Jessica Riedl
Appearances
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
And that meant going after the conservative myths and the liberal myths.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
You are correct to correct me. I should have better anticipated the return of the highly rated Trump show. Every day, you just never know what the Trump show is going to bring. Although some will suggest that the reason we're hearing about this flurry of activity is so that we don't hear about the taxes and spending being debated in Congress. What do you mean by that?
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The Trumpists have said in the past that if we do a huge blitz of activity in the first couple of weeks, the media can only cover so much. The people can only focus on so much. They might pick 10% of it to get angry about and create a backlash, but that means the other 90% is going to slip through. Steve Bannon talks about this. If you look at Doge, for instance...
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
All this time that Elon Musk is getting all these headlines for cutting, what, one thirty fifth of one percent of the federal budget. Congress is putting together four trillion dollars in tax cuts and people aren't talking about it.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
makes the mistake of vastly overrating the positives of tax cuts. The first two myths are that tax cuts pay for themselves, they typically don't, and that tax cuts will bring spending cuts by starving the beast. Both of those myths are really about the magical power of tax cuts, that while I like tax cuts, I'm a fiscal conservative, I want revenues to be as low as can be sustained.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
These arguments are heavy exaggerations of the power of tax cuts.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The liberal narrative is an equity distribution narrative. It is that the middle class pays all the taxes. Big business and wealthy individuals don't pay anything. The reason we have deficits is because of these tax cuts. And we can fix deficits if we just do what Europe does and tax the rich and corporations at high levels.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
It's a really convenient narrative because it tells people what they want to hear, which is that you're getting screwed. And if we just screw the big guys, we can solve the problem without touching you. But the numbers are very clear that that narrative is extraordinarily exaggerated and that actually the rich pay most of the taxes, perhaps not as much as liberals want, and
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
And we actually have in America the most progressive tax system in the OECD. It is more progressive than Europe, not less.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Absolutely. Politicians win elections by creating narratives. The narratives are meant to explain why the things their base naturally wants are good ideas. If you tell conservatives, look, I know you guys don't want to pay taxes, but you can collect just as much revenue and cut spending as You're telling them what they want to hear to justify what they already want.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
On the liberal side, there's also the view of, well, I don't want to pay taxes. The rich people should have to pay. If politicians say, yes, you're right, don't worry, you won't pay anything. Jeff Bezos and Elon Musk will pay it all. And in fact... You can have a socialist utopia and it won't cost you anything. Both sides are promising their voters a free lunch.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Republicans promise their people that with low taxes, you'll get all this revenue and spending cuts. And progressives promise their people that we can tax everybody else and you'll get lots of spending.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Yes. Republicans say if you cut taxes, you'll take away the government's allowance and they'll have no choice but to cut spending. It hasn't happened.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Yes, although Democrats don't end up raising taxes. The only real broad tax hike we have had in the last half century was the Clinton tax hikes of 93, and they were pretty small. As much as Democrats talk about we're going to go in and tax the rich and pay for all of this, Joe Biden didn't significantly raise taxes. Barack Obama did not significantly raise taxes.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Myth one is that tax cuts pay for themselves. Tax cuts can bring some extra revenue. They almost never pay for themselves. Myth two is that tax cuts will starve the beast by forcing Congress to cut spending. But historically, it's the opposite. When we cut taxes, Congress increases spending. And when we raise taxes, Congress cuts spending.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Myth three is that the middle class pays higher tax rates than the rich. This is not true. If you take a look at all combined federal taxes, the top 1% pays 33%, the middle class pays 12%, the bottom pays roughly zero. Myth four is that those old 91% tax rates in the 1950s produced all this new revenue. The reality is nobody actually paid the 91% tax rates back then.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
In fact, virtually nobody paid over 50% in a tax bracket, and those tax brackets raised virtually no revenue. Myth five is that Europe funds its bigger governments by taxing the rich more. In reality, they tax the rich about the same as the United States.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
And the entire overage in tax revenue for Europe is the result of value-added taxes, which are essentially national sales taxes that hit the middle class. Myth six is that tax cuts for the rich are the reason we have large budget deficits. The reality is that since 2000, we've cut taxes by 2% of GDP, of which maybe 0.6% of GDP is on the rich. But we've increased spending by 6% of GDP.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Much bigger driver. Myth 7 asserts that taxing corporations and millionaires can eliminate the deficit. You could tax them at 100% and seize all their wealth. It doesn't come close. Myth 8 is that most of the 2017 tax cuts went to corporations and the wealthy.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The reality is while they received bigger tax cuts in terms of pure dollars as a share of the taxes they were paying, it was a roughly proportional income tax cut. Everybody got their tax rate dropped by about one percentage point. Myth nine is that if we go back to the 1980 tax code, essentially repealing the Reagan, Bush, and Trump tax cuts, we'll have painless deficit reduction.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
In reality, if we did that, the tax burden on the middle class would go through the roof, not just the rich, but the middle class to unacceptably high levels. Myth 10 is that America's corporate taxes are far below international standards.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The reality is we had the highest corporate tax rate in the developed world until 2017, and even right now after the 2017 corporate tax cuts, our statutory and effective corporate tax rate is still in the top one-third. We also collect slightly more than other countries in business taxes when you include pass-through corporations.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The 2017 tax cuts dropped us from being number one to about number 11 or 12 in the OECD for corporate taxes.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Warren Buffett said that he pays a lower tax rate than his secretary because much of his income is in the form of capital gains, which is your investment returns. And capital gains don't get taxed until you sell them. So it is true that in a given year, the increase in wealth is not necessarily being taxed at a high rate. But if you look at the actual data...
