DO TAX CUTS FOR RICH PEOPLE CREATE GROWTH? (WITH BRUCE BARTLETT)
DO TAX CUTS FOR RICH PEOPLE CREATE GROWTH?
Since forever, Republicans have insisted that cutting taxes on wealthy corporations and individuals would grow the economy, create jobs, and lift wages. But it never does. As an early architect of what became "Reaganomics," Bruce Bartlett was there at the birth of this GOP tax myth. He joins the podcast to help set the record straight.
Bruce Bartlett: American historian who helped draft the Kemp-Roth tax bill that formed the basis of President Reagan's 1981 tax cuts. Served as domestic policy adviser for Reagan, in the Treasury for George H.W. Bush, and in senior roles for other American politicians. Former Executive Director of the Joint Economic Committee of Congress.
Twitter: @BruceBartlett
Further reading:
Want to Expand the Economy? Tax the Rich! https://prospect.org/article/want-expand-economy-tax-rich
I helped create the GOP tax myth. Trump is wrong: Tax cuts don't equal growth. https://www.washingtonpost.com/news/posteverything/wp/2017/09/28/i-helped-create-the-gop-tax-myth-trump-is-wrong-tax-cuts-dont-equal-growth/?noredirect=on&utm_term=.4344a80a6efc
TRANSCRIPT:
Bruce Bartlett: 00:02 The major media still treat the Republicans as if they are the party of fiscal responsibility, when in fact all the evidence of the last 20-some years is exactly the opposite.
Nick Hanauer: 00:15 Getting the public to believe that low taxes for rich people will benefit them turns out to be the best way ever devised to get policymakers to enact those tax cuts.
Speaker 3: 00:27 Our massive tax cuts provide tremendous relief for the middle class and small business.
Bruce Bartlett: 00:32 The truth is they're rank hypocrites and liars.
Sarah Leibovitz: 00:40 From the offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics, with Nick Hanauer.
Sarah Leibovitz: 00:47 One American capitalist's take on how we got into this mess, and how we can get out.
Nick Hanauer: 00:55 I'm Nick Hanauer, founder of Civic Ventures. In the last episode of Pitchfork Economics, we talked about the American Dream. Is it dead, or is it dying? Can we bring it back? And in this episode, we're going to talk to something that is closely related to that, which is, do tax cuts for rich people create economic growth. And today, I am super happy to have my colleague Jessyn Farrell joining us to talk about that. Jessyn has a ton of experience working in the legislature in Washington state, fought these fights a lot. And so we're gonna chit-chat about tax cuts.
Jessyn Farrell: 01:42 Hi there. I'm Jessyn Farrell, and I am a former state representative from Northeast Seattle, and in the legislature I served for five years fighting for working families and now I work with Nick Hanauer at Civic Ventures.
Nick Hanauer: 01:56 So there isn't a more common claim in our economic discussions than the idea that tax cuts for rich people create growth, or tax cuts for big corporations create growth. It's a thing that has been offered to Americans again and again and again and again and again for decades now, starting of course with Ronald Reagan and the Neoliberals in the late 70s and early 80s, and certainly has to be a thing that you heard a lot in the legislature.
Jessyn Farrell: 02:28 For sure. I mean, this is one of the great national myths that play out every single day in the decisions of policymakers, that somehow when you're giving tax cuts to the wealthiest corporations, the richest people in the country, that it's going to create jobs and somehow lift wages. And as we know, that's a pernicious lie and we've gotten to see that play out in real-world policymaking across the country.
Nick Hanauer: 02:55 And so as a legislature, you saw this coming at you in all sorts of ways at all sorts of times, right? It's not just cut taxes for us, it takes a bunch of insidious forms probably in real life in the day to day work of being a state legislator.
Jessyn Farrell: 03:11 Yeah, that's exactly right. I mean you have Washington state which from the outside probably looks pretty blue but when you peel back the curtain a little bit, what you see is the most regressive tax system in the entire country. And what that means is that the poorest among us are paying the largest share of their incomes towards taxes, and why is that? It's because we have this myth that we believe that if somehow we give a free pass to corporations, if we give a free pass to the wealthiest, we are going to have this utopia around economic growth. And that's just not true. What we have instead is a state budget that's constantly careening from crisis to crisis to crisis, even in a state that has so much wealth and so much potential.
