 1981, he gives his famous speech on how government has said the solution to our problems, government is the problem.

And what you’ve seen the data is that immediately after that, the tax avoidance industry booms, it stops expanding, creating new tax dodges that are advertised in newspapers and like toothpaste and you see the text sheltering industry grow enormously, tax avoidance rise a lot. This is important because it illustrates one of the key ideas of the book, which is that tax avoidance, tax evasion, even tax competition. These are not laws of nature. These are policy choices. Sometimes governments choose to encourage them and sometimes government choose to fight tax avoidance and tax evasion by creating the social norms, by regulating the financial industry, the legal industry, the consultants, the accountants that sell tax avoidance services.

That’s important because it shows that it’s possible to reconnect with the tradition of tax progressivity that were so powerful in the US from 1930s to 1970s. That nothing inherent in globalization or in modern technology that makes it impossible to protect the wealthy today. That’s a choice that essentially is ours to make

Nick Hanauer: And this social norm has gotten even worse. You point out in the book, you quote a Trump in a debate actually bragging about paying no taxes, saying it’s because I’m smart. That makes me smart, which-

Gabriel Zucman: That makes me smart.

Nick Hanauer: Yeah. But I’d like to jump in. A big part of our podcast Gabriel is devoted to exposing the fact that economics, as it is experienced by most citizens is mostly a narrative that defines who gets what and why. It’s a story we tell ourselves that instantiates, our social and moral preferences about status, privileges and power. And the neoliberal narrative that has perfectly selfish homo economicus at the center of it teaches people what Trump says, that the more selfish we are, the more prosperous we become. That therefore selfishness is righteous and that the rich are job creators and the more money they have, the more jobs they’ll create.

And I’d love for you to try to connect if you can, traditional orthodox economic theory to some of these narratives and how they reshaped our politics and our policy over the last 30 or 40 years.

Gabriel Zucman: I agree with you that orthodox economics theory has played unfortunately an important role in the decline in tax progressivity, in justifying it and in the rise of inequality. So one thing that’s striking for instance is economics have been emphasizing this idea that taxing capital is a very bad thing and that kills capital accumulation and that eventually it reduces wages for workers. And it is so costly that ideally would like to have zero capital taxation according to the economy, according to these models. And it turns out that this vision, which might seem extreme, in fact it’s very influential. It’s influential way beyond economics.

Nick Hanauer: For sure.

Gabriel Zucman: Sometimes when I talk about tax lawyers or with policy makers in DC, they tell me, quite frankly, oh, we thought that economists had demonstrated, had proven that capital should not be taxed, that the optimal tax rate is 0%. And therefore the fact that the corporate tax rates being curtained or [inaudible 00:21:35] from 35% to 21% last year. It’s going in the right direction. The fact that the estate tax is dying, that’s something that’s going in the right direction. The fact that we are taxing dividends much less than wages, it’s going in the right direction, all of that is good. The problem is that-

Nick Hanauer: Is a fucking lie.

Gabriel Zucman: … the models. It’s electronic. It’s always the same problem, it might make sense in a certain model of the world where you have perfectly irrational agents who are very sensitive to differences between future consumption and today’s consumption. And so if future consumption is a bit more expensive than current consumption or they’re going to save less and consumers [inaudible 00:22:20] today, I mean you can get models like that where is not a good idea to tax capital. But then you look at the data and the data shows that when capital was highly taxed in the US, and it was highly taxed in the ’50s, in the ’60s, it was 50% corporate tax and so on. That’s those were the period of time when investments-

Nick Hanauer: Yes.

Gabriel Zucman: … not low, but was the highest on record and vice versa. Since capital taxation has declined in particular because of the influence of economies in the 1980s, 1990s, saving rate, investment rate has declined. And so the standard model that economies, some economies feel like is just not the right model, doesn’t explain realities. It’s just wrong. And I think are growing, to be fair, too many economies and too many people in policy circles still hold onto that model. But a growing number of people recognize that, and they realize for instance, that what drives capital accumulation is not low taxes, is more like the menu regulations that influence saving behavior. That’s a big lesson from behavioral economics for instance. Just to give one example, if you think about retirement saving.

Nick Hanauer: Yeah.

Gabriel Zucman: One policy to boost retirement saving is to create tax free retirement accounts. And many studies show that when you do that, what people do is they shift their assets from taxable accounts to tax free accounts without increasing their saving, the overall saving rates in any measurable way.

Another policy to boost retirement saving is to automatically enroll workers in a pension plans or in individual retirement accounts, default options on nudges. And many articles show that this has the biggest effect on the saving rates. Default option, nudges, automatic enrollment, increased pension, saving for retirement and increase the overall saving rates. What this shows is people respond much less to tax incentive than what the naive free rational model suggests and what matters much more is regulation, nudges, default options.