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
even if you take into account capital gains taxes, high earners pay a significantly higher rate than low earners.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The Biden administration said rich people only pay an 8% tax rate. The way they calculated that was pretty dishonest. First off, they weren't just counting income. They were counting total wealth, including theoretical wealth, like your investment status today, which has not been realized as income. It's really just a number on a spreadsheet that hasn't been produced. The other thing is...
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Not only did they exaggerate their income to make it look like their taxes weren't enough, but they also didn't count the corporate and estate taxes that wealthy people are paying. So they lowballed their taxes while raising their income in order to produce a lower tax rate. It was pretty dishonest.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
All of those explanations are correct. At this point, I pretty much know everybody who works in economic policy in Washington. I've worked with everybody. And I've seen some of them who spent their entire careers pushing for certain ideas and policies with intellectual integrity get into a position of real power and influence. and frankly become hacks. It's the seduction of power.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
It's also a certain view that this is how the game is played. The other side is going to play dirty, so we have to play dirty too, but it's the noble lie that will eventually get us to where we want to be, which is the right policies. I can't work that way. This is one reason I haven't worked in a White House yet, because I can't do that. May I predict you won't? No, I can't play this game.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
It's a right-of-center think tank headquartered in Manhattan, although they have research fellows all over the country.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Even when I worked on Capitol Hill, I was very fortunate to work for one of the most honest senators, Rob Portman, who was a former president's budget director. But even just working on the Hill and seeing the dishonesty and compromises that had to be made, I couldn't do it. Your credibility in Washington is all you have.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
We have, everyone would agree, a disaster of a tax code today. It's extraordinarily complicated. It is extraordinarily inefficient. We all make mistakes on our tax forms because we can't even tell. And it doesn't raise enough money to fund our spending. That's the real cost.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
That's a philosophical question to a certain degree. It depends on what you think the optimal level of taxes and spending should be. I will say that since 2000, about a third of the rise in deficits has can be attributable to tax policy, and about two-thirds of it can be attributable to spending policy.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Right now, we collect about 17 percent of GDP in federal taxes, which is approximately the historic level since 1960. There's a lot of ways I would improve the tax code. I would get rid of a lot of deductions. I would simplify. I would get rid of tax preferences. But really, we're going to stay between 17 and maybe up to 20 percent of GDP in revenues.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
It's still not going to be enough to fix the budget, though, because spending is rising so fast.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I would agree with that. If you want to know why we're facing big deficits, spending has historically been 20 percent of GDP. Revenues have historically been 17. Spending is going to 33 percent of GDP over the next 30 years. You can get tax policy right, but you're not going to be able to chase 33 percent of GDP and spending. You need to address that side, too.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Since 2021, interest on the debt has tripled from $350 billion to nearly a trillion dollars. And it's going to go to $2 trillion a decade from now. What that means is that over the past three years, interest has surpassed Medicaid, defense, and now Medicare. to become the second largest item in the budget after Social Security, and it's going to pass Social Security in 2042.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Generally, the research fellows here are more supportive of free markets, lower taxes, free trade. But ultimately, the research fellows are free to publish what they want. We don't get dictated by our bosses, but they do tend to attract people at this organization who are a little more free market oriented.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
This is going to amaze younger people, but from about 1985 to 2000, spending fell from 23% of GDP to 18% of GDP, and politicians got elected promising not to increase spending. Since about 2000, after we finally balanced the budget, lawmakers threw out any sort of fiscal responsibility.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
