The Controversial Tax Policies Of Emmanuel Saez

Episode Summary

Emmanuel Saez is probably one of the most controversial economists around these days. Recently, he's garnered significant attention for being one of the architects of Elizabeth Warren's wealth tax proposal. On this episode, Luigi and Kate dig into tax policy, the wealth tax and why Saez's work is so controversial.

Episode Notes

Emmanuel Saez is probably one of the most controversial economists around these days. Recently, he's garnered significant attention for being one of the architects of Elizabeth Warren's wealth tax proposal. On this episode, Luigi and Kate dig into tax policy, the wealth tax and why Saez's work is so controversial.

Episode Transcription

Kate: We’re a few weeks into 2020, which means that the tax forms are starting to arrive. Luigi, do you have a sense of what your total tax rate was last year?

Luigi: Actually, to be honest, I went and looked. I knew that you would ask this question. Some things are easy to determine. If I divide the taxes I pay, federal and state, by my total income, I get 27.7 percent.

Kate: That was pretty high.

Luigi: But then, local sales taxes, property taxes, and then imputed corporate taxes. That’s hard.

Kate: Well, I mean, if you had to ballpark it, what do you think your number would be?

Luigi: I tried to ballpark it, and I arrived at 31 percent.

Kate: Yeah, I tried to do the same thing. I think my tax rate was maybe around 30 percent.

Luigi: As you can see, the question of how much taxes people pay is not that easy to determine. We economists spend a lot of time making these calculations and trying to get these estimates right.

Kate: In a recent book by two authors, Saez and Zucman, they came up with an a very interesting and provocative estimate of total tax rates paid by various income brackets or tax brackets. And what they found was that the overall tax rate on the richest 400 households in 2018 was only 23 percent, which, by the way, seems pretty low, especially if you consider the tax rates that we just estimated for ourselves. And the fact that a comparable tax rate for households making maybe around $100,000 is more like 30 percent. And so, this whole issue has created a mini-uproar within the economics profession.

Luigi: Not just in the economics profession, but I think in the public at large. And some of the results of this study have been published in the New York Timesand have received an enormous amount of attention. And so, in today’s episode, we’re going to try to go into the weeds of what we economists use to measure tax rates. And hopefully, by the end of the episode, you’ll be able to judge for yourself whether billionaires in the United States pay lower taxes than everyone else, and whether they should pay more taxes.

Kate: From Georgetown University, this is Kate Waldock.

Luigi: And from the University of Chicago, this is Luigi Zingales.

Kate: You’re listening to Capitalisn’t, a podcast about what’s working in capitalism today.

Luigi: And, most importantly, what isn’t.

Kate: Who better to discuss the triumph of injustice with than one of the authors, Emmanuel Saez, who is a professor of economics at UC Berkeley, a director of the Center of Equitable Growth at UC Berkeley. He is a John Bates Clark Medal recipient and a former MacArthur fellowship awardee. Welcome to the show, Emmanuel.

Emmanuel Saez: Thank you very much. Delighted to be here with the two of you.

Luigi: In your book there are a lot of very interesting claims and claims that have generated an enormous amount of research. You’re probably the most-attacked economist of recent times. Let’s start with one, which is the progressivity of the US taxation system. Can you explain to us, how do you come up with the claim that basically the total tax rate that people pay is fairly flat? Whether you make $10,000 a year or you are Warren Buffett, it is roughly the same number?

Emmanuel Saez: Yes. So, people have the sense that the tax system is progressive, because they focus mostly on the most-visible tax, which is the individual income tax that has progression with higher tax rates the higher your income. But in reality, this is only part of the tax system. And so, what do we do in the book is to really distribute all taxes. Not only the individual income tax, but also payroll taxes and taxes at the state and local levels, sales taxes, property taxes, excise taxes, et cetera. And so, what you find when you pile up all the taxes, tax rates are low. Starting at the bottom, the payroll tax is 15 percent, and it starts on the first dollar. So, you make a minimum wage and you are going to pay 15 percent in taxes. Now, you make a minimum wage, you don’t save much. You have to consume all your income, and you are going to have to pay significant sales taxes and excise taxes. And that’s how you quickly get in the low twenties, at the bottom.

