Trickle-down economics would have you believe that the rich are job creators. For decades we’ve been told that the more money the wealthy have to invest in creating jobs, the better the economy will be for everybody. This lie has had catastrophic effects: the top 0.1% of Americans now own more wealth than the bottom 90% of Americans combined. As debates rage among our leaders over stimulus bills and Americans battle their way through this economic crisis, the case for taxing the wealthy has never been as strong as it is now—so this week we’re re-surfacing this episode, originally published in 2019. Class traitor Abigail Disney and tax expert Chye-Ching Huang make the case for taxing the rich.

And we highly recommend Abigail Disney’s podcast, All Ears:

Abigail Disney is a documentary filmmaker, philanthropist, and social activist. She is the granddaughter of Roy Disney, the co-founder of the Walt Disney Company.

Twitter: @abigaildisney

Chye-Ching Huang is the Director of Federal Fiscal Policy at the Center on Budget Policy Priorities, where she focuses on the fiscal and economic effects of federal tax and budget policy. She rejoined the Center in 2011 after working as a Senior Lecturer at the University of Auckland, where she taught tax law and conducted research in tax law and policy.

Twitter: @dashching


Show us some love by leaving a rating or a review!


Twitter: @PitchforkEcon

Instagram: @pitchforkeconomics

Nick’s twitter: @NickHanauer


Nick Hanauer: Hi Everyone. This week we’re re-releasing an episode that came out over a year ago with Abigail Disney and federal fiscal policy expert, Chye-Ching Huang. I wanted to trot these conversations back out because as debates rage among our leaders over stimulus bills and Americans battle their way through this economic crisis the case for taxing the wealthy has never been as strong as it is now. And I also wanted to tell you that Abigail Disney has her own podcast called All Ears, which I’m pretty sure you’d like. Abigail has joined me in being a really loud voice among rich people demanding to be taxed more. She’s an award winning documentary filmmaker and now she uses her podcast to speak out against corporate greed and systemic economic inequality. You may remember that she has famously confronted the Disney company about their labor practices and wages. You could even say she’s made a name for herself by taking on the capitalists who give guys like me a bad name. And Abigail has really cool guests on her podcast like Elizabeth Warren, Stacey Abrams, Mary Trump, and David Byrne. The podcast is available wherever you get your podcasts. So, if you like this show I think you’ll also like All Ears and I hope you enjoy this episode. We’ll be back with new content next week talking about banking regulations with Stanford economist, Anat Admati.

Having tons and tons of people with billions or tens of billions, or now 100 billion, does not make a lot of sense, and it’s really hard to defend it.

Abigail Disney: A billion is a thousand million, and when somebody asks you to just not have a billion, what you’re saying is, $999,999,999 isn’t enough.

Chye-Ching Huang: What’s going on at the top is that a lot of very wealthy people are not having to pay any tax on that income.

Zach Silk: The people who win in a very complicated tax system are those who have the best tax advisors, right?

Nick Hanauer: Right, rich people, as always.

Zach Silk: So, the very rich.

Announcer: 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.

Zach Silk: Hey, I’m Zach Silk, and I’m the president of Civic Ventures. Okay, there is a story, we are told, that if we give job creators, that’s rich people like you, Nick-

Nick Hanauer: Yep.

Zach Silk: If we just cut your taxes, you’re going to go out there and create more jobs, and that would be great for everybody. You’re going to have more money to invest, you’re going to create jobs, it’s going to be better for the economy. By cutting your taxes, somehow I am going to win.

Nick Hanauer: It’s not just that we’re going to create jobs, it’s we’re going to pay people more, and everybody’s going to be better off.

Zach Silk: That’s right.

Nick Hanauer: This is the trick in trickle down economics, anything which is good for the rich is good for everyone, anything which is bad for the rich is terrible for everyone.

Zach Silk: That’s right.

Nick Hanauer: Using that train of flawed economic logic, we pushed through this giant tax cut for rich people in 2017, and it’s really interesting to note what we called it. It was the Tax Cut and Jobs Act, because the main public argument Trump and Ryan were making at the time is that if you cut taxes for rich people, everyone will be better off. They claimed at the time that people would literally get a $4,000 raise.

Zach Silk: $4,000, yeah.

Nick Hanauer: “Read my lips,” yeah. They were out actively making this promise, that the average American would get a $4,000 raise. While I might’ve gotten a $4,000 raise, the median family absolutely did not get a $4,000 raise at all.

Zach Silk: Nope. In fact, really the evidence is that wage growth for the average family just has been anemic, it’s been anemic for a long time, despite the fact that we’ve had 40 years of tax cuts for very wealthy people.

Nick Hanauer: For rich people.

Zach Silk: Yeah, the actual wage growth has been basically flat.

Nick Hanauer: Right. Over the last 40 years, the tax rate on super rich people has fallen, essentially, every year, at least every political cycle. In the most recent analysis, when you aggregate all sources of income, the wealthiest citizens now are paying a lower effective tax rate than middle class and working class people. Surely, if it was true that low taxes on rich people created economic growth and jobs and high wages, then we would not have the rising inequality that we have today, but of course, it doesn’t. All that these things do just is really concentrate wealth at the top.