And even after the budget unbalanced, we created this arms race where neither party believes they can get elected without promising big tax cuts and big spending increases for everybody, particularly under Trump's first term, Biden and Trump's current term, which We're seeing the biggest spending increases we've seen in 50 years.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Politicians don't know how to win otherwise. They believe they would lose. In the 80s and 90s, when you ran for president, you had to show that every promise was totally paid for. That's not expected today.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Yes. It's frustrating for me because I work closely with members of Congress and top members of presidential administrations. I come in. I brief members of both parties. I testify before Congress. I'm in the strategy sessions when fiscal issues are discussed, and they will tell you in the meetings – That they know this is irresponsible. They know this is unsustainable.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
They know the difficult decisions must be made and they know we're going to crash if we don't. But then they say, yeah, but I can't say this publicly or I'll lose my seat. So they say, I'm just going to try to pander the best I can and hope that when the consequences come, my successor is in office instead of me.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
All indications are we're going to get really big deficits just like Trump won. We're already having $4 trillion that will cost to extend the expiring 2017 tax cuts. Trump wants to do the additional tax cuts, no taxes on tips, no taxes on overtime, no taxes on Social Security benefits. That could very easily bump us up to $6 trillion in tax cuts over 10 years. Yeah.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Then on the spending side, Trump and congressional Republicans are already looking to substantially increase spending for defense and border security. Right there, you're looking at about $8 trillion. We can talk about Doge. Doge does not give any indication that it's a serious effort. Elon Musk and his merry band of budget cutters are...
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
seem to be focusing on symbolic things like DEI contracts, politico subscriptions, federal employment that serve a culture war purpose for MAGA warriors. But in terms of the budget deficit, they're not even a rounding error. And the danger, I will say, about Trump's approach, when he took office in 2017, the deficit was $585 billion. Today, he takes office with a deficit of $1.8 trillion.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
So doing business as usual deficit irresponsibility is a lot worse when you're already inheriting such a mess.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
That's a really big question. The national debt's projected to rise from about $30 trillion today to $200 trillion in 30 years, even before you take into account new expansions. So something's got to give. But it's hard because how do you convince people to make tough decisions today to avoid something bad happening in the future? They don't want to.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
This is what the very dry topic of budget process reform is often about. Trying to constrain ourselves today to feel the pain today so that we don't have the avalanche later. And you hear things like... balance budget amendment, make lawmakers pay for their proposals today, make them pay for new proposals so that we can have the cost hit us right away rather than making promises for the future.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Yes. Wow. You've done your homework. I was a high school debater my senior year. U.S. News came out with a cover story that said, so you think you can balance the budget? You open up to this set of spreadsheets of the federal budget and they make a game out of it. I just rolled up my sleeves given the nerd I am and went, this is going to be fun.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The problem we face on these reforms is how do you get the inmates to lock the asylum? politicians pander voters get big tax cuts and big spending and we dump the cost on people who aren't going to pay it for 20 30 years and aren't paying attention how do you rally everybody to change those incentives
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Here is something scary about the federal budget. Social Security and Medicare do not pay for themselves in taxes. There's a myth that your payroll taxes and your Medicare premiums pay for your Social Security benefits and that they can't run deficits. This is wildly false. They both run huge deficits.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Over the next 30 years, Social Security and Medicare are going to run a cash deficit of $124 trillion.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
For Social Security, because your taxes today just pay for current beneficiaries. It's not saved for you when you're older. And if you have a lot more people retiring, you're not going to have enough taxpayers to pay all the benefits.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Exactly. It was pay as you go because there were no savings at that point. On Medicare, your payroll tax only pre-funds Medicare Part A, which is hospital insurance. You do not pre-fund Medicare Part B. Again, Social Security and Medicare face $124 trillion shortfall. The rest of the budget is actually balanced over the next 30 years. It's not seniors' fault.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
This is the system that was handed to them. It's the system they paid into. They did nothing wrong. However, the reality is that even if you adjust for net present value, seniors are getting substantially more from Social Security and Medicare than they ever paid into the system, even if you adjust for inflation and interest rates and all of that. In fact, from Medicare...