Luigi: OK, so we have 25 percent at the bottom end. What about at the top end?

Emmanuel Saez: Average, economy-wide, it’s 28 percent. Those are the macro numbers. At the bottom, it’s slightly below. It increases throughout the working class, the middle class, the upper-middle-class people like us. And what we found is that at the very top it comes down, but it comes down only really for a very small group at the top. But that’s a very, very important group. A group that we’ve dubbed the top 400, the billionaires as described by the Forbes list. It’s very important to understand why it is that their tax rate, as we estimated, is lower. It falls down to 23 percent. Take the case of Jeff Bezos, the richest man in America. His income is his share of profits from Amazon, and that’s in the billions of dollars every year. What are the taxes he pays on that income? Well, he’s going to pay some corporate tax, but the corporate tax has come down quite a bit with the Trump tax cut, and those big multinationals are also pretty good at lowering their tax rate. Actually, there were articles that Amazon’s corporate tax bill was close to zero last year. 

Now, he’s not going to pay individual income tax if he doesn’t distribute himself some income, in the form of dividends or selling his shares. And Amazon doesn’t distribute dividends. So, if he’s a frugal person, he doesn’t need the income to consume, his individual income tax is basically zero, relative to his true income. And so, at the top among billionaires, we’ve estimated that some people distribute themselves very little, so their individual income tax rate is almost zero. Others use their income more, so they pay more significant taxes. But on average, that’s why it’s actually lower than for the upper-middle class, people like us where all our economic income is going to flow through the individual tax return.

Kate: If I had to summarize the way that Emmanuel and Gabriel, his coauthor, allocate taxes, it would be that the most intuitive way seems to just add up whatever, let’s say, federal income taxes people have paid and divide that by how much money they made last year. But that’s not what they do. They actually look at the total amount of taxes that are paid by everything in the economy, not just human beings, but also corporations. And they say, look, corporations, even nonprofits, those are ultimately taxes that are borne by people. So, let’s try to figure out a way to allocate those taxes to individuals. How are we going to do that? Well, who owns corporations? The shareholders. Those shareholders are disproportionately really, really wealthy people. And so, let’s allocate the percentage of taxes that are paid by corporations to the really wealthy and, to some extent, to the rest of the society through pensions and through savings. But most of that tax rate will belong to the richest people. 

Whereas, for everyone else, most of the money that we make is through our income, not necessarily through our capital gains or our stock holdings. And so, the percentage taxes that everyone else pays, those are mostly made up of federal and state taxes as well as sales taxes. Which, by the way, if you think about it, percentage-wise, fall disproportionately on the lower end of the income distribution. 

So then, finally, they add all this up, they take averages across states, across cities, and then they say, look, for each decile of the income distribution, what is roughly the average tax rate that’s being paid across all of those people? And that’s how they construct their ultimate figures.

Luigi: But I would make a distinction between sort of the statutory tax rate and what people actually end up paying, because of elusion, evasion, and so on so forth. Let’s take your assumption that Jeff Bezos has a gigantic amount of wealth in Amazon. Amazon doesn’t pay dividends, but until two years ago it was paying 35 percent, or should have paid 35 percent, on the profits at a corporate level, now it’s 21. And the moment it sells, because even if he’s frugal, I don’t think he makes a lot of money in his income, and he likes to buy expensive apartments in New York and et cetera. So eventually, he’s going to sell his stock, and he pays 20 percent on his realization of capital gains. So, in an ideal world with the current statutory tax rate, if there is no elusion, you get 21 plus 20. Now, it is not cumulative, but it amounts to roughly 36. So, we wouldn’t be that bad, if we were in a world in which there are not a lot of loopholes.