Today, we’re going to go deep on this issue of whether we should tax rich people, and the degree to which that makes sense and is fair. For context, I think it’s really interesting to note that since 1989, the top 1% of Americans have grown $21 trillion richer, while the bottom 50% have grown $900 billion poorer, and the top 0.1% now own more wealth than the bottom 90% of Americans combined. All of this enormous wealth that’s been created is taxed at lower and lower rates, and that entire policy framework rests on this ridiculous trickle down neoliberal idea that the the less we expect of rich people, the better it will be for everyone else.

Zach Silk: You’ve talked about this before, you’ve written about it, and I think it’s really important to understand that obviously, one of the things that’s happening is, this theory is flawed, that if you get a tax cut, that’s going to be better for everybody. Part of the flaw in the theory is that the money just gets stuck, it’s not moving around.

Nick Hanauer: First of all, the economy is not the stock market, and the economy is not the wealth stock of the wealthiest citizens. The economy is the degree to which people in the economy are thriving, which means what’s happening basically to the median family … Obviously we care about what’s happening to everyone, but if you were going to pick a spot to measure, it would be what’s happening to the most typical family in the United States. For those folks, things have been stagnant or declining for a generation, and that’s because, as power has shifted from workers to owners of capital, and as the tax system has been gamed, more and more of the value created by the country gets sucked into fewer and fewer bank accounts.

Again, there’s this neoliberal idea that the bigger those bank accounts get, the better it will be for everybody because that money somehow will be used to invest, and so on and so forth, and it’s just not true. Some amount of concentrated capital is indispensable to the dynamics of a successful market economy, but we have run so far past the utility of even more concentrated capital. A tiny fraction of the capital in the country today is actually used to invest in new things. When you buy stocks in the stock market, you’re not really investing, you’re simply parking money in an institution that will ideally give you returns.

It’s not like that money is then taken and used to build a new factory or to hire more workers, it’s simply not. A handy metaphor is to think about the economy as a circulation system. What you want is a healthy circulation system, and you want money circulating through the economy to get to every part of the economy, and to get there frequently and rapidly, like a body. I hate to do this, but if you think of money as blood, and your body as the circulation system, so imagine taking 90% of the blood and sticking it in your big toe.

This is what concentrating wealth to the degree to which we have means, you’re sucking all of the blood out of the rest of the body and sticking it in this one place, and the more blood that goes there, somehow the better it will be for everything. Obviously, that’s ridiculous, like it’s not true. There are measures like the velocity of money, which is one of the measures of economic health, and that measure is going down, down, down, down in our economy as more and more money is essentially coagulating, essentially, in the bank accounts of very rich people, who then buy financial instruments overseas, or even buying a Picasso for $100 million.

Like congratulations, you own a Picasso for $100 million, but hanging that thing on your wall doesn’t do anything for the economy, whereas if you paid that $100 million in taxes … I don’t care how wasteful the government’s program was, pick it, at least that money is going back into the economy somehow.

Zach Silk: To put a finer point on it, before the Great Recession, the average dollar circulated around the economy 17 times. Today, it’s five times, so just think about what that means for how the money is moving in the economy.

Nick Hanauer: Exactly. Today, we get to talk to some really fun people about the wisdom of much more progressive taxation, and in particular, wealth taxes, which I think is a conversation whose time has come.

Zach Silk: Yeah. One of the ways that you can get people to concentrate their money less, in other words, get the money moving more, is to tax it, which gives people incentives to get that money out of concentrated systems, back into the economy. I think, to me, that’s one of the great reasons to think about a wealth tax. Can you talk about why you signed onto this letter that got famously circulated about it?

Nick Hanauer: Yeah. There are all sorts of reasons to tax huge amounts of wealth, mostly that there’s no social utility in letting somebody have $100 billion. It just makes no sense from the point of view of a society, nobody needs that much incentive, nobody needs that much wealth. If there’s anything that thousands of years of human history have shown, it’s that concentrated power and wealth, that’s not good.

When some friends began to talk about circulating a letter in support of a wealth tax, I felt quite strongly that that was an idea worth supporting. I’m not sure about where we land in specific terms, because there’s a whole bunch of different ways to come at that, but I do think that if you want to have a just and stable society and a fast-growing economy, you have to find a way to de-concentrate wealth in constructive ways, and so why not sign it?

Zach Silk: And our first guest is also a signatory to that letter.

Nick Hanauer: Yeah. Abigail Disney, who is the granddaughter of Roy Disney, part of the Disney empire, she’s a wonderful person and just an amazingly articulate spokesperson around things like wealth taxes and stuff like that. It’ll be really cool to talk to her.

Abigail Disney: Hi, I’m Abigail Disney, I’m a filmmaker, an activist, and a philanthropist.

Nick Hanauer: You’re a recent recipient of an award called Class Traitor.

Abigail Disney: Yes.

Nick Hanauer: Hey, congratulations. Tell us about that.

Abigail Disney: That made me so happy. Well, the people who are traitors to their class upset the way things are, they “disrupt”, as they like to say in Silicon Valley. What really needs disrupting right now is everybody’s total comfort with the state of things as they are. I am thrilled and delighted to be a horrible traitor.

Zach Silk: Nick is jealous, he’s been called a class traitor a lot, but no one’s actually given him an award.