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The typical senior is getting back triple what they paid in. If you multiply that by 74 million people all retired now, all getting triple what they paid in, the math doesn't work.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I put out a 30 year budget plan last June that stabilized the debt over 30 years, fully scored, no gimmicks. It put everything on the table. But the reality is most of the savings have to come from Social Security and Medicare because that's where most of the deficit is coming from. For Social Security, there's only three levers. Raise the tax, raise the age, reform benefits.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
My plan includes new taxes and a higher age and lower benefits for high earners.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Right now, somebody who makes a lot of money over their lifetime, retires very wealthy, can start out with about $60,000 or $65,000 in annual Social Security benefits. If you're married, you're looking at about $130,000. We're talking millionaires, and they're getting back more than they ever paid in.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The thing I like about budget policy beyond the fact that it's really important is that when you study taxes and spending, you really get into the philosophical questions of what is the role of government. What do we want government to focus on? How big should it be? You're really at the center of all Washington policy debates.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I don't understand why we wouldn't start there and say, if you're a millionaire, why are you getting so much back in Social Security?
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
It has become a third rail. Democrats don't like it. Republicans don't like it. But the case for means testing is, look... If you're going to reform benefits, should you start with the poor or the rich? Seems to me that you should start with the people who can afford it, especially when Social Security is supposed to be a poverty prevention program.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
It's not supposed to be a universal, huge, get-rich benefit.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
because it would be electoral suicide. There is a perception that Social Security is 100% pre-funded in payroll taxes. Everybody is just getting back what they put in, and any cut against that is an outrage and theft. None of that is true, but no one wants to have that fight. I get yelled at nonstop by people who actually believe that
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Their Social Security taxes are sitting in a bank account in the Social Security trust fund with their name on it. You can tell them it's not true. They will not believe you.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I would like to think Republicans would be encouraged and work with the president, but I think partisanship would probably win the day. I think Democrats would not have the confidence to take that message to the American people and therefore would distance themselves. What's frustrating about all of this is...
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Republican and Democratic lawmakers they would agree with that commercial they would agree with every word of it but what they would say is the politics don't work I can't get behind it do you know whether Biden does receive Social Security benefits
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I think Republicans would get on board because I think Republicans are a little more apt to support Social Security reform. And if they have the cover of Trump, they'll do what Trump says. I think Democrats would light themselves on fire outside of the White House as a protest, because not only is it a president that they don't like for many good reasons, but Democrats
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
It has, therefore, a holistic philosophical side of it beyond just the economic nerdery. I've grown more focused on it the more I studied it because I realized, oh, my gosh, we're in deep trouble.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
This would be seen in the context of this is the beginning of cutting Social Security to pay for tax cuts for the rich. The only way we're going to fix this stuff is if both parties privately come together and put everything on the table. You really have to do the tax side and the Medicare side and put it all together so that everybody is working together and everybody is sacrificing.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Because if you just try to do one piece of it, we're just going to raise taxes, we're just going to reform Social Security and Medicare, that's going to be seen as a partisan scheme to try to hurt the other side.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Yes, although, interestingly, there are – you can call this encouraging or discouraging. It's up to you. There are dozens of members of Congress and senators who are holding bipartisan meetings coming up with ways to solve this. On the one level, that's encouraging that they're doing this behind the scenes. It's discouraging because I'm not allowed to tell you their names.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
If I revealed the names, I would not be able to start my car. And that's the discouraging side of this is that they are building plans behind the scenes, but they also are scared to death of ever doing this publicly.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
There's so many directions to go on this, but let me start out with If we seized every penny of wealth from every billionaire in America, their homes, their cars, their stocks, their child's Nerf football, and we sold every penny of it. Don't forget the yachts. That's the example you use. The yachts. You could pay for eight months of government spending once, and then it would be gone forever.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
One scary way of looking at it is that a year and a half ago, economists at the Wharton School, University of Pennsylvania, tried to project out the economy over the next 30 years under current deficit projections. The model crashed. They could not project a functioning U.S. economy under current debt trends. That should scare everybody. Okay.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Not eight months every year, eight months once. And it would crash all the stock markets. Because you'd be taking all the money out of the stock market, so your 401k becomes a 201k. Another way of looking at it is even if we created a 100% tax rate on all income over $500,000 and everybody still worked, you still wouldn't have enough to come close to balancing the budget.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