Emmanuel Saez: Except that if you are a billionaire, you don’t need to realize your income. A lot of those multibillionaires are going to go through their lives without realizing their full income. The most striking example is perhaps Warren Buffett, who’s claimed that he really wants to accumulate within his company, Berkshire Hathaway, and lives very frugally.

Luigi: Yeah. But honestly, Warren Buffett is the wrong example, because he decided to donate most of his income to charity. So, he will never realize it. And why should you pay taxes if you never realize it? And two, I agree with you, that there is a major loophole, which is, and this is a technical term, but it’s a step-up of the basis at inheritance. So, if Bezos keeps, or Warren Buffett keeps all his stock until his death, and then he passes it through to his children, his children don’t have to pay capital-gains tax rates. So, if we were just to plug that loophole, which I think is a pretty outrageous loophole, we would be in a world that is much more fair to begin with.

Emmanuel Saez: I agree with you, that’s an obvious loophole and an urgent one to plug. And indeed, a number of candidates are proposing . . . It’s been long proposed on the Democratic side.

Kate: What would you propose for the top end?

Emmanuel Saez: What we think is that at the very high end, what works best to increase or restore progressivity is the wealth tax based on individual wealth. And that’s a proposal that has gotten a lot of attention in the policy debate. It’s been proposed by Senator Warren, Senator Sanders. And for the very top, it is the most effective, because as we discussed earlier, Jeff Bezos may not realize that much income, but it’s very easy to see how much wealth he has. If you impose an annual wealth tax, 1, 2, 3 percent or more on his wealth, you’re really going to tax him in a very significant way. And indeed, we’ve done some of the calculation, add a wealth tax to our chart and you very quickly, sharply increase tax rates at the very top.

Luigi: I’m not ideologically opposed to the wealth tax we debated with Kate, but I’m a little bit partial, because you are proposing in the book a wealth tax and a maximum marginal tax rate of 75 percent.

Emmanuel Saez: Here, we have to be careful. The wealth tax would count as part of the overall tax on income. So, what we are proposing, if you wanted to increase the tax rate, the average tax rate at the top, to about 60 percent, which corresponds, roughly speaking, to a 75 percent marginal tax rate, you could do it through a combination of a better-working corporate tax, a wealth tax, and perhaps fixing some of the things on the individual income tax. But the concept of marginal tax doesn’t work that well anymore if you think about the wealth tax, because the wealth tax goes after your stock. If you make more money, it doesn’t necessarily mean that you’re going to pay more in taxes.

Luigi: If you had your way, and you introduced a wealth tax, what would you set as the marginal tax rate on income?

Emmanuel Saez: On income you don’t need, maybe, you know, you don’t necessarily need to go above 50 percent, because at the very high end, the individual income tax doesn’t do a great job at capturing income. That’s why you need the wealth tax. And now, for the upper middle class or people like us, how much you want to tax us is debatable. If you want to increase our taxes quite a bit, then, yes, you use the individual income tax. But if you really want to hit the billionaires, or even the centimillionaires, the wealth tax is the tool you want to use.

Luigi: I actually disagree on this point. The most effective way to equalize or make the country more equal is trying to eliminate the rents that some people enjoy. My favorite example is Carlos Slim. He used to be the richest man on earth. He lost half of his wealth. Now, don’t cry for him, because he’s still worth $30 billion. He’s not exactly poor by any standard, but he lost half of his wealth, almost overnight. Why? Because Mexico opened up the market for telecommunications, both in mobile and in fixed lines. And his major source of wealth was a mobile and fixed-line operator in Mexico. And so that created competition. That creation of competition not only reduced his wealth, but it gave cheaper phone lines to every Mexican. So, it is a very nice redistribution, and done, I would say, the market way rather than the brutal taxation way.

Emmanuel Saez: I mean, if you look historically, when you want to go after an oligarchic problem, that is, the wealthy having too much power, you have to throw a lot of policy tools at them. And generally, those tools go together. That is, when you are going to go aggressively antitrust, curbing the power of monopolies, you also use more progressive taxation. At least in history, other countries that have successfully reduced income and wealth concentration have tended to use those two together, rather than substitutes. And I think you see that also in the political campaign. That is, the candidates who really want to tax the rich more are also those who want to be very aggressively pushing antitrust.