Nick Hanauer: Nobody gave me an award.

Abigail Disney: I’ll put in a good word for you.

Nick Hanauer: Okay. Tell us a little bit about what you’ve been up to to earn you this prize.

Abigail Disney: I have been working long and hard as a traitor pretty much all my adult life, I have with philanthropy, and I work with low income people around New York City and low income women around the world. I have developed something of an ear for what’s happening and how to talk about it, and because I have this last name, when I talk about it, it surprises and even upsets some people, which gets me the ability to talk about it loudly and publicly, so that it gets heard.

I have been speaking up lately about the salary, the compensation structure at the Walt Disney company, which on the top end, is outrageous, it’s beggar’s imagination, and at the bottom end, is inhuman.

Nick Hanauer: You’ve said that having copious amounts of wealth is an empathy killer.

Abigail Disney: Yeah.

Nick Hanauer: What experiences led you to believe that?

Abigail Disney: What I’ve seen among very wealthy people is that the more that they can offer themselves private entrances, private planes, private restaurants, private this, private that, the more they insulate themselves against even having to see what life is like for everyone else. It gives you something of a sense that you’re somehow not the same kind of human, you feel almost like you’re better or special, or just fundamentally different, in a way. I know that a lot of that, at least in my family, started with fear about things like kidnappings and whatever, and that’s an understandable thing, but I think in a lot of cases, it’s about not wanting to look at what you know to be the differences.

Back in the back of your head, you know perfectly well what’s going on for other people, and to be confronted with that on a regular basis is very unpleasant, so it’s like a kind of self-perpetuating phenomenon where you insulate yourself because it’s just not that easy to be around people who have so much less than you. Then as you do that, and you spend less time with people who have less than you, you think about them less. You think more about yourself, and then you insulate yourself some more, and it’s this kind of spiral downward.

Zach Silk: The idea of taxing wealth has suddenly become very popular in a way that it had not been before, both because we have presidential candidates talking about it directly, but then probably more importantly, the wealthy themselves are talking about it. As you know, Nick is talking about it quite a bit, I know you’ve been a proponent of it. Could you talk a little bit about why we should do it?

Abigail Disney: There’s a perception out there that when you have wealth, it just sits there like a blob, it doesn’t ask anything, it doesn’t do anything, it’s this inanimate object, but no, actually, it’s invested in things and it’s moving constantly, and flowing more like a river than a lake. It’s present in everyone’s lives in the form of ownership or shares and bonds, and other kinds of investments, so first of all, money isn’t still, money moves. When it moves, it creates obligations to the high functioning legal system that it’s in, all of the things that government supplies to make sure that all goes smoothly.

First of all, wealth asks something of society in terms of protecting it, and therefore, owes something to society, to let it ask in debt, so that’s the first thing. The second thing is, because the word “billion” and “million” are so similar to each other, I don’t think people fully comprehend what a billion is. When you say, “Everything over a billion is ridiculous, billionaires should be illegal,” and all that kind of thing, I’m not sure I subscribe to the idea that there’s a limit to how much wealth you should have, but I do think we should all just absorb the idea that a billion is a thousand million.

When somebody asks you to just not have a billion, what you’re saying is, $999,999,999 isn’t enough, and it’s hard to imagine a lifetime that would require so much that that kind of money would not be enough for you to live completely well. I believe there is such a thing as too much money, I believe it taxes society, and it should therefore be taxed. I believe it’s corrosive to democracy, because it is hard to resist the temptation to use your money to protect your money. I believe that it would have a better life and do better, more constructive things if it were redistributed, frankly. I know that’s one of those illegal words you’re not allowed to use, but I think some redistribution is necessary.

Nick Hanauer: There’s this quip out there now, I think it was created by one of AOC’s policy advisors, that every billionaire is a policy failure. It sounds glib, but I do think that there’s an important argument being made there that needs to be taken seriously, that certainly today, within the context of so much economic distress and so many people in this society being economically challenged, having tons and tons of people with billions or tens of billions, or now $100 billion, does not make a lot of sense, and it’s really hard to defend it either economically or morally. I think the good news is that we’re finally beginning to have those conversations, and that the landscape has shifted enough where folks are seriously beginning to consider these issues, which is cool.

Abigail Disney: Exactly. You mentioned the $100 billion, it’s especially indefensible when you know that there are people working for you that can’t put together enough money to feed themselves every month. That’s the part that makes it especially egregious.

Nick Hanauer: Right, no, absolutely. It would be one thing if the majority of poverty in our country was related to people not working, but the truth is that the majority of poverty in our country is a consequence of people actually having jobs and being underpaid.

Abigail Disney: Exactly, and that was never the bargain we made as a society.

Nick Hanauer: Right, and that’s the real problem, is that if you’re a large, profitable corporation, having even one employee that is struggling to get by, it’s just not morally defensible. If that’s true, then there’s something wrong with the arrangement and something wrong with the standards we’ve held market capitalism to.

Abigail Disney: Exactly. There’s something to be learned from the things that make you wince when you hear them, and nobody, not even the biggest billionaire, doesn’t wince when you talk about what they have as compared against what people at the bottom have. You need to listen to that, that’s your conscience wincing.