Nick Hanauer: 03:50 Yeah, so we should level-set a little bit and just describe in more detail the claim and the logic of the claim that tax cuts for rich people create growth, and then talk about the evidence.
Nick Hanauer: 04:03 So let's start with the claim. The claim offers this explanation, which is largely that the rich are job creators and the more money they have, the more jobs they create, and the more money they have, the more money they have available to pay higher wages, and therefore, anything we do as a society to ensure that the job creators have more money, the better off the rest of us will be because they will trickle jobs and higher wages down on the rest of us.
Nick Hanauer: 04:36 And that logic, that economic logic is plausible, like it sounds true, but it's actually not true, because an economy is best understood essentially as an ecosystem, and rich people don't create jobs. The economy creates jobs. And the jobs are a consequence essentially of a feedback loop between consumer demand and the products and services that businesses create, and if there's no consumer demand, then there will be no jobs. Rich people don't create jobs out of the goodness of their hearts. They don't create them out of thin air. They create them in response to consumer demand.
Nick Hanauer: 05:25 And business owners don't pay people what they can. They pay them what market forces and power relationships require them to pay them. People aren't paid what they are worth. They're paid what they negotiate.
Nick Hanauer: 05:40 And so cutting taxes for rich people, cutting taxes for big corporations, actually isn't the mechanism that increases either wages or the number of jobs in an economy. It's a bunch of other things. And again, in the interest of level-setting, we now have enormous amounts of actual, empirical evidence showing that when you cut taxes for rich people it actually doesn't increase either the number of jobs or the wages that people get from those jobs.
Jessyn Farrell: 06:16 Yeah, that's right. I mean, I used the word earlier, that the myth that we have. It's almost like the Ptolemaic view of the universe, which was that it was earth-centered. We have this real-world experiment playing out with the Trump tax cuts and the massive amount of money that is flowing to the largest corporations and we know that it's not going into wages, we know that it's not going into R&D. And Nick, you've talked a lot in the past about changes to stock buybacks, and I would love to hear you talk a little bit about what this might've looked like if we had those same regulations that we used to have. What would be different now if we had stronger regulations around stock buybacks, forcing companies to put money into workers and into R&D?
Nick Hanauer: 07:01 Yeah, so one of the ways that we know that higher profits for rich people don't create jobs and growth is to look at where rich people and big corporations get their money and what they do with their higher profits. And so one of the things we know is that profits as a percent of GDP have gone up a lot over the past 30 or 40 years. They've basically doubled as a percentage of GDP. And if it was true that all of that extra profit was going into investments or something like that, well then there would be a credible claim that this was a useful thing to do from a policy perspective.
Nick Hanauer: 07:44 But in fact, today between 55 and 60 percent of those profit are now used just for stock buybacks. And another 35 to 40 percent of profits are used for dividends. And so what we know for sure is that when big companies get tax cuts, they don't invest in higher wages, or plants and equipment. What they do do is basically return those windfall profits to owners and executives. So it's just an insane amount of money that we are currently allocating just to make rich people richer in our economy, that could be used for purposes that would be really really robust.
Sarah Leibovitz: 08:34 This is gonna come as a shock, but you know who else thinks tax cuts for rich people create growth? Our president.
Speaker 3: 08:41 Our massive tax cuts provide tremendous relief for the middle class and small business.
Sarah Leibovitz: 08:46 Hi, I'm Sarah Leibovitz. I'm a producer on Pitchfork Economics. So, Trump's pretty adamant about this. In fact, he promised that his tax cuts in 2017 would result in every American seeing an extra [crosstalk 00:09:00] four thousand-
Speaker 3: 09:00 Four thousand dollar pay raise. And that's money that will be spent in our economy.
Sarah Leibovitz: 09:07 And that was awhile ago. I mean, we've paid taxes since then, I hope. So let's see how that's doing.
Sarah Leibovitz: 09:16 Did you get a four thousand dollar pay raise last year?
Speaker 6: 09:19 No.
Speaker 7: 09:21 I did not.
Speaker 8: 09:21 Not that I'm aware of.