Luigi: I don’t dispute that historically. Even now, there is a correlation between the use of the instruments. But from an economic point of view, they could be substitutes. So, it’s interesting that they’re not used as substitutes. 

But I have to say, and maybe this is my reading, I have to say that reading your book, I got the impression that, yes, you want more equality for political reasons, for this and that. But at the end of the day, there is almost a moral sense that you don’t want billionaires, that you want to eliminate them one way or another. That it’s not just an economic distortion, it’s almost a moral distortion. Am I reading too much between the lines?

Emmanuel Saez: That’s not wrong, but what I would say is that, yes, the market creates very successful businesses and therefore creates billionaires if you found a thing. And I don’t think we need billionaires to dominate a market for as long. And therefore, I’m not against billionaires, but they shouldn’t stay billionaires for as long. And it’s something you can achieve through taxation, but also through more competition, as you were offering. I think an economy where people at the very top churn more, you don’t stay that rich for as long, is an economy that would indeed work better.

Kate: Yeah. I mean, these are issues that come up a lot on this podcast. Maybe I’m just being too diplomatic, but I agree with both of you. But even if we had perfectly functioning antitrust laws in the United States today, just because of the nature of globalization, of automation, of multinationals, agglomeration effects and network externalities, we will ultimately invariably have people who are billionaires, because big companies tend to be the ones that prevail in society today. And maybe a billion dollars is fine, but if you amass $50 billion of wealth, chances are that not only will you have an undue influence on the political system during your lifetime, but your children will as well, and your children’s children will as well. And their children will also be billionaires. And I think Emmanuel is right, that that is problematic from an inequality point of view. And it’s problematic when it comes to how we run our government.

Luigi: I agree with the concern of the government, but there’s nothing magic about a billion. OK, I understand a billion is a lot of money, but $100 million is a lot of money too. Even $10 million for most people is a lot of money. So, what is the right amount? I’m a little bit nervous of going in the direction of saying we don’t want billionaires, because tomorrow is going to be, we don’t want, I don’t know what is the term, cent—

Emmanuel Saez: Centimillionaire.

Luigi: Centimillionaires.

Emmanuel Saez: Well, then Bernie Sanders is your man, because he’s offering, you see, a graduated wealth tax: 1, 2, 3, 4, 5, 6, 7, 8 percent, all the way to $10 billion. I agree that it’s not a magic number, but what you feel is that the higher you go, the more you need the tool, the headwinds, through the policy tool side. And that has to be graduated.

Luigi: But one issue we did not discuss is, with these taxation systems, what are the effects they might have in attracting people, and especially entrepreneurs, especially innovators, to the United States? What do you say about that?

Emmanuel Saez: I say that we don’t know. There are a lot of statements one can make, but my feeling, looking at how humans behave, is that what’s most important for innovation is to help you when you’re starting. Giving you a good education, the opportunity to come to this country and deploy your ideas. The wealth tax hits you only after you’ve succeeded. And therefore, it might be that it’s there as something, yes, I’d have to pay that. But I don’t think, based on everything we know about how people discount, how people make decisions, that it would be such a big negative impact. In other words, the motivation to do stuff is not just the hard cash you will get at the end. And the wealth tax kicks in only if you really succeed. So, it doesn’t remove your ability to create a business in the first place.

Luigi: I totally agree that entrepreneurs are not motivated only by money, but I thought that soccer players also are not motivated only by money. And one of my favorite papers is one you wrote about soccer players in Europe, and how they move around very much as a function of the tax rate. And I have to admit I’m really pissed, because Italy did a special tax for foreign players and foreign financial executives that made it possible for Juventus to hire Cristiano Ronaldo. And so, Cristiano Ronaldo pays only a hundred thousand euros in taxes for all the foreign income he earns. So, all the endorsements, everything, is taxed at a zero margin of tax rate, but your paper shows that this has an enormous impact. So, Spain might be broken financially, but in the World Cup, attracting the best players.