Nick Hanauer: That’s true. Have you thought carefully about any of the wealth tax proposals that have been bandied about, do you have a favorite? Do you have a perspective on what’s the fairest and most effective, and best approach, so on and so forth?

Abigail Disney: I think that it should be targeted to what is a reasonable rate of return for $1 billion invested, like if you assume it’s something like 8%, then I think the wealth tax should be something like 5%. You still are staying ahead of inflation theoretically, and you’re still accumulating money, if that’s important to you, but it’s also flowing a bit, the amassing of these vast portions, which is not such a bad thing. I think it should start before $1 billion, I think it should start probably around $500 million or something like that. Now, that’s all in the eye of the beholder, and I like the idea that in terms of valuation, one of the first things I would say to you is, “But we can’t value anything!”

I say, rich people value their money all the time, all the time. Every time they look at a balance sheet, somebody has valued what they owned, so that’s a completely false hesitation that people have. We ask people to value themselves, and if the government feels they’re undervaluing something, then the government is free to buy it at that price.

Nick Hanauer: Right, exactly.

Abigail Disney: That’ll keep people honest.

Nick Hanauer: This is the easy way to solve this whole problem-

Abigail Disney: Exactly.

Nick Hanauer: Of what’s the fair value, is you can write down any number you think on anything in your portfolio that you have, and that gives the government the right to purchase it at that price. If it’s massively undervalued, then they’ll purchase it from you, and if it’s fairly priced, then they won’t.

Abigail Disney: Right. Then the other thing they come back at you with is, “But government is so bad and spends it so badly, shouldn’t you put it into philanthropy?” We’re learning that philanthropy isn’t necessarily always doing that very well either.

Nick Hanauer: Yeah, for sure.

Abigail Disney: Some elements of the philanthropic role have basically bludgeoned the public education system almost to death, so there’s a huge amount of government spending that needs to be restored that was helping people, that was doing good. If they had only a little more in the public education system, they could do it better. There are plenty of places to spend all of this, and if society wants it, they can dedicate it to certain things like spending on education and infrastructure, if they feel like it shouldn’t be going into any of the rest of bureaucracy.

Nick Hanauer: One of the reasons that we think about the demonization of government has largely been by folks who want to defund it because they don’t want to actually pay into the system, and they have a lot of devious reasons why. The reality about government, as it’s constructed here in the United States anyway, is that it’s a democratic process. It allows for all of these inputs from everybody to determine how we’re going to make these investments. The problem with private philanthropy, of course, is it’s left to one individual or a group of their advisors to determine how that’s going to be distributed. That’s no more efficient than what we would do through a democratic process, and I think that is the-

Abigail Disney: Exactly, and there’s no structure by which they hold themselves or anyone else accountable either. In philanthropy, there’s very seldom a backward gaze, and if you funded a school that systematically molested little girls, you just pull up roots and go to another country, and start the same school in that other country. At no point is anyone going to say to you, “You need to stay in this country and start a restitution fund, talk about sexual violence,” all of this, there’s no structure by which anyone is ever held to account, not just for their inefficiencies, but their outright harm that they create when they don’t think about their philanthropy.

Nick Hanauer: Yeah, and philanthropy, like all other human endeavors, is fraught with risk and complication. Sometimes what you do works out, and sometimes what you do doesn’t, but I think you’re raising an important issue, that there isn’t any public accountability. For the best of intentions, create a bunch of harm, but no one can hold you to account.

Abigail Disney: I have learned from philanthropy that the road to hell is actually paved with good intentions.

Nick Hanauer: Yes, it is. Yes, it is.

Zach Silk: I’m curious, I’d like to ask both of you, there was a time in this country when you could imagine someone, frankly, like your grandfather, or maybe your own father, Nick, where you could be pulling yourself up by your bootstraps, start a big company, become fabulously wealthy and be rewarded, and know that you’re part of an overall system that would allow someone else behind you to have that happen. It feels to me like that is less and less possible, that most of the stories we have of people who’ve had tremendous success now, they already started several rungs up this ladder, and they’re busy cutting down behind them the rungs to get there.

It really is, candidly, it feels very fundamentally un-American to me, but it’s more and more true that part of what’s happened is as we’ve concentrated this wealth at the top, we’ve provided less and less avenues for people to achieve that kind of success.

Abigail Disney: Could I say something about the bootstraps metaphor?

Zach Silk: Yeah, please.

Abigail Disney: Because I want to observe, if you sit down and you’ve got boots with straps on them, I want you to try and pull on them and see how far you get, right? It’s a metaphor that suggests impossibility or futility, no one pulls themselves up by their bootstraps. Do you know, when my grandfather proposed to my grandmother, they were 35 years old, which was very old for the time, it was 1925. She’d been out working as a single woman for a lot of years and had saved money, she loaned those guys $2,500 from her own personal savings to bail them out. They had went through a series of debt crises, and therefore, get them out of another hole they had dug for themselves.

Nobody does this on their own, there are communities of people, there are structures in place, nobody pulls themselves up by their bootstraps. We need to just kill that metaphor once and for all.