Speaker 9: 09:23 I did not.
Speaker 10: 09:25 No.
Speaker 11: 09:25 Oh, no.
Speaker 12: 09:26 No.
Speaker 13: 09:26 No.
Speaker 14: 09:27 Nope.
Speaker 15: 09:27 No.
Speaker 16: 09:27 I did not.
Speaker 17: 09:27 No.
Sarah Leibovitz: 09:27 Okay, great. Thank you so much, that's it.
Nick Hanauer: 09:48 Our next guest is an old friend of mine, Bruce Bartlett, who among other things was a treasury official in the George H.W. Bush administration and was part of the economics team for the Reagan White House. He was one of the authors of supply-side economics. A super experienced economic policymaker and has become recently a big critic of supply-side economics, which he believed at the time in the late 70s, early 80s was appropriate, but now believes is completely bogus and mismatched for the economic circumstances of our day.
Nick Hanauer: 10:31 Bruce also knows more about tax policy than any single person I've ever met and has a great book out on the tax system that everybody should read called The Benefit And The Burden, which gives you a real picture of the form and function of the American tax system and what we could do to improve it. In any case, Bruce is an awesome guy and a truth-teller, and has gotten in a lot of trouble himself for being transparent and willing to confront some of his friends and allies.
Jessyn Farrell: 11:06 Hi Bruce, how are you?
Bruce Bartlett: 11:07 Okay.
Jessyn Farrell: 11:08 Great. Well thank you so much for joining us today. Why don't we just start off by kind of a general question about what your role was in the Reagan administration and your role in the Reagan tax cuts?
Bruce Bartlett: 11:20 My role in the Reagan tax cuts started back in the 1970s. I'd gotten a job on Capitol Hill working for Ron Paul, who was defeated the same year I went to work for him, 1976. And this led me to look for another job, and I found one working for Jack Kemp, a former professional football player who represented the Buffalo suburbs in New York. And he was very interested in the tax issue and he put me to work basically on developing that interest.
Bruce Bartlett: 11:57 And in 1977, he asked me to draft a bill that would duplicate the Kennedy tax cut of the early 1960s. It was known as the Kemp-Roth bill. Ronald Reagan endorsed it in his run for the White House, and when he got elected, he sent that legislation to Capitol Hill, and it was enacted into law in August of 1981.
Bruce Bartlett: 12:24 And then in 1987, I went to work in the Office of Policy Development at the White House. And I worked there for two years and then went over to the Treasury department, where I worked throughout the George H.W. Bush administration.
Jessyn Farrell: 12:38 Okay, so you were there at the beginning then, at the creation of the response to what was going on economically. And what was so different in the 70s? What was happening then, vs. what's going on now? What made you think that tax cuts were the way to go?
Bruce Bartlett: 12:56 The most important difference between then and now is inflation. We had a lot of inflation, and I think people today, many young people have never experienced anything like an inflationary environment, and many people my age have forgotten about it. But it really riveted politicians' attention the way no other economic issue really has since the 1930s.
Bruce Bartlett: 13:23 And one of the effects of inflation was to push people up into higher tax brackets. And indeed, taxes were rising very very rapidly, very substantially. Actually, mainly for average people because if you think about it, if a rich person is already in the top tax bracket, they have no higher brackets to be pushed into, you see. So the effect of what was called bracket creep was largely on average people.
Jessyn Farrell: 13:54 And so, the thinking was then what? Why was it going to be such a great solution to inflation to cut taxes? What was the thinking?
Bruce Bartlett: 14:04 Jack Kemp believed that inflation was essentially a monetary phenomenon and he supported a tight money policy by the Federal Reserve. But, he was concerned that tight money would cause the economy to slow down. And it did, it caused a big recession in 1980, and another in 1981. And he thought that a tax cut would help cushion the blow, and help keep the economy going as it transitioned from high inflation to low inflation. He also thought that inflation was in a sense, too much money chasing too few goods and services. So if a tax cut led to an increase in the production of goods and services, then it would be anti-inflationary.
Jessyn Farrell: 14:55 And one of the things that we forget about the Reagan era is that taxes actually were raised later. So what was the story with that?