Emmanuel Saez: You’re right. But the big difference there is that in football you move and you immediately pay the lower tax. Here, it’s a very different situation, because you start a business and you start without the fortune. And there’s a lot the US can do to attract more entrepreneurs. You see, in immigration, for example, we put on constraints. The current administration wants to crack down on immigration of all sorts. In principle, you could open that to get more talented people to come to study in our universities and then thrive in the economy. Then, once they are wealthy, I agree. You need some design to make sure they cannot flee with their money and escape taxation, and the US has citizenship-based taxation, where taxes follow you, even if you move to another country. It actually is a pretty extreme but very effective way of preventing people from moving out.

Luigi: We’re both immigrants, so we are both in favor of opening up more of the borders. But there is even a paper, this one not written by you, but one of your coauthors, Stancheva, looking at innovators and the fact that they do move where their tax rate is lower. They don’t make a lot of money upfront, but they seem to be very rational in locating where tax rates are lower. So, I wouldn’t be surprised if innovators in the future moved to Singapore and not to Silicon Valley.

Emmanuel Saez: Look, this is a general legitimate question. I feel like the power of your educational system, the agglomeration effects that Kate was describing, are very powerful. But it’s true, if we are in a scenario where we put on a wealth tax and Silicon Valley moves to Singapore, that would be a bad outcome. I don’t think it’s likely, but we should be on the lookout for any such effects.

Luigi: There is one thing that I think has received no criticism, at least as far as I know. And I’m interested in knowing, maybe, you know, if it did, which is how little taxes multinationals pay. Because I think that this is, in my view, the biggest scandal. I don’t think that is necessarily your biggest discovery, but I think that you document it in the book in a very effective way with some examples that really are revolting. 

One example, and for once, let’s not only talk about bad American companies, because this is a Swede and a Dane, so the people that generally pay a lot of taxes. But they transferred the intellectual value of Skype for 25,000 euros, shortly before they sold the entire thing for, what, three-and-something billion? So, the trick that many multinationals play is to transfer some rights to a fiscal paradise like Luxembourg.

So, you transfer this right there, and then the entity that is in the fiscal paradise charges a fortune, an arm and a leg, for the use of that right, to the operating company in the countries, in this case, Skype was based where, in Sweden?

Emmanuel Saez: Yes.

Luigi: So, in Sweden, and so Sweden does not see any available profits, but all the profits are accumulated in this remote location. And there is an entire cottage industry of accountants and consultants that are paid very heavily in order to prove the impossible, to prove that the transfer of the Skype right to Luxembourg was really worth only 25,000 euros. So, did anybody challenge you on that front?

Emmanuel Saez: It’s true. This one didn’t receive nearly as much criticism. I agree it is perhaps the biggest scandal of globalization, as it has happened. That is, it’s clear that the biggest winners of globalization are those large multinational companies that can deploy their activities worldwide. And we are in a system where they can essentially choose where they report their profits. And obviously, they choose to report their profits through the tax gimmicks, you’ve described one of them, in tax havens, where the tax rates are extremely low. I should say, though, that there is movement on the policy front, and if you read the footnotes, almost, of the Democratic candidates’ platform, they are going aggressively against the existing system, so that we could tax multinationals better. And indeed, the point of our book is that the fact that the multinationals escape taxes, that’s because the system is poorly designed. And there is strong lobbying to protect that system. But technically, nothing would prevent us from taxing multinationals much more effectively.

Kate: If nothing is preventing us, what are some of the key policy proposals that you put forward in your book?