Zach Silk: Absolutely. What’s super interesting is that when you really dig into the histories of our country’s most successful people, everybody started on third base. It’s really quite astonishing, when you take a look at where most folks started, very few people were born from a broken family in a rural community, with parents that didn’t have any education, and you just somehow magically made it to be a Fortune 500 CEO. In fact, you were born in Connecticut and went to Chote, and crawled your way into Harvard, and somehow magically are now a CEO of a Fortune 500 company.

Abigail Disney: By the way, Donald Trump wasn’t just born on third base, he was like on his second brat and born on third base. This is ridiculous, to call himself a self-made man, it’s just ridiculous, and that’s much of the Fortune 500.

Nick Hanauer: People always ask me this, I’m going to ask you this: how are your peers reacting to your class traitor-ism, and the idea of a wealth tax, and so on and so forth?

Abigail Disney: I choose my peers carefully, so it’s a bit of a stacked group, so I actually don’t surround myself with very many super wealthy people. Basically, my peers love what I’m saying, because if you’re anything less than a billionaire or a $500 millionaire or a $200 millionaire, you can see the reason in this, and that’s a hell of a lot of people, kind of everybody.

Nick Hanauer: 99.99%.

Abigail Disney: Exactly, exactly. Anybody under 35 loves me, and that sounds obnoxious, but somebody said to a friend of mine when I was talking on the phone with her, he was like, “Oh my God, you know that woke Disney princess?”

Nick Hanauer: Yeah, that could be on your gravestone, “woke Disney princess”.

Abigail Disney: I was loving it. The young ones are really raring to go and talk about this, and this is a really important thing too, we should listen to them.

Nick Hanauer: I agree.

Zach Silk: That’s great. We have a question that we always ask every guest at the end of these interviews, and we’re curious, why do you do this work?

Abigail Disney: From the time I was very small, none of this fit naturally with me in my heart. I just always felt like I had to offer what I had to everyone around me, it’s just like a compulsion, almost. I can’t even imagine doing anything else, it’s just what I have to do.

Zach Silk: Love it.

Abigail Disney: I love talking to you guys, you’re fun.

Nick Hanauer: Abby, thank you so much for chit-chatting with us and being on the Pitchfork Economics podcast.

Abigail Disney: Yeah.

Nick Hanauer: I know that we’re talking about doing some kind of other fun things together, so we’re-

Abigail Disney: Yeah, looking forward to it.

Nick Hanauer: Okay, thank you so much.

Abigail Disney: Take care.

Nick Hanauer: Okay.

Zach Silk: Okay, thank you.

Abigail Disney: Take care, bye.

Nick Hanauer: Bye-bye. That was a great conversation with Abigail Disney, to make the moral case for why we should be taxing wealth. As you know, we like to get wonky around here, so we thought we would talk to the chief wonk when it comes to federal fiscal policy, and that is Chye-Ching Huang She’s at the Center of Budget and Policy Priorities, she was also previously a senior lecturer at the University of Auckland, where she taught tax law. We’re going to hear more about what she thinks about the US federal tax policy situation, and specifically, what we should be thinking about when it comes to wealth taxes.

Chye-Ching Huang: I’m Chye-Ching Huang, I’m the director of federal fiscal policy at the Center on Budget and Policy Priorities in Washington, DC. Effectively, what I do is I focus on the economic and social effects of tax and budget policies.

Nick Hanauer: Isn’t this an interesting time to be in your job?

Chye-Ching Huang: Fabulous and fascinating time.

Nick Hanauer: Let’s take a quick look backwards, to the Tax Cut and Jobs Act that was passed in 2017. Tell us a little bit about that, and your perspective on what it accomplished, and what they said it would accomplish.

Chye-Ching Huang: Yeah, it really made everything worse, didn’t it? It added $1.9 trillion to deficits, the bulk of which went to high income people and large corporations, on the theory that if you cut taxes for wealthy people, it would trickle down ultimately to workers through increased investment and increased productivity. We haven’t seen any signs of that happening, and I don’t think we should’ve expected to see that, given how that’s worked out in the past.

To pay for some of those tax cuts, there were cuts made to health care provision through the Affordable Care Act, and taxes were raised on individuals across the board in the long run, through a slower measure of inflation, so effectively, just very slowly over time, raising taxes on people across the board. It took us backwards in terms of where we need to be in terms of revenue to fund critical priorities, it made after tax incomes more unequal instead of less unequal.

The thing that makes it kind of special compared to other big regressive tax cuts that we’ve seen in the past, is that it did so in such a way that it’s such a complicated law, and behind that complexity are a whole lot of new ways for high income people and large corporations to game the rules to avoid tax. Unlike some of the just straight out rate cuts for very high income people that we’ve seen in the past, this new law poses a threat to the integrity of the tax code, by creating a whole lot of new opportunities for wealth and income to just disappear off tax returns.

Zach Silk: Wow.

Nick Hanauer: Couple of follow-up questions. Of the $1.9 trillion in tax cuts that the act represented largely, what proportion went to the top income earners, top 10% or top 1%, however you-

Chye-Ching Huang: Sure. That’s one of the questions where, because it’s complex to have things phasing in, phasing out, permanent things, temporary things, all of which, some of the proponents of the law were very clear about, they were just trying to cram more than one pound of sugar into a one-pound box, because they were trying to use this process to get the tax law through with only Republican votes in the senate. They were getting around budget rules and trying to get more tax cuts than the $1.5 trillion that they’d allowed themselves earn.

