Deal or New Deal

Should we blame the billionaires?

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Jonah indulges in one of his favorite traditions in today’s Remnant: kvetching about economics with Michael Strain, the American Enterprise Institute’s director of economic policy studies. Their conversation offers a crash course in the history of economics as a social science, a guide to the myths of income inequality, and a few musings on what really caused the Great Depression. Plus, they explore perhaps the most important topic of all: TV shows you should watch instead of paying attention to your children this holiday season.

Show Notes:

– Dr. Strain’s page at AEI

– Dr. Strain: “The Myth of the 1%”

–Jonah: “Mr. Piketty’s Big Book of Marxiness”

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  1. Avatar photo
    Azjauthor

    A very enjoyable conversation, but I felt a little confused about Mr. Strain's comments regarding Warren Buffet. He called it, as I recall, "nonsense" that Warren Buffet said his secretary paid a higher tax rate than he did. But that's factually true, is it not? He then went on to say that it (I think I got the quote right) "gives the impression that Warren Buffet's secretary has a higher tax bill than him." But that is *clearly* not what Warren Buffet has ever said, and the only people who think that's what Warren Buffet is claiming are those who have no knowledge of the working of taxes or basic math. It's not quite a straw man, because I'm sure there are people who are confused about what Buffet is actually saying, but that isn't "nonsense" that Warren Buffet (or anyone else that I've ever heard cite Buffet on this) is actually saying. I've never heard *any* liberal claim that Warren Buffet's secretary is sending more money to the government than Buffet himself is.

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    Tambo2800

    I thoroughly enjoyed this conversation. In part because it feeds my own internal dialogue about fairness. What I charge my clients, what I pay myself and my colleagues, and what I pay those entities that are supposed to represent me.

    One question I have (because I don’t have training in economics of any sheen) is, when considering a market of income, isn’t the word “earned” as slippery a word as “distributed”? Sure productivity, effort and choices contribute to earning. But to me Michael Strain skated over the contributions of luck and the genetic lottery a bit too quickly. Perhaps the aesthetics of chance aren’t as pleasing as the aesthetics of merit.

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      Azjauthor

      When I charge for work, I am incorporating into that an estimate for the portion of that which will go to taxes at the end of the year. So, in a real sense, I'm never paying taxes. The taxes are *always* being paid by the people who are paying me, whether it be my employer or my client. No one who's working for a living is paying their taxes themselves. People who are working at a certain rate and are looking to have a tax drop are looking for the government to functionally give them a raise, subsidized by their clients or employers, over and above the rate they agreed to work for. My income is never enough to put me at the real upper portion of the tax brackets, but thinking of it that way helps to detach my emotions from the tax bill or tax rate discussions.

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    Ben Connelly

    Always love some New Deal bashing

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    Pgrossjr47

    "A government that robs Peter to pay Paul can always depend upon the support of Paul."
    -- (1944), Everybody's Political What's What?

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    Kyzyl Tuva

    Jonah, I love these kind of topics! Thank you for doing more of them. The whole “billionaire class” being attacked irritates me. Next Friday when your guaranteed monthly paycheck is deposited, take a moment of gratitude for the entrepreneurs who took the risks so you get this risk-free income. Salary is risk free. Return on investment is not risk free.

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  6. Brandon Hartley

    I'm very supportive of capitalism and the glory of the free market. I pump it all the time in my history classes to high schoolers. I support some redistribution, but I want it done it efficient ways too. In short, I found myself wanting to agree with Michael Strain in almost all respects. And, yet, I can't. I hesitate to trust what he says, simply because he makes the fatal flaw in speaking about taxation rates. It seems so blindingly obvious to me that the only metric one should discuss (or at least the lodestone to which everything else refers) is one of total taxation rate as a percentage of your total income. Why should a family making $500,000 a year and paying $50,000 a year in total taxes be considered to be paying "more" than a family making $100,000 a year and paying $20,000 a year in total taxes. Yes, yes, mathematically they are paying more. But what good faith debater isn't going to acknowledge in this hypothetical we have a quite wealthy family paying 10% whereas a very middle income family is paying 20%? Now maybe you think that is appropriate - fine! But be honest about it. I can't tell when you don't lay it out simply and compare apples to apples (and the above figures are absolutely incorrect and just yanked from the air - I know they're wrong - The point is that I don't know the reality because economists rarely lay them out this way).

    I understand also that in the "income" side of the equation needs to account for government services consumed. If you're low income and you use $5000 per year in government aid and services, that represents a huge portion of your total income. If you're high income, that same $5000 is near meaningless. Fine!! Lay that out and use a metric that accounts for that as well. But lay it out in a standard way so we can understand what you're talking about.