Nick Hanauer: But let me just add a point of clarification because you’ve missed by far the best way to get people to save, which is to pay them enough to live in dignity now and also save, which is what has been missing from our economy.

David Goldstein: You can’t save for retirement when you’re making $18,000 a year.

Nick Hanauer: A year.

David Goldstein: And paying 15.3% right off the top in payroll taxes.

Gabriel Zucman: Yeah, you are absolutely correct. The best way is the stagnation of working class income. It’s impossible to save on such a low income.

Nick Hanauer: Yeah.

Gabriel Zucman: And another factor is also the deregulation of the financial industry. When you have the big industry that sells consumer credit or payday loans, that’s not regulated, that’s going to make it easier for our people to borrow, to go into debt and to save less. So there are many factors. And the point however, is that it’s not tax incentives that matter. And so the idea that by de-taxing catalogs you’re going to boost capital accumulation and growth and wages, just has no substance. Is just wrong.

Nick Hanauer: So one of the things I loved about the book is that, well, it starts very depressing in laying out the situation now and how we got there. You actually sound really optimistic that the solutions are doable. So it’s our favorite, the benevolent dictator question, what would you do to fix this problem?

Gabriel Zucman: Oh, lots of solutions. There’s no magic bullets, but there is a combination of changes that all drooble in it, that can make a real difference. In my view, it all starts with fixing the corporate tax. The corporate tax might seem like something that’s boring, not very important, actually is very important because if there’s no corporate tax, you cannot have a progressive income tax. If the corporate tax rate is 0%, then the rich incorporates, they earning income for their companies and they avoid taxes this way. And they don’t pay themselves dividends that they reinvest or their income and the income tax, is just dead and it has morphed into a mere consumption tax.

So if you want to save the progressive income taxation, it starts with speaking to corporate tax. Fixing the corporate tax is possible. Right now we are allowing corporations to book profits in Bermuda, in the Cayman Islands, in Ireland where profits are taxed at a very low rate. It would be very easy to say, look, if you book earnings abroad and these earnings are taxed at a low rate, the US is going to collect the missing tax. If you are taxed at 2% in Ireland and the corporate tax rate is 30% in the US we, the United States are going to tax your Irish income at the rate of 28% so as to establish, to apply your 30% country by country mean on tax rate.

So when you fix a corporate tax like that, then you can make them up, you can make the income tax more progressive, higher, moderate income tax rate. But what’s important to understand is that even that would not be enough, especially when it comes to texting the very wealthy. So remember, one of the problems today is that BNS pay a lower tax rate than every other income group, only 23% of their income in taxes. And the reason for that is that when you are very wealthy, you can own a ton of wealth while having a little taxable income, wage reporting, legal income.

One striking example is Warren Buffett. He is worth about $80 billion according to Forbes magazine, but he’s taxable income is only something like $10 or $20 million. The reason for that is he’s the main shareholder of DXA Hathaway. He instructed the company not to pay dividends and so he doesn’t receive dividends. The only taxable income he has is when he sells a few shares, realizes a bit of capital gains. And you see the problem, you see that even if you increase the tax rate in capital gains even to 100% let’s say in the case of Warren Buffett, he would pay $20 million in taxes. This would still be essentially nothing for him. 0% of his wealth or 0% of his true economic income.

That’s why for billionaires, you need a wealth tax. The proper way to text the super wealthy is through a progressive wealth tax. The income tax is not enough. And so we make proposals in the book and the idea of wealth taxation, especially a high wealth tax rates. And billionaires now is becoming mainstream. You have both Elizabeth Warren and Bernie Sanders who have proposals to have wealth taxes, especially on billionaires, that could make a big difference. So for instance, even a 3% tax rate on wealth above $1 billion would double the effective tax rates on the top 400 richest Americans. To make 23% with a 3% wealth tax, it would become 46%.

So what we’re saying in the book is, look, there is this long tradition of tax progressivity in the US. It’s possible to reconnect with that tradition, but it needs to be modernized, it needs to be adapted to the reality of the 21st century. That means fixing the way we tax multinational companies, fighting tax havens and creating a new tool, a progressive wealth tax on the super wealthy.

Nick Hanauer: You advocate for putting more into enforcement. I think in the book you said the IRS brings a knife to a gun fight. How do we do a better job on enforcement?

Gabriel Zucman: First of all, by increasing the IRS budgets, which has declined enormously over the last 10 years. That’s easy. That’s an investment that would have a very high return. You put more money-

Nick Hanauer: You get more money. [crosstalk 00:31:04]

Gabriel Zucman: … at the start. And you get much, much more money. Okay. So that’s probably the highest rates of return on public investment at that stage. You look at the evolution of audits rates for very high income earners. They have collapsed over the last 10 years, essentially divided by a factor of three people with AGI with gross income above $10 million. The audit, rate used to be above 30%, only five, 10 years ago and today it’s less than 10%. So that’s number one.