It depends on when you look at it, but overall, the basic picture is that even if you take the metric where you look at how much it raised after tax incomes of people at the very top versus people in the middle, even considering that their incomes were much bigger to start with, it does basically twice as much for people in the top 1% as it does for people in the bottom 60%, even in the years where it is the least regressive. Even being very generous, it’s a very regressive law that increases inequality.

Zach Silk: I’m sure you saw, because it was big news, that we heard for the first time in history, US billionaires are now paying a lower tax rate than working class people, or at least that’s what some new data shows. Can you reflect on that news, which I’m sure is not news to you, but it was certainly news to many others, and then how this tax cut fits inside of that?

Chye-Ching Huang: You’re referring there to the research out by [Zuckman and Seyers 00:33:42] that was very striking, and I think people will, as they absorb the data that they’ve put out, will try and figure out exactly how precise the estimates are. I would abstract out and make the big point that this research has pointed towards, is an incredibly important point. The reason why it’s a big step forward in research is that what they’re trying to do is to count all of the sources of income of people at the very top of the income distribution, when figuring out how much tax they pay as a share of their incomes.

A lot of that income doesn’t show up on tax returns, and it doesn’t therefore show up on a lot of the traditional sources that we look to to figure out what the incomes of the very, very high wealth people is in the country. A lot of what I’m talking about there is unrealized capital gains, so the growth and the wealth of people year-to-year. If you think about someone like Jeff Bezos, he takes a salary of about $80,000 a year, that’s what’s showing up on his tax return. Maybe he sells some stock, he’s sold about $6 billion worth of stock over the last 10 years, sometimes that will show up on his tax return.

In economic terms, that’s really not his income. His income is the $100 billion worth of gain in the value of his Amazon stock, and none of that ever shows up on tax returns, and most of that doesn’t show up in the traditional sources that we look to to see the growth in incomes and wealth of the very richest people. What Zuckman and Seyers have tried to do is to say, “Look, if we made an estimate of those sorts of incomes and gains at the top, and then we calculated taxes as a share of those true incomes, what’s going on at the top is that a lot of very wealthy people, very high income people are not having to pay any tax on that income, because unlike people that make a wage or a salary, we have our taxes withheld from our paychecks, we may have to pay a bit more at the end of the year if we didn’t withhold enough, Jeff Bezos doesn’t have to pay any tax on that gain in the value of his stock as it rises, if he doesn’t sell it.”

That to me is like the big picture important thing that this new research is putting a spotlight on, is just how much of that income from wealth is completely not showing up in tax returns and some of our data about inequality, and that therefore effective rates are very low at the top. We should be subjecting that income to tax.

Nick Hanauer: Can you give us a couple or at least one example of the kinds of loopholes the new tax law created that makes it possible to get out from under taxes, just to [dimensionalize 00:36:31] it for our listeners?

Chye-Ching Huang: One of the things that’s driving inequality that you’ve all talked a lot about is how a lot more income is going to people who hold businesses, or who hold assets that just grow in value, as opposed to labor, so wages and salaries over time. That shows up in the tax system too, but it shows up in a couple of different ways. One is, in addition to a greater share of the income going to capital, the tax code has lots of preferences, like the one that we just talked about for unrealized capital gains, that doesn’t get taxed every year on an annual basis like wages and salaries. That also creates a big incentive for high income people to pretend that their income from salaries and wages, even to the extent that they do have it, is capital gains.

One of the big things that the 2017 tax law did was to make that problem worse, in the following way. It creates a big new tax break for people who report that they have business income, and they report it on their individual tax returns, so this is pass-through income. If you have a business, you can be a C-corporation and pay the corporate tax rate, and then pay dividends taxes or capital gains taxes, should you ever get a return through a dividend or selling your stock. That’s one thing you could do.

You could opt to do a different thing, and say that I’m going to report every year my business income on my individual tax return, and just have it face my individual tax rate, so the tax rate that most wages and salaries face. There can be tax benefits to doing that, and we’ve seen that a lot more income has been reported as this so-called “pass-through” income over time. The 2017 tax law said that you basically get a 20% reduction in your rates compared to salary and wage earners if you have that pass-through business income, as opposed to wages and salaries.

Think about that, it basically means that if you are a high earner and can disguise your income as pass-through business income, it basically gets you a 20% tax cut right off the bat on the top marginal tax rate, almost making the top marginal tax rate optional, to the extent that you can reclassify your income and get this new tax break.

Nick Hanauer: When you say a 20% cut, does that mean you would take your tax rate from 40% to 20%, or 20% off 40%?

Chye-Ching Huang: 20% off 40%, so it operates as a deduction. For a lot of extremely high income people, think about where a lot of the pass-through income comes from. We’re not talking about high street small businesses, we’re talking about real estate developers, we’re talking about financial services firms, we’re talking about multi-billion dollar businesses. A 20% cut on the rate that that income faces can be very lucrative, and if you’re a very high paid executive or CEO or financial services provider, structuring your business to get that tax cut is extremely lucrative.