    Consider the alternative some Bernie Sanders fan might try to spin. Why aren't the wealthy paying their fair share of payroll taxes? The top 1% pay less than a thousandth of one percent of the nation's payroll taxes (completely pulling that figure from my posterior, so I'm sure it's off - but you get my point). They're not pulling their fair share! Those bastards!!

    Now that seems an absurd argument. Worse, it's a bad faith argument. It seems intentionally designed to smear the wealthy while misrepresenting reality. The top 1% are paying large amounts of taxes, they just do it through income taxes, property taxes, capital gains taxes, etc... And, yet, over and over and over again, intelligent economists and, ahem, podcast hosts, refuse to call out the opposite.

    Around the 30 minute mark, they had an extended debate over how wrong Warren Buffet's claim that "he pays a lower tax rate than his secretary does" is. Is it really absurd? I don't know! And the reason I don't know is that Strain here is falling all over himself to avoid saying the mathematically obvious. Warren Buffet made 10 billion dollars in 2020 (again, pulling numbers out of my seat warmer). Add in all his capital gains and income taxes and he wound up paying x% of his total in all sorts of taxes. His secretary made $60,000 in a year and, adding in all property, sales, and payroll taxes, he paid y% of his total income in taxes.

    Why is this so hard to do? Are you really going to tell me that economists that are calculating what entire legislative programs will do to interest rates can't make this simply dynamic clear? And yet, over and over again, they don't.

    Now maybe I'm off base in my assumption that this total tax rate as a proportion of your total income is a useful metric - I'm no economist. But if I'm wrong on that front, I'd really appreciate a good faith explanation of why I'm mistaken. Instead, I just get continual confusion over the numbers involved here. I don't want to believe that Michael Strain is intentionally misleading his audience, and I legitimately don't think that he is. But when he and Jonah fail to make this clear apples to apples comparison, it invites unfortunate suspicion.

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      Ben Connelly

      The top 1% are in the highest income tax bracket. Yes, they take advantage of loopholes, but “loopholes” are put into our tax code in order to incentivize certain behaviors, and when individuals and businesses do those behaviors and earn the reward of lower taxes, they are simply doing what society asked them to do.

      There are very good reasons why we don’t tax capital gains the same as income, and I don’t think we should change that just to make the tax “fair.” The negative downstream economic consequences of raising the capital gains tax to 39% or whatever would be enough that any perceived fairness gains (and let’s face it, the very next week the “eat the rich” crowd would be out banging the drum about how rich people suck) would be more than offset.

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      1. Brandon Hartley

        That all sounds very reasonable to me. I can definitely understand the argument in not taxing capital gains in the same way. But are you saying that my suspicions are correct and Michael Strain is lying to us? Because he flat out said that Warren Buffet's statement wasn't correct, and Jonah never challenged that claim in any way. I don't like being lied to "for my own benefit" or "the sake of clarity." I had quite enough of that from the medical experts in the covid crisis, thank you very much.

        Essentially, I am still unsure about my basic fundamental uncertainty. I legitimately don't know the answer to my question, nor do I have any strong suspicions. Does Warren Buffet's secretary pay a larger or smaller proportion of her income in taxes or not? Is Buffet's statement - she pays more taxes than the investment mogul - correct? Obviously, Buffet meant it in the way I'm describing - she pays a higher percentage of her total than he does, not in absolute comparison terms.

        Jonah and Michael scoffed at that statement, but what I didn't hear in the entire podcast was a clear refutation of it. Certainly no actual figures based on statistical data. I have to think that such statistics are out there. So my question then has to be: Is the answer to this question not what many among us would like it to be, including this high-school-history-teacher-fan-of-capitalism? Is it just true that, on average, the secretary is paying 30% of her total income in taxes of all sorts (sales, payroll, property, excise, etc...) whereas Warren Buffet is actually paying more like 20% (again, I'm just making up percentages and have no idea what the actual figures are -- if only we knew an economist that could tell us)? Are Michael and Jonah not giving this comparison because the answer doesn't fit their own confirmation biases? Is my question wrong-headed in some way that I'm not understanding?

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          Ben Connelly

          Even after the loopholes (deductions) Buffet probably isn’t paying a lower percentage than his secretary. The laughable thing about his claim is that he’s allowed to pay more. If he feels the US Gov deserves more money from him, the Treasury Department takes donations.

          What he was probably doing was comparing his secretary’s income tax to his capital gains tax, which aren’t the same thing. It’s a silly comparison and he should know better. Also, he can always change the way his secretary is compensated to lower her tax burden.


          No they’re not lying. I’m not sure why you think they are.