Number two is to create what we call a public protection bureaus. So the idea is to create an agency that would regulate the tax dodging industry. Because the main thing I’ve learned by studying tax evasion over the years is that tax evasion is not a psychological thing. It’s not like people wake up in the morning and say, oh look taxation is theft and I’m going to evade Texas. The way it works is, for the very rich is that it’s essentially driven by the industry, what you could call the supply side of the market for tax evasion. So this whole industry of accountants and lawyers and bankers that sell a tax avoidance and tax evasion services.

And so you need an agency to regulate that industry to make sure that when any, a new tax dodge is invented, whether it is for individuals or for corporations, that these agencies made aware of that. And any product that violates the economic substance doctrine should be outlawed. That’s important. Economic substance means that any, there’s a clause in US law and also is in other countries that says that any transaction that has the sole purpose of avoiding taxes is illegal. Now lots of such transactions today when you look at for instance, Google alphabets, they create each shell companies in Bermuda, sold their own intellectual property to the Bermuda subsidiary and does nothing of substance that’s happening in Bermuda. The reason why they did that is just to avoid to pay taxes.

And so it would be relatively easy for you as authority to say, that’s tax evasion, that’s illegal. But you need an agency that monitors all of these closely and you need resources and you need the political will to enforce the economic substance doctrine.

Nick Hanauer: Yeah. And ideally in prison, the people who do that. They can’t find them.

David Goldstein: They can’t find the company or the people … It’s like, oh, well if I get caught, I’ll have to pay some of the money back. And in the end we’re talking about, we’re talking about real money here. I know you went into the book, you were looking at optimal tax rates. What is the rate that would raise the most money? And I think you came up with 60% on average for the top 1%. That raises, if I remember correctly, you said $750 billion a year in additional taxes.

Gabriel Zucman: Correct. So the idea is there’s no optimal tax rate in the sense that it’s not for economies or anybody to decide what the tax rate should be. It’s for the people to decide, for democratic deliberation and the vote. But there is a tax rate that maximizes revenue collection. And what we do in the book is we compute with that tax rate might be for the top 1%, and what we find is that it’s around 60%. That means if the top 1% was taxed at 60%, on average that’s what would maximize tax collection from the top 1%. It’s not 100% obviously because if you tax the people a lot, at some points, they start working maybe a bit less or you have some behavioral responses.

So you have to know the tax rate is not … The revenue maximizing tax rate is not 100%, but 60% average tax rate, which would correspond to a 75% marginal income tax rates. Think of the marginal tax rate applying to more than $500,000 in income. And if you didn’t, if US you did that, yes, it could collect four extra points of national income in tax revenue each year. So essentially erasing the decline in the tax to GDP ratio that we’ve seen since the late 1990s. Remember late in ’90s, tax GDP ratio was 32%, today it’s 28%. Just by taxing the 1% more you can get four points of extra revenue. And this is something that some people might say, wow, this never happened and it’s impossible. Well, except that it has happened in the past. Again, the effected tax rates were not far from that in the ’50s and the ’60s.

Nick Hanauer: Not by coincidence. The economic growth rates in the country with the highest, more or less in its history and the political cohesion was also extremely high.

David Goldstein: Everybody was chipping in.

Nick Hanauer: Exactly. It was all for one and one for all.

Gabriel Zucman: Yeah. And it’s not so surprising because I think the big lesson from economic history is that what makes countries prosperous is not low taxes on the super rich, is not the glorification of billionaires. It’s not that, it’s investments in education for all, health care for all, investment in public infrastructure, in children, early education. That’s what makes countries and communities prosperous.

And it turns out that these things, for the most part, they would call it a tax revenue because most of these things are better done by the government than the private sector. Of course, we can have a debate on exactly who should do that. But by and large, the big lesson from the economic success stories of the 20th century is that education, health, infrastructure, early education is key for development and is better done for the most part by the government.

Nick Hanauer: Absolutely. We always have to ask this, why do you do what you do?

Gabriel Zucman: I do this because I think inequality is indeed the defining challenge of our time. And I look at history and I see the that there are a lots of policies that affect inequality. Of course, antitrust, financial regulation, access to higher education, all of that matters a lot. But taxation and progressive taxation in particular, probably is the most important one in the sense that historically the big changes in income and wealth concentration have been linked to changes in progressive taxation. And so if we care about inequality, if we take seriously this idea that it’s one of the defining challenges of our time, then naturally, you need to think about how to make progressive taxation work in the 21st century.

Nick Hanauer: Thank you so much for being with us and thank you for your work-

Gabriel Zucman: Thank you so much.