Bruce Bartlett: 15:03 Well after the 1981 tax cut, everybody was suddenly had their attention focused on the budget deficit. And Reagan supported a big tax increase in 1982 called the Tax Equity and Fiscal Responsibility Act that raised taxes by 1 percent of GDP, which was very large tax increase. And he supported 10 other tax increases in the subsequent years of his administration. And by 1988, he had enacted tax increases that took back half of the 1981 tax cut. So he was perfectly willing to support higher revenues to bring the deficit down. And that's of course a big difference between him and today's Republicans, who will never support one penny of tax increase, for any reason whatsoever.
Jessyn Farrell: 16:01 Yeah, so that's really become the dogma. And you of course were kind of there at the creation of that dogma and I think a little bit about other people have maybe renounced dogma like Robert McNamara in the Vietnam War and others who've been so famous for renouncing. Talk to me a little bit about what brought you to be in a different place around tax cuts in this era, in the George W. Bush era. Talk a little bit about that.
Bruce Bartlett: 16:32 Well the transition for me began in November of 2003. That was when the Republican party, to which I was then comfortably a member of, enacted the Medicare Part D program, which was a huge unfunded entitlement program. Now I never had any problem with adding prescription drugs to the Medicare program. I just thought it was grossly irresponsible to pass this legislation without a penny of financing. It was just all on the national credit card, a big increase in the budget deficit. And I naively thought that Republicans were opposed to deficits in those days.
Jessyn Farrell: 17:18 They talked a big game about that. They still do. What happened?
Bruce Bartlett: 17:21 Yeah, well the truth is they're rank hypocrites and liars.
Jessyn Farrell: 17:24 I was waiting for you to say that. Thank you, okay.
Bruce Bartlett: 17:27 Well actually, what I've learned over the years is that Republicans actually love deficits, because they love talking about deficits. They love using deficits as an excuse to slash programs for the poor and the middle class. That's why they cut taxes whenever there's the hint of getting control of the deficit. For example, we had huge budget surpluses at the end of the 1990s. The Republicans just pissed all that away with huge tax cuts that did nothing whatsoever to stimulate the economy. And of course they've done the same thing in 2017.
Bruce Bartlett: 18:10 And so what I call this is something called starve the beast, which is a Republican theory that the only way you can cut spending is by having deficits so large that there's no other choice. So Republicans, their policy is to intentionally create large deficits through tax cuts, use those deficits as an excuse to slash benefits for the poor and middle class, when the deficits come down, they simply enact more tax cuts and start the process all over again. And basically they will continue this until there's nothing left of the safety net, til government does absolutely nothing except national defense.
Jessyn Farrell: 18:54 And that sounds like a pretty important piece of truth-telling. What happened, when you started saying things like this?
Bruce Bartlett: 18:58 Well what I realized immediately was that deficits were gonna get so large that taxes were gonna have to be increased. I didn't foresee the determination of Republicans to avoid any tax whatsoever and I thought that they would be forced into being responsible. And I was at the time, very strongly opposed to a tax increase, so I felt that the Republican policy was contrary to Republican policy, that they were going to bring about a tax increase. That didn't really work out, but it did open my eyes I think to the utter hypocrisy of the party I belonged to. And what happened is I sort of started seeing the glass as half empty rather than half full. And having broken with my party on this one issue, I gradually began breaking with them on lots of other issues. And by 2006, I publicly declared myself to be an independent and no longer a member of the Republican party.
Bruce Bartlett: 20:08 And I wrote a book highly critical of George W. Bush. And honestly at the time, I thought I was just the first guy out of the gate, and that lots of other conservatives and libertarians who felt like I did about the budget and the deficits and things like that would follow me out the door. And I was shocked when nobody followed me out the door.
Jessyn Farrell: 20:34 So when you called the president an impostor, people don't follow you out the door? Is that what you found?