Emmanuel Saez: Essentially, we know because we have the data, the government has the data, the US government for each multinational, how much profit they report in each country and how much they pay in taxes in each of those countries. So, it’s very easy for the US government to see whether companies like Google, Amazon, Microsoft, et cetera, are reporting a lot of their profits in tax havens. And if they do, then it wouldn’t be complicated to apply a remedial tax. That is, if the US tax is, say, 21 percent, that’s what it is today. If you pay less than 21 percent on your profits in one country, the US is going to collect what’s missing, so that it moves up to 21 percent. And that way it’s very hard for multinationals to avoid paying the taxes, because we can see the global profits, they are located in some ways, but if there are missing taxes, the US is going to be the collector.

Luigi: I actually find this one of the most interesting proposals of your book. And it almost seems to defy gravity, because most people say, oh, but if you tax multinationals, they’re going to move abroad. But you say, no, because whether they move abroad or don’t move abroad, you’re going to tax them based on the sales they do in this country. And this is not just an issue in the United States, it’s an issue in Europe as well. Every individual country is desperate to raise more revenues, and it seems like this is kind of a born answer that you can easily tax multinationals. Think about a country like Italy or a country like Germany or a country like France, you can tax Google and Amazon. Why don’t you see that in place?

Emmanuel Saez: The answer I can offer is that I think it’s because multinationals have a very, very strong interest in keeping the system as it is. So, they fight very hard to keep it. They use their lobbying power to make sure those ideas don’t get through. And it’s in part, I think, the work that Gabriel Zucman has been doing about showing statistics, and also explaining in a very simple way how you could remedy the situation with the data we already have, that, I think, can have a real impact. I mean, in France you did see a little bit of a response, with the Gafa tax that singles out the technology firms, to tax them a little bit in France for the activity they do. But it’s a very small, imperfect solution, when a bigger, more global solution is at hand, if there is the political will.

Luigi: Yeah. But this is what is really puzzling to me, because if you are saying that the US legislators, or the US president, is captured by Amazon and Facebook, that’s kind of understandable. But you are saying that even Macron is in the pocket of the big multinationals.

Emmanuel Saez: Yes. Or I would say, in Europe you have the strong feeling that Europe, the European constitution, is built on the principle, the ideological principle that tax competition is good. So, it’s not like they want to get rid of the system. They somehow have the feeling that it’s good to have countries try to attract more economic activities. And it’d be bad if countries decided to kill that through a system where you base the tax on your global profits.

Luigi: I agree with that. But what to me was very interesting with your book is saying, tax competition is one thing, but you can go around it with this remedial system. So, the fact that the EU was adopting this way, et cetera, does not prevent Macron from going after the multinationals individually in France. But he’s not willing to do it. So, the only explanation is Macron is captured by multinationals, too.

Emmanuel Saez: No, but I think Macron has said it explicitly. He loves the idea that there are big winners of globalization. He called them the premier de cordée, the first in the rope line. And therefore, I think ideologically he feels that’s a good thing, that those big winners pay few taxes. I really think that’s his ideology.

Luigi: As I was saying at the beginning, your work has been very controversial, which is a positive thing, it means people pay attention. As economists, the worst thing that can happen to you is that nobody pays attention. You had most papers criticized and sometimes pretty aggressively by other people. I don’t think we want to bother the listeners with all these critiques, because really we’re getting into the deep weeds, but I want your assessment. If you had to pick, what is the most fair criticism that was raised through your work?

Emmanuel Saez: I think it’s the one that we look only at taxes, and taxes are only one-half of what governments do. Governments use those taxes to spend, and that benefits the bottom more, relative to their income, than the rich. So, we’re not saying that the government worsens inequality. We are just saying that on the revenue side, it’s not as progressive as it could be. It’s not as progressive as it has been, and that’s what we want to emphasize in this book.

Kate: We don’t often, or at least we try not to often talk about drama on this podcast, but I think in this case it’s somewhat interesting. You’ve been experiencing a particularly high dose of drama for the past few months, it seems. What has that been like, and were you surprised by it?

Emmanuel Saez: What struck me the most is how well organized the think-tank community is, particularly on the conservative side. I really saw the power of think tanks in action, in the sense that they had lots of people able to be very reactive and write very quickly to precisely translate the academic criticisms into digestible pieces. It is as if they had been ramping up their staff, their activity, and finally they got something to fight against, and they were ready to suddenly flood the social media sphere. And at a higher level, what I take out of that is that, yes, the issue of taxes and how taxes should be set by income group is obviously one of the most fundamental questions in how you run a government.