This sounds complicated enough as it is, but on top of that, they created a whole lot of different rules about what sorts of industries and businesses can and can’t get the tax break. It’s really difficult to come up with a rule of thumb as to whether any one person is going to qualify, which of course, is a massive burden for the tax advice industry. They’ve been quite upfront about calling it a bonanza for them, that they’re saying that their basic job now is to sort of drive truckloads of money through this big new loophole.

Zach Silk: Interesting.

Nick Hanauer: Yikes.

Zach Silk: Wait, but I was told that this was all going to be able to be done in a postcard. I remember that distinctly, so you’re telling me it’s more complicated than that?

Chye-Ching Huang: A little.

Zach Silk: It seems to me that that’s also right, that’s the feature, not a bug of this. One of the things that happened was, by making it extra complicated, the people who win in a very complicated tax system are those who have the best tax advisors, right?

Nick Hanauer: Right, rich people, as always.

Zach Silk: So, the very rich.

Chye-Ching Huang: We know that, and the IRS released old data from before the 2017 tax law on who doesn’t pay taxes, and that’s a few hundred billion dollars a year of taxes that are owed that don’t get paid. That’s on top of the taxes that disappear because people have found legal ways to avoid it, this is just pure non-payment of taxes. A complicated system like this makes both types of both avoidance and just simply not paying tax more likely, because it’s harder to figure out what’s going on. We know from previous reports that, again, on that end, of just simply not paying what you owe, it’s higher income people and large corporations that are disproportionately contributing.

Nick Hanauer: That’s the bad news. The good news is, that at least among Democrats running for president, there are some very exciting and bold new ideas being discussed about how to reverse the tide. There are wealth taxes being discussed, and so on and so forth. We’d love for you to talk about what you know about those proposals, and how you see the differences, and which ones you prefer.

Chye-Ching Huang: Many of these proposals are extremely complementary, and again, they do all different ways of attacking that big problem. The wealth tax, a tax on net wealth, basically says every whatever period, every year or maybe some other period, we’re going to calculate the wealth that you own, so the difference between the value of your assets and any debt that you have, so assets like houses, bank accounts, stocks, ownership in businesses, and debt on the other side like mortgage, and we’ll figure out the total value of that, and we will maybe have an exemption, and put a rate as a share of that value that you will pay periodically.

That is a different type of tax than we currently have. The basic idea of a wealth tax is to calculate a person’s net wealth every year, or some other period, net wealth being assets that you own like houses, bank accounts, stocks, businesses, and netting out debts, things like mortgages, credit card debt, business debt. Then it subjects that wealth to a certain rate of tax, that would have to be paid either annually or at other periodic times. It seems like quite a different approach to our current tax system, which instead of totaling up the value of things that you own and taxing that base every year, looks at the increase in the value of things that you have, the increase in your income.

It seems like a kind of different concept, and it is in some ways, but a wealth tax can look very, very much like a more comprehensive tax on someone’s income. If we took the Bezos example that I talked about before, you could tax his stock of wealth, which would be primarily what he owns in Amazon, take a percentage of that each year and net out other debts or other things that he might own. Or you could look at how much his value in that stock grows each year, and take a share of that, and that would be an income style tax. Depending on where you set the rates, you could effectively come out with almost the same answer over the lifetime of a person, whether you tax their income from their wealth or their wealth itself.

Either way, you’re getting at that problem that I started by talking about, which is the fact that none of that currently faces tax, whereas the salaries and wages of people who work at Amazon are subject to annual taxes. I think a lot of the discussion that you’ll hear among different people at the moment is on the level of design and implementation, and more detailed decisions about whether it would be better to do it through a wealth tax or through more comprehensively taxing his income, taking into account the growth in the value of his shares. Both of those approaches would really plug a very big gap in our current tax system, and therefore take us towards a much more equitable and progressive system than we have currently.

Nick Hanauer: All my [jillionaire 00:45:35] friends claim that if we were to impose a tax on wealth, the whole economic system would come tumbling down, and we would all be poor and die. What do you think?

Chye-Ching Huang: That sounds really dire.

Nick Hanauer: It is, it turns out. Anytime you want to touch their wealth, it’s very dire.

Chye-Ching Huang: I think that’s an area where it is, again, important to remember how similar economically a tax on wealth can be to a tax on income from wealth. The theories behind not taxing either of those is basically the same one that we started talking about, which was that if you have very low tax rates on either the income from wealth or the wealth itself, you’ll get more investment, more productivity, more wages for ordinary workers. [inaudible 00:46:24] haven’t shown it, the experiences haven’t shown it, people’s ordinary paychecks are not showing it since the 2017 tax law was enacted. I think we should be pretty skeptical of those claims.

Zach Silk: Yeah, we’ve run a 40-year experiment on this in a variety of different places in a variety of different times, and it’s never really worked out to trickle down.

Nick Hanauer: Do you think that a wealth tax should be coupled with a middle class tax cut, or do you think that’s a political question, not an economic budgeting question?

Chye-Ching Huang: To me, I think a lot of the rhetoric that we’ve heard since 2016 has been about the working class, and it’s important to step back and think about who that is and what their lives look like. If you take a fairly common definition of the working class, which is households that don’t have a college graduate, that’s people basically in the bottom 60% of the income distribution, mostly wage earners, and extremely important to remember, a very geographically and racially diverse group of people. It’s not just white working class people and in urban centers or in rural places, but a very diverse group of people.