Bruce Bartlett: 20:38 Well, I did think that Bush was an impostor by pretending to be a conservative. I thought he was a terrible, I don't want to say liberal, but he was certainly not a fiscal conservative. He, as I said, had huge deficits. If we had simply kept budget policy on automatic pilot, where it was in January 2001 when Bush took office, by the time he left office, we would have literally have paid off the national debt. But in fact, the national debt doubled. And it's a source of deep frustration to me that the major media still treat the Republicans as if they are the party of fiscal responsibility, when in fact all of the evidence of the last 20-some years is exactly the opposite. I mean, the only presidents who have really reduced the deficit are Clinton and Obama. Bush and Trump have vastly increased it, yet you cannot get the media to focus on this and talk about the truth of the matter. They still have this notion that the Democrats are the wild-eyed spenders and the Republicans are the sober budget-balancers. It's just utter nonsense.
Jessyn Farrell: 21:55 And what would it take to change that? You have a pretty stiff critique of the Democratic party as well. What needs to be in place to really shift and myth bust, because as you point out, they're really hypocrites when it comes to spending. What would it take?
Bruce Bartlett: 22:10 Well, I think Democrats should stop being tax collectors for the Republican tax cuts. I think that what has been missing in public policy since 1989 is a strong and vocal left socialist liberal movement in this country that could pull the Democratic party to the left the same way the Tea Party and the many many different organizations on the right funded by the Kochs and other rich billionaires that pull the Republican party to the right. I think what's happened is that both parties have moved to the right, and the Democrats have stayed relatively as far to the left of the Republicans as they've always been. It's just because the Republicans are further right, they're now not really on the objective left at all. They're in the center.
Jessyn Farrell: 23:08 Right, do you have any advice for people out there who might be wanting to be truth-tellers themselves but are worried about becoming pariahs? What have you learned over the years?
Bruce Bartlett: 23:18 Well, all I can say is things change. Okay? I mean, when I was young, one of the reasons I joined the conservative movement and the Republican party was because the left, the progressive movement, the Democratic party was dominant. I mean, we were coming out of the Great Society. We had huge big government programs and high taxes. And the media was truly quite liberal. But that has all changed. It's now 180 degrees opposite. The right is now in a very dominant position in the media and in government. And the only thing I can say is, if it changed once in one direction it can change again back into another direction. I would point to the 1880s in American history when the robber barons and so on were very very powerful, and it was the politics were very similar to those of today. But that was followed by the Progressive era and a movement back in the other direction. So I think we're overdue for realignment.
Jessyn Farrell: 24:31 And we're glad that you're there storming the barricades with the rest of us. We really appreciate it.
Jessyn Farrell: 24:37 I really appreciate your joining us today and your perspective and your willingness to talk about times past and what's going on in the present, and I look forward to talking to you again.
Bruce Bartlett: 24:48 Okay, thank you.
Jessyn Farrell: 24:49 Alright, thank you.
Nick Hanauer: 24:55 One of the sad but amusing sort of natural experiments that unfolded in our country over the last 10 years was Kansas governor Sam Brownback's famous trickle-down experiment.
Speaker 18: 25:07 And he was swept into office in 2010 with the simple promise to provide, quote, a shot of adrenaline into the heart of the Kansas economy. An unfortunate metaphor borrowed from pulp fiction where he's a coked up hit man, and Kansas is a junkie who's OD-ing on the floor. The only difference being in the movie the junkie lived. The economy of Kansas unfortunately has not been so lucky. And all because [crosstalk 00:25:31]-
Nick Hanauer: 25:31 He basically massively cut taxes for rich people, betting that that would yield enormous amounts of growth. And now it's almost a truism in economic circles because the results were so catastrophic that in fact, Kansas went into a tailspin, public investment went down, growth went down, job growth went down, and in places like California that did exactly the opposite, that raised taxes on rich people to an astonishing 13.3 percent, California now enjoys the fastest-growing economy in the nation. Kansas has one of the slowest.
Nick Hanauer: 26:08 And again, this speaks to what the true dynamics of a market economy are. When you raise wages, when you make public investments, when you educate people well, that's what drives innovation, demand, and economy.
Jessyn Farrell: 26:22 It's interesting to hear what experts think about tax cuts, but we really wanted to understand what public opinion is. And for that, we called our friend Richard Kirsch. Richard is the director of Our Story – The Hub for American Narratives, and has a better grasp than anyone on what Americans think about progressive issues. Here's his report on recent public opinion polling on taxes.