Different groups will have very different views about what is best to do. So, it’s not surprising that it becomes a fight. And when you are fighting, your objective is to win, and therefore you care about whether the arguments are going to resonate, rather than academic truth or anything. So, you had a mix where it was no longer possible to really have an objective debate, because groups were invested in how this would be perceived rather than what is the truth of the matter.

Kate: Now, to be the devil’s advocate here, though, I think one criticism that economists, academic economists, have launched against the book, is that some of the statistics you were showing, they were seeing for the first time in David Leonhardt’s piece in the New York Times, rather than having seen these numbers in a peer-reviewed economic study. Do you think that this is a fair criticism?

Emmanuel Saez: Our book is based primarily on our academic work: previous, peer-reviewed, published work. What is true is that some elements of the books were about refining those methodologies, precisely to look at the very top and the top 400 in more detail. Those were not peer-reviewed. So, everything came out exactly at the time of publication of the book, and the New York Timeswanted to do an exclusive. And so, they told us, don’t divulge any of your statistics, your Excel sheets, in advance of our article. Their article came a week before. So, it’s true. There was a gap there, but it had more to do with the nature of the media. When they agree to do an exclusive specifically on your thing, they want exclusivity. This criticism has been launched at other colleagues. I remember Raj Chetty, a very prominent economist working on mobility, has been criticized sometimes, hey, you present and you get the New York Timesarticle before we, the academics, can see the results. And we were caught in that situation as well.

Luigi: But to be fair, this is a problem of the profession in general. It’s not specific to Emmanuel or to other people. Because, unlike in other sciences where you don’t divulge your results until they’re published, also because they’re published much faster, we divulge our results in a working-paper form. And since all the papers were published in the NBER, they are not peer reviewed and they are discussed by the NBER itself, by the press, while not being peer reviewed. So, I can see the argument of moving to a different equilibrium, but accusing Emmanuel of this is like accusing him of the responsibility of the entire profession. It seems to be unfair in this particular case.

Kate: Agreed. So, Emmanuel, at the end of our podcast, we usually ask each other this question, whatever the topic is, is that a capital-is or a capitalisn’t? We’ve discussed a lot of topics on this podcast, but I think we’ve spent most of our time on taxes on the wealthy in the United States. Do you think this system is a capital-is or a capitalisn’t?

Emmanuel Saez: To me, it’s clear that capitalism needs to be regulated, and therefore taxing the wealthy looks like capitalisn’t. That is, you confiscate wealth, but ultimately it is to have a more thriving economy, so that market economies really can work for everybody. So that we can have a capitalist system we are happy with and that is sustainable.

Luigi: I will divide and say the common system of taxation, especially for corporations, is definitely a capitalisn’t. I disagree with Emmanuel that his proposed plan will be so great for capitalism, but that’s a different story. What about you, Kate?

Kate: Wait a second, Luigi. I thought that you said in a prior episode, maybe it was a while ago, but that you would be in favor of a small wealth tax.

Luigi: I said I’m not ideologically against a small wealth tax. I’m not so sure that I want to go as far as Emmanuel is suggesting, and also with all the other things he brought in together. I think that I’m not trying to equalize outcomes through taxation. I think that’s clearly what I disagree with. I do believe in progressivity of income tax, and I do believe that the rich have to pay their fair share, which is more than the share that everybody else pays.

Kate: I think it’s pretty obvious that if there are loopholes that are only available to the richest handful of people in the United States, then their ability to exploit those loopholes is a capitalisn’t. Do I think that we need to eliminate billionaires by taxing them on the order of 90 percent? Obviously not, but we should at least have a system that’s slightly progressive, in the sense that if you’re a billionaire, you’re paying more percentage-wise in taxes than someone making $50,000 a year.