Nick Hanauer: … and for doing the book and for being an influence on the policies and narratives that are emerging in this presidential cycle. I will tell you, it’s not making my friends happy, but it has been … I think it’s been super constructive and peaceful.

David Goldstein: It’s making my friends happy. And Nick there’s more of us than there are of you.

Nick Hanauer: It’s true. It’s true.

Gabriel Zucman: All right.

Nick Hanauer: Thank you so much Gabriel.

Gabriel Zucman: Thank you so much. Thanks for having me.

Nick Hanauer: Okay, we’ll talk soon. Bye bye.

Gabriel Zucman: Bye bye.

Nick Hanauer: So Goldie, did that conversation make you happy?

David Goldstein: Oh absolutely. Because you’re going to get yours someday Nick.

Nick Hanauer: Someday.

David Goldstein: You can talk about the pitchforks all you want.

Nick Hanauer: I’m moving the Bermuda.

David Goldstein: Yeah. Well, this is the thing. You can do that according to Gabriel and if we redo our tax code right, it won’t do you a lick of good.

Nick Hanauer: Yeah. It’s astonishing that you should … Why wouldn’t we just do that? Because …

David Goldstein: Right. This idea that if you pay 2% in Bermuda and the tax rate is 30% here, we’ll just charge you the other 28%. I want to tell you, I’m sure you don’t do your own taxes, right?

Nick Hanauer: I do not.

David Goldstein: You do not do your own taxes.

Nick Hanauer: Yeah.

David Goldstein: Not only do I pay taxes, unlike rich people like you, but I actually do my own taxes. And because I’m a homeowner and I get that unfair home mortgage interest deduction, I’m one of the 25% of Americans who actually itemize. And one of the deductions I get is I get to deduct some of my local taxes from my income, right? So when I pay tax in Washington state, that comes off what I have to pay the federal government. Why shouldn’t it be the same way if you pay a tax, your 2% tax in Bermuda or Ireland or whatever. Okay, that’s fine. We’ll deduct that. But the rest of it, you’re going to pay anyway regardless of where you-

Nick Hanauer: For sure. And I’m very sympathetic to the idea that if you do business in Ireland, you should pay taxes in Ireland at their rate on the business that you do-

David Goldstein: Apple should pay Irish corporate income tax on every single Iphone it sells in Ireland. [crosstalk 00:41:09]

Nick Hanauer: It sells in Ireland. But if you sell an iPhone in the United States of America, you should pay taxes on all of that income.

David Goldstein: Same thing with Google and Facebook.

Nick Hanauer: Right. Absolutely.

David Goldstein: And all the other intellectual property we’ve parked in tax havens.

Nick Hanauer: Well, I mean, I thought it was a fascinating conversation. He’s an amazingly articulate guy and I think it really is obviously an incredibly important issue in the way in which they have exposed in particular the ways in which the super rich both earn money but also shelter it both legally and illegally from tax, I think is really, really constructive. And just helping people to understand that when Jeff Bezos’s wealth goes from 80 billion to 100 billion in a year, that’s income. Like that is, that something good has happened to him and that there should be some kind of way to tax that. And if he pays himself, I think $80,000 a year, that’s not a true representation of what’s actually going on there. We have to find ways to account for that. So anyway …

David Goldstein: Yeah, I think. And there’s something else we’d actually didn’t get to in our conversation that he mentions in the book, which speaks to a topic we’ve talked about, but have struggled with, which is trade, what to do about trade. These proposals he has on corporate taxation internationally, where in the book they propose that there should be whatever the numbers, maybe a 25, an international agreement on a 25% minimum corporate tax rate to get rid of this shopping for lower tax rates. How do you get that? Well, he proposes it should be integrated into all of our future trade agreements.

Nick Hanauer: Yes, it’s a obvious, a brilliant.

David Goldstein: You want to be in on the trade agreement, you have to have a minimum 25% corporate tax rate.

Nick Hanauer: Right, right.

David Goldstein: Done deal. Also you’re not in the trade zone.

Nick Hanauer: Exactly. And then you instantly get rid of all this  shenanigans.

David Goldstein: And let’s be clear what these companies are really getting with these big corporations like Apple and Google and Facebook and Disney. What they are getting out of these trade deals is international protections for their intellectual property. So they want these trade deals because Disney wants to make its money off the mouse all over the world, and that’s just got to be a precondition. You’re going to pay your taxes all over the world to.

Nick Hanauer: It’s a super smart idea. Well, anyway, it was a fun conversation. We will be hearing lots more from Gabriel in the future, I am sure.

David Goldstein: In our next episode we get to chat with our old friend and collaborator, Matt Stoller about his new book, Goliath, which is a detailed analysis of the history of monopoly power in America. It’s super interesting book and very timely.

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