It is mathematically impossible to get there by taxing the rich. The reality is the middle class in America is dramatically undertaxed Compared to everywhere else in the developed world, you can't get there without taxing the middle class more.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
According to IRS data, The median earning family in America, when you take into account all of their deductions and credits, they pay a 3% income tax rate and a 12% tax rate if you include their Social Security taxes, the corporate taxes passed on to them, tobacco and alcohol, 3% and 12%. This has dropped dramatically over the last 40 years.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The tax rate paid by the middle class is less than half what it was when Reagan got elected. In Compare this to Europe, where the middle class pays substantially higher taxes because Europe hits voters with very high payroll taxes and significant value-added taxes, which are essentially a national sales tax. The reason Europe collects more money than the U.S.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
is not because they tax the rich more. It's because they tax middle and lower earners more to blow mines even further.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The bottom 40%, once you take into account the earned income tax credit and the child credit, the bottom 40% collectively pay a negative income tax rate and almost no taxes overall in 2024. The bottom 40% paid a total of $60 billion in federal taxes. The top 20% paid $3.3 trillion in federal taxes.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
90% of the income taxes are paid by the top earning 20%. 13% are paid by the second earning 20%. And the rest pays negative 3% of the income tax burden collectively. These numbers are way up from where they were 30, 40 years ago.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Absolutely. One of the ways the tax code has become more progressive is that we've taken 10 million families off the income tax roll since 2000 with lower tax rates, child credits, the EITC. That's why we're so progressive. We tax the rich at normal international levels, but we don't tax the poor.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I like consumption taxes better than income taxes because I think... It's better for the economy. You should tax what you take out of the economy, not what you put into the economy. But at this point, switching to a consumption tax is pretty politically risky because it'll hit seniors who consume more. Some of the wealthier people who don't spend as much won't be hit as hard.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
So you have to make adjustments to make it a little more progressive on the rich and give seniors a break.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
That's a great question. You mentioned Danny Kahneman. He was my professor in graduate school. I do think principles that you learn in behavioral economics like loss aversion, people are more worried about losing what they have than gaining what they can't.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
But ultimately, what I've learned is people are going to pick what's comfortable for them or advantageous for them in the short term, which is to say, give me more money, government, and then reason backwards on why that's actually an OK policy.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Thank you so much for having me. I have been at the Manhattan Institute. In addition to these jobs, I've worked on several presidential campaigns. I was director of tax and spending policy for Marco Rubio's 2016 presidential race. And in 2012, I was the lead architect of Mitt Romney's 10 year deficit reduction plan. Did you ever think about running for office? I did. I grew up in Wisconsin.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Not as much in economics, but one example that's gotten a lot of attention from us economic nerds is the way young people have rallied around climate change. That's something where the main effect is going to be decades away from Yet a lot of young people talk about we need to make sacrifices now because if we wait 30 or 40 years for the climate, it'll be too late.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
A lot of economists try to figure out how can we get young people to apply that same framework towards the debt. Music
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
increasingly not. One of the things I see about the debate right now on taxes and spending and deficits is it's all driven by partisan tribalism. The people who cheer my criticisms of one party's president will get angry when I apply the same standard to their party's president. Ultimately, I have faith that The math eventually always wins. The laws of economics always win.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Eventually, we're going to get to where we need to be, whether we like it or not.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I hope so. It's a dry and depressing topic, but... But other than that... But it's also interesting, and it affects all of us, and I've had a great time.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I was an advisor to Governor Tommy Thompson when I was in college. But ultimately, I didn't run for office for the two reasons that, number one, I didn't want to have to ask people for money. Number two, I'm too stubborn. I'm the last person who's going to pander to people to get reelected. And had I gotten elected, I would have been thrown out of office so fast.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
My nonpartisan approach is to be critical of everybody in Washington. Do you have any friends? No, not really. Much of my policy has been sharing uncomfortable truths and frankly, angering people.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I've been transgender since I was four. Several years ago, I began transitioning to Jessica and the response has been very supportive and positive. I still have my job. I still have my career. I'm working with members on Capitol Hill. It's been heartening that people are making it irrelevant. That's what I want. My hope for My name change from Brian to Jessica was that it shouldn't matter.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I'm still an economist. My research is still what it is. And I want my gender to just kind of blend into the background. And I've been really heartened that that's been the response so far.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
You know, I talk about this with my wife. I've never been popular in the first place. I have never been part of the in-group. So I get to the point where you kind of think people aren't going to like me for this. And I think to myself, you know what? They didn't like me before. It's just a matter of, do you want to dislike me for my cold economic truths or dislike me for this?