Richard Kirsch: 26:44 The Trump GOP tax cuts have been really really unpopular. And again, that's sort of against the common wisdom. Well, tax cuts must be popular. But the reason they're not popular and they couldn't run on them, is because the majority of people in this country got and understood fully that the tax cuts weren't mostly for working families and the middle class. They were almost entirely for the very wealthy and big corporations. And people understood that. It wasn't just a talking point from Democrats. People actually believe that. And they actually saw seven out of 10 Americans, including half of Republicans said that they believe that the vast majority of the Trump GOP tax cuts go to the wealthy and corporations.
Richard Kirsch: 27:30 And in fact, nine out of 10 Americans believe that they should close loopholes for the wealthy and corporations. When you ask people who does the tax system benefit, they say it benefits the wealthy. They say it benefits large corporations. It doesn't benefit working families. It doesn't benefit the middle class. So people are really clear about that.
Richard Kirsch: 27:50 We can also ask though about the economic argument that Republicans make, trickle down argument, give more money, tax cuts to the rich, that'll boost the economy. Give more money to corporations, they'll raise wages and create jobs, that'll boost the economy. How do people think about that? Well first of all, the trickle down idea with the wealthy, people totally reject. Less than three out of 10 people, only 28 percent agree that lowering taxes on the wealthy will grow the economy. So that's seven out of 10 Americans who reject the core idea of trickle down economics for the rich. And that's every demographic group. When you're 72 percent, that means men, women, whites, black, urban, suburban, rural, working class, college educated, everybody rejects that idea. So that's pretty amazing.
Richard Kirsch: 28:38 Now when it comes to lowering taxes for corporations, people are more divided, because again, they've heard this story about businesses are the job creators so they think maybe that'll be true. But it's divided. It's divided a lot on partisan grounds, but not entirely. So white men who went to college, they tend to believe that, but then they're also then people who run corporations and benefit from corporate tax cuts directly in terms of their own paychecks and bonuses. On the other hand, white men who did not go to college, they don't think so. They don't think that giving tax breaks to corporations, lowering their taxes is gonna grow the economy.
Richard Kirsch: 29:15 And again, one thing to do is give people a choice, give people a different story and see what they say. So if you say to people, "Choose between these two statements, one is that only a fraction of corporations have given their workers bonuses, they spent 200 billion dollars on stock buybacks to benefit their CEOs and wealthy shareholders, as opposed to the tax cuts were used to give bonuses to people and raise wages." Again, a margin of 58 percent say no, the corporations used their tax cuts to give their shareholders and their CEOs bonuses, they didn't use it to give raises.
Richard Kirsch: 29:50 The other thing in terms of the economy is, what really would be done with this two trillion dollars in tax cuts that mostly the wealthy and big corporations got? Well, people reject the idea that it's gonna help the economy. What they do think is that a big problem is that it's gonna hike the deficit. And in hiking the deficit, it's gonna endanger Medicare and Social Security. And if you had two trillion dollars, the government should do much better by investing it in our future if we want to boost the economy. So, build roads. Build new schools. Build high speed internet. Build the infrastructure for our future. Be sure we have good places to educate our kids. And also control our healthcare costs, which people see as a huge problem. And that actually argument about how we spend money, what the government should do to boost the economy by spending money on infrastructure, investing in the future, was the argument that most changed people's minds who had been for the tax cut. When they heard that argument then, no, this doesn't make any sense. I'm more concerned with my kids' future.
Jessyn Farrell: 30:53 What's on my mind as you're talking about all this is why are these myths so deeply held? Given that we have these real-world experiments now, we can look at Kansas and how miserable economic growth has been. You can look at the Trump tax cuts. Why are these myths so closely held and what do we do about it?
Nick Hanauer: 31:17 Well I mean, I think that it's not hard to understand why the myths perpetuate themselves and that is because for a small group of people, the most important thing in the whole wide world is to get people to continue to believe that tax cuts for rich people create growth.
Jessyn Farrell: 31:38 People like their money.
Nick Hanauer: 31:38 Yeah.
Jessyn Farrell: 31:38 Is that the idea?