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            Dave T

            Buffet's claim isn't laughable, because he's not talking about himself. Of course *he* can pay more, and *he* can compensate his secretary better. He's talking about altering the system so that all people in his wealth class will be forced by law to pay more. That's quite a different thing.

            Additionally, I am quite skeptical of claims like, "What he was probably doing was X, which is silly." That's not a serious counterpoint. Was he, or wasn't he?

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      Kyzyl Tuva

      You built a straw man and then proceeded to burn it. Your numbers are way off. Return on capital is filled with risk. Survivor bias has us only looking at those firms that succeed. For every one of those there are a hundred that lost everything.

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      1. Brandon Hartley

        I must not have been clear, because I fear you missed my point. I'm not saying any income group is paying less or more than their fair share. I'm saying that economists make themselves sound biased and, therefore, not credible, when they fail to speak in a standard way to compare earners across income groups. What did Warren Buffet earn in a year? What percentage of that went to ALL taxes? What did his secretary earn in a year? What percentage of that went to ALL taxes? Does that make more sense?

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    Addicus

    I 100% thought when Jonah said, "Dr. Strain has left" (1:07:30) he had said, "Dr. Strange." I would double my Dispatch subscription if Jonah could get Benedict Cumberbatch to do an hour long interview in character.

    So Dr. Strange, what's it like to be a master of magic and time? If you could trade your infinity stone for one of the other ones, which one would it be? Natasha Romanoff, 10/10 hot or just 9.9?

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    Addicus

    The Mitt Romney’s and Warren Buffets really do pay a lower tax rate than I do. I think a lot of this “the top 1% don’t pay their fair share” would be blunted if capital gains were just taxed as normal income. It’s the rich but not uber-rich that really take it in the shorts under our system.

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      Richard Maxton

      "I think a lot of this “the top 1% don’t pay their fair share” would be blunted if capital gains were just taxed as normal income."

      --except it's not normal income.

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  9. Kinneyde32

    I don't have a cite but regarding people's attitudes towards inequality, I have seen multiple discussions of surveys that have been taken where people are asked which situation they would prefer: You make $100,000 a year and all of your friends make $140,000; or you make $75,000 a year and all of your friends make $70,000. A pretty significant percentage (don't recall if it is a majority) claim to prefer the second situation. I can only say for myself that I definitely would prefer situation 1.

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  10. Steffent01850

    I very much enjoyed this conversation, as I do with most of Jonah's guests. At one point when Mr. Strain was talking about the improvements that have been made over time to life spans, safer jobs, longer life spans, etc, it occurred to me that many of these improvements were not due to market forces alone but had a least some amount of government intervention.

    The safer jobs can be partially attributed to OSHA regulations. Fewer plane crashes can be partially attributed to FAA regulations. Less cardiovascular disease can be mostly attributed to improvements in medicine/science but the fact that smoking rates have decreased remarkably which was driven by government interventions on where smoking is allowed/high taxes on cigarettes, etc. One thing he didn't mention was far fewer traffic fatalities. This is in large part due to government regulations on safety requirements in automobiles and seat belt laws, etc.

    As much as I want to be a complete market fundamentalist I think there is a balancing act between government involvement and market forces. Oftentimes, government regulations create a market, albeit imperfectly in many cases.

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      Ben Connelly

      I disagree on cigarettes. I think a cultural shift was more important. According to some economists, state governments are basically in bed with tobacco companies still because they make so much money from the cigarette tax. Also I went to a high school where neither the law nor the regulations of teachers and administrators could do much to keep students from using tobacco products and then went to a university where it was legal and easy for all my peers to smoke or chew and close to zero of them did. This led me to believe culture matters more.

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      1. Steffent01850

        Undoubtedly a cultural shift played a huge role. The example you use of smoking in HS and then not smoking in college proves that as the college kids were more educated they smoked less which is a big driver in tobacco use. Probably the fact that we are generally more educated as society than in previous generations aided the reduction too. The non-profit scare ads showing the cancer survivors pushed that cultural shift you mentioned as well. But I think between the cultural shift and the regulations not allowing in in public spaces making it more difficult, inconvenient, and expensive added together is what really pushed it down.

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          Ben Connelly

          Well, it was more a function of where I went to school. Rural Shenandoah Valley Virginia of course was going to have lots of tobacco use along with confederate flags. Education played a big role, of course, but not the one I think you think it played. I think education was more a marker for culture - it is a proxy or signal for belonging to a particular tribe, and smoking or chewing tobacco played a similar role. I doubt the education itself played a role in getting people not to smoke. It did nothing to keep my peers in college from binge-drinking, despite the associated mortality risks of that behavior.

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