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I'm going to alienate people either way. So the hell with it.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I'll go back to when I started at the Heritage Foundation. I got my first job in Washington. I had just graduated from graduate school. I'm 26 years old. I get hired at the preeminent conservative think tank. You're expected to support the home team. You're expected generally to say nice things about Republicans and not Democrats.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Instead, I start putting out report after report after report saying Bush is a big spender and deficits are skyrocketing. The media liked it because the media loves to hear conservatives criticizing Republicans. So the next thing I know, I'm being cited on the front page of The Washington Post and The New York Times saying, And boy, was the Bush White House unhappy about that.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I'm told that Karl Rove reached out to the president of my think tank and told him to shut me up. They told me that you are not to have access to the Bush White House ever again. It got pretty dicey for a while. Were you fired? I was not fired. I was worried I would be. Credit to my bosses for standing up for me. Stuart Butler was my vice president who stood up for me.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
But my take was, I'm going to go where the numbers say, and I'm not going to be bullied or intimidated. I don't really care. The vindication that I got is that although I was banned from the Bush White House, I eventually became close friends, colleagues, and coworkers with many of the Bush economists.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Bush's budget director, Rob Portman, recruited me to become his chief economist after he got elected to the Senate in 2010. So ultimately, my criticism, my stubbornness, and my just-the-facts approach eventually won people over.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Absolutely. I've been sounding the alarm since 2001. How's that working out? As you can see from the debt, my career has been an abject failure.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
This was the post 9-11 era where in order to win defense spending hikes, Bush was offering Democrats big hikes on discretionary spending. Then in 2002, there was a farm bill that increased farm subsidies by 80%. And then in 2003, there was the Medicare drug entitlement. And I felt, as a fiscally conservative deficit hawk, There's no way I can support this.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I can't look myself in the mirror and I can't have any credibility as an economist. So I really went after the farm bill. I really went after the Medicare bill. And I went after all the domestic spending. And I was told that it was not appreciated.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I would call myself pragmatic and right of center. Generally, I support free markets, less spending, but I'm nonpartisan. I'm independent. Although I have worked for Republicans in the past, I am not a Republican today. My research is really focused on calling out errors and trying to bring both sides together as an honest broker.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Two big government and two big spending. Biden was elected as a moderate return to normalcy after Trump, and instead he added $4 trillion in new spending, enacted some tariffs, pushed up budget deficits, and overheated the economy to inflation. I would have preferred a more moderate bipartisan approach.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Nearly half of it was the American Rescue Plan, which was the big stimulus bill shortly after taking office. We also had big increases in discretionary spending across the board. We had increases for veteran spending in the PACT Act. There was the infrastructure bill. And we had a lot of student loan bailouts.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
I'm a senior fellow in budget, tax, and economic policy at the Manhattan Institute.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Keep in mind, Trump added $8 trillion in new spending and tax cuts in his first term. And this time around, we're seeing already trillions of dollars in new tax cuts and pretty empty promises of spending cuts. Doge is not really cutting spending. So it looks like Trump is also going to be a tax cut and spending Republican pushing deficits up, too.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Trump wants to cut taxes, which is inflationary, increase spending, impose tariffs, which will raise prices, deport immigrants, which will create shortages in certain industries that push up prices. After all those inflationary policies, he continues to threaten the Federal Reserve to keep interest rates low, which will push up inflation even higher.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
Pretty ironic for someone who was elected president running against Biden's inflation. I pull my hair out most days because I see two sides that are Dunning-Kruger-ing up and down, screaming at each other when both are making big mistakes. For people who aren't familiar with the Dunning-Kruger effect, what do you mean by that?
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
The Dunning-Kruger effect is the reality that sometimes the people who know the least are the most confident that they're right.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
This report was in many ways the product of many of my reports, which is I got really mad reading some articles and I got really mad reading Twitter. I see people arguing using all wrong information and not just on Twitter, but I hear politicians saying stuff and going, that is just not true. I write some of these reports with my hair on fire and smoke coming out of my ears going, no, no, no.
Freakonomics Radio
626. Ten Myths About the U.S. Tax System
But the other reason I wrote this was we were at the time, last December when this was released, heading into one of the most consequential years in tax policy. We have $4 trillion in 10-year tax cuts to renew and a new president who's made all sorts of tax promises. So I wanted to give people the background knowledge of so that we could have a smarter national debate.