Nick Hanauer: 31:39 Yeah, absolutely and as we said before, these claims aren't made because they're true, they're made because they're effective. And getting the public to believe that low taxes for rich people will benefit them turns out to be the best way ever devised to get policymakers to enact those tax cuts. And no amount of evidence that you can show somebody will talk them out of the idea that tax cuts for them won't result in growth. I mean, it's not fair to say that everybody is unmovable by evidence, but there's certainly a large group of people, the folks at the Chamber of Commerce, are certainly not going to look at the data and all of a sudden say, "Oh my gosh, we have been wrong, actually." [crosstalk 00:32:24].
Jessyn Farrell: 32:24 Yeah, they don't like the data, as it turns out.
Nick Hanauer: 32:24 No. They're never going to say that. They're never going to say, "Oh good golly, we've now looked at the empirical evidence and tax cuts for corporations don't create growth, therefore we should have higher taxes on corporations." They're just never gonna do that. And that's just reality, but that does not mean that the general public shouldn't be aware of the empirical reality, and have the information necessary to hold their legislators, their political leaders, accountable to a reasonable tax system.
Jessyn Farrell: 32:55 Yeah, and it just when you really think about it, it just makes common sense. When regular people have money in their pockets, they spend it in their local communities, and when wealthy corporations are putting money back into the pockets of shareholders, how many planes do you own? And what happens to that money?
Nick Hanauer: 33:13 Exactly, and what's really surprising is how well-understood this is. The Brookings Institute looked at data from 1945 to 2010 and found that, and I'm gonna quote, "Neither the top income tax rate nor the top capital gains tax rate has a statistically significant association with real GDP growth rate." In their conclusion the authors basically bluntly expose trickle-down for the myth it is. And I quote, "The argument that income tax cuts raise growth is repeated so often that it is sometimes taken as gospel. However, theory, evidence, and simulation studies tell a different and more complicated story." And again, it's so interesting to watch these fights, these public fights unfold, because these same lies are repeated again and again and again. And again, the public's just gonna have to learn to confront these lies and to try to push legislators to do a better thing.
Jessyn Farrell: 34:18 Yeah, I was thinking last night about the progressive movement in the 1890s in the turn of the last century and how that culminated in a constitutional amendment authorizing the income tax. And just what it took over 100 years ago to end up with that kind of political heft and power where you actually put in the constitution that you can levy an income tax. And so what is it gonna take to get us to that change, that robust political movement?
Nick Hanauer: 34:48 And what's fascinating about that historical fact is that if you actually look back at the public arguments being made at the time, to enact an income tax in the first place, the business community was saying the same things then that they said now, is that if you enact an income tax, it will be the end of business, it will kill all the jobs, we'll all go out of business, it's the end of capitalism, and so on and so forth. And all we did was get bigger and more prosperous from there.
Jessyn Farrell: 35:14 Yeah, yeah, exactly.
Nick Hanauer: 35:15 It's just the same arguments made again and again and again and again and again. And they've never been true and they will never be true in the future.
Jessyn Farrell: 35:23 Yeah, and you get to look at those real world state-by-state experiments. If Washington had the tax code of Idaho, its red-state next door neighbor, we'd have a much more progressive tax code and we'd have a much more stable revenue base to pay for services that people want. So the politics I think, the people get it but at the same time we have these closely held beliefs that are really hard to change.
Nick Hanauer: 35:49 Yeah, cool.
Nick Hanauer: 35:57 So next time on Pitchfork Economics, we're gonna talk in detail about another one of the tenets of trickle-down economics, regulation. Do regulations kill productivity and growth. And we're gonna be discussing that with my friend Robert Reisch.
Sarah Leibovitz: 36:21 Pitchfork Economics is produced by Civic Ventures. The magic happens in Seattle in partnership with Larj Media. That's L-A-R-J Media, and the Young Turks network. Find us on Twitter and Facebook at Civic Action and follow our writing on Medium at Civic Skunkworks. And you should also follow Nick Hanauer on Twitter at Nick Hanauer.
Sarah Leibovitz: 36:38 As always, a big thank you to our guests and thank you to our team at Civic Ventures. Nick Hanauer, Zac Silk, Jasmine Weaver, Jessyn Farrell, Stephanie Irvin, David Goldstein, Paul Constant, Nick Cosella, and Annie [Feidley 00:36:50]. Thanks for listening.
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