Those people have seen basically stagnant wages over a number of decades, not a great deal of real wage growth in recent times above the levels that they were seeing coming out of the Great Recession. For many of those people in the working class, their federal tax liability is fairly low, simply because they have very low income. A larger share of their federal tax liability is payroll taxes and state and local taxes, which are regressive.

Things that are really important for them are investments in local communities, and strengthening the federal economy. Also, one of the methodological things that’s been in the spotlight about how you should count taxes or not, but the earned income tax credit and child tax credit that can be received as refunds over and above federal income taxes owed, providing a boost to incomes for a lot of those families well beyond what real wage growth has produced. Depends a little on who you’re talking about, but for those families, both slow income growth and rising costs on housing side, on food, on education, are all things that are important to address.

Nick Hanauer: This has been a fascinating conversation, but we always ask our guests one final question, why do you do this work?

Chye-Ching Huang: To me, you may have detected a slight accent, I grew up in an income poor household, but one that had access to a lot of other assets, both within the family and socially, but even in my lifetime, saw some of those assets being eroded by policy choices. I just feel very, very deeply that people should be afforded the same sorts of opportunities to contribute that I was given, and that I was fortunate that strong public policy supported me with. I would deeply like to see that sort of opportunity being extended to everybody.

Nick Hanauer: That’s a great answer.

Zach Silk: Yeah.

Nick Hanauer: Thank you so much for spending this time with us. I suspect we will be talking to you again about tax policy.

Chye-Ching Huang: I’d love to talk about tax policy. Thanks for having me.

Nick Hanauer: Thank you.

Zach Silk: Yeah, thank you.

Nick Hanauer: Bye-bye.

Zach Silk: Obviously, what’s going to have to take place in order to get to a place where we can get to wealth taxes like this is a seismic political change, but we are in this moment when sands are shifting really, really quickly. You couldn’t have imagined Hillary Clinton talking about a wealth tax just three years ago.

Nick Hanauer: Good golly, no.

Zach Silk: As Chye-Ching mentioned, when was it ever that taxing the wealthy was the hottest political topic in politics today? It’s among the top. You might look at climate change and the Green New Deal, certainly you look at health care, but right up there in the conversation in politics is how to shift how we talk about taxes.

Nick Hanauer: I think it’s worth noting that the proposals that are being discussed, like Warren’s plan, would raise in the range of $250 billion per year, which is a lot, relative to some of the challenges that we’ve got going on in the country. It would cost, for instance, $60-ish billion per year to make public universities essentially free for everyone, which would be a super cool thing and an amazing benefit to middle class, working class families, to say nothing of erasing the $1.3 trillion in student debt, and challenges around health care and child care, and all the other things that we’ve got going on that make living as a middle class family really, really challenging in our country.

Zach Silk: I think what we can definitively say is that we have places we need to make investments, whether it’s roads, infrastructure, including of course, your transit bridges, on and on. Everybody talks about this, it seems like infrastructure is one of the things that we can absolutely agree on, and we have this massive backlog, we could certainly fund that. We have a health care challenge in this country.

Nick Hanauer: That’s right.

Zach Silk: Not everybody’s covered. We have a schools challenge in this country, we have a public education challenge, we have a child care challenge. There is nothing that isn’t challenging-

Nick Hanauer: The only price we would have to pay to begin to address those challenges is that a few thousand rich people would be really, really mad. They’d be really mad.

Zach Silk: Let’s be clear, it’s mostly inconvenienced. It’s not that they’re going to not be rich.

Nick Hanauer: They’ll still be rich.

Zach Silk: They’ll still be rich.

Nick Hanauer: It’ll just be, their wealth will grow at a slightly slower pace.

Zach Silk: Right, let’s say that again. You will still be rich, one, and two-

Nick Hanauer: Your wealth will grow at a slower pace.

Zach Silk: That’s right. For that, we get a better economy-

Nick Hanauer: Yes, everything.

Zach Silk: More investments in our people-

Nick Hanauer: Anything you want.

Zach Silk: We’re able to make the kinds of things, the transitions in our economy that we need in order to address climate change, the kind of justice that we need in order to address these long, ongoing inequality gaps both in wealth and in income.

Nick Hanauer: That’s right. The only price is, a few thousand rich people, their wealth will grow slightly slower. It’s a terrible price to pay.

Zach Silk: Seems like a terrible price to pay. I do think that we know that the reality is that as awesome as that letter was that you and Abigail signed and those courageous people, as incredible as it is that these presidential candidates are running on this and advocating for it, it’s not going to happen unless people start to actually take action on this. That means that people need to be holding the political leaders accountable, asking them this very pointed question, making sure that they advocate in their daily lives for this kind of wealth tax. That doesn’t happen unless people start taking action.

Nick Hanauer: Right, absolutely. In the next episode of Pitchfork Economics, we’re going to talk about this really exciting idea called progressive labor standards, and we’ll see you next week.

Announcer: Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate, and review us wherever you get your podcasts. Find us on Twitter and Facebook @CivicAction and @NickHanauer, follow our writing on Medium at Civic Skunk Works, and peek behind the podcast scenes on Instagram @PitchforkEconomics. As always, from our team at Civic Ventures, thanks for listening, see you next week.