Episode 387: The No-Brainer Economic Platform : Planet Money Behold the Planet Money economic platform, crafted by brilliant economists of all stripes, and pure poison to any politician who embraces it.
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Episode 387: The No-Brainer Economic Platform

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Episode 387: The No-Brainer Economic Platform

Episode 387: The No-Brainer Economic Platform

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ROBERT SMITH, HOST:

Some of us were really hoping that this presidential election, this time we would hear a serious discussion about economic plans. We've got two weeks to go before either Hillary Clinton or Donald Trump are elected president and it's just not going to happen. They are not going to talk seriously about two different visions for the economy.

And I'm going to be fair to these two candidates. You do see this during every presidential campaign. In fact, four years ago when President Obama was running for re-election against Mitt Romney, we decided to come up with the perfect PLANET MONEY candidate. A candidate that economists would love because this candidate would talk about the economic issues. Here is that show from four years ago, as relevant today as it was then. You're going to hear me and Alex Blumberg.

Today on the show, we are talking about presidential economic platforms.

ALEX BLUMBERG, HOST:

There's a mystery about them to us here at PLANET MONEY.

SMITH: Yeah. Here's what's strange. We talk to economists, academics, policymakers all the time. And sure, there is a lot of disagreement among them about what to do about the economy. In fact, we highlight that disagreement every week here on PLANET MONEY.

But there is actually a surprising amount of stuff that they agree on, that a wide range of policy experts all across the political spectrum, they think are policy no-brainers. Things that these experts agree should be on any presidential candidate's economic platform.

BLUMBERG: Well, today on our program, we convene a panel of economic experts from across the political spectrum. And we asked them, what do you all agree on? What should a candidate propose as part of their economic agenda? And we come up with our own dream platform.

SMITH: And we learn exactly why no actual politician who wants to get actual votes ever listens to the advice of the experts.

(SOUNDBITE OF MUSIC)

SMITH: All right. If we're going to come up with a dream presidential platform, we need a dream team of economists.

BLUMBERG: And if we have a dream team of economists, we need a super fancy intro. You ready to do the honors?

SMITH: All right. Let's do it. From the Center for Economic and Policy Research in Washington, D.C., weighing in on blogs and articles around the globe - economist Dean Baker.

DEAN BAKER: You could probably describe me as left of center, to be fair.

BLUMBERG: And on the opposite side of the spectrum, from George Mason University - Russ Roberts.

RUSS ROBERTS: In the grand spectrum of economic policy, I'm a pretty hardcore free market guy. I'm probably called a libertarian.

SMITH: Playing the center of the spectrum - Katherine Baicker.

KATHERINE BAICKER: I'm a professor of health economics at the Harvard School of Public Health.

BLUMBERG: From across the ocean to the University of Chicago - Luigi Zingales.

LUIGI ZINGALES: What I like to say is I'm pro-market but not necessarily pro-business.

SMITH: And finally, rounding out the panel from Cornell University, the economist so nice they gave him a first name twice - Robert Frank.

ROBERT FRANK: I'm a registered Democrat. I think of myself as a radical pragmatist.

BLUMBERG: So this is an incredible lineup, experts from the top of their fields from all over the ideological spectrum. And if you were to come up with an idea that they all agreed on, you would think this might be an idea you'd want to propose as a candidate running for office.

SMITH: And it's not a mythical quest. We found six - six major changes to our economy that pretty much the entire panel signed off on.

BLUMBERG: And so without further ado, the six-plank economic platform that every single one of our panelists signed off on. They all started here, with the tax code. And we're not talking about little tweaks to the tax code, a percentage point cut here in that rate or a bump there in that rate. No. To a person, our panelists said the tax code in this country makes fundamentally no sense and needs to be completely overhauled.

ZINGALES: The simplest thing is sort of a overall reform of the tax code in the direction of eliminating all the loopholes and differences and in particular deductions.

SMITH: That was Luigi Zingales. And I do feel, Alex, like I do actually hear this line - oh, simplify the tax code, close loopholes, eliminate waste - that sort of thing from presidential candidates.

BLUMBERG: Right. But do you ever actually hear people say which loopholes they would like to eliminate?

SMITH: No. They are usually not very specific about that. It sounds good to say, yeah, I want to close a loophole. But you have to remember every loophole, every deduction has people - voters, I should say - who benefit from it.

ZINGALES: All the deductions have a history and an explanation. But even if I might I some of them are useful, like the charitable deduction, et cetera, I think that the only defensible line is zero.

BLUMBERG: So you should not be able to deduct charitable deductions? You should not be able to...

ZINGALES: You should not be able to deduct anything.

BLUMBERG: All of them, all the deductions gone. And, you know, this might not sound that crazy to people. Like, because I think when people think, oh, like, tax deductions, loopholes, they think some corporation or some rich dude getting a sweet deal. But the biggest of these deductions, in fact the biggest one is the one that most of us wouldn't think of as a loophole at all. And so PLANET MONEY presidential platform plank number one - eliminate that deduction.

BAKER: One that, you know, I think just defies, you know, common sense the way we have it is the mortgage interest deduction.

BAICKER: The mortgage interest deduction.

ZINGALES: Mortgage interest is actually a extremely regressive form of taxation, extremely perverse.

SMITH: I hate to hear this. Because like many Americans, I have a mortgage. And I do write off the interest on my taxes. And, Alex, I actually know exactly how much it saves me because, you know, I do the TurboTax thing and you can click and unclick parts of this program. And I figured out exactly what the mortgage interest deduction saves me - $5,000 a year.

BLUMBERG: That is not nothing.

SMITH: Yeah. But, you know, I feel as someone in the middle class that this is not a bad thing. You know, I feel like this is an encouragement for me to own a home, to participate in my community in Brooklyn, to not pollute or, you know, throw trash on the ground. I believe that this makes me a good resident of the United States.

BLUMBERG: But from an economist's point of view, this is $5,000 that the government is arbitrarily giving you and other mortgage holders over other people in society. So, for example, I rent. I don't have a mortgage. But I live in my house. I love my community. But I don't get any special tax treatment from the government. So it does seem a little unfair. And our economists say it's not just unfair, it's actually distorting. There have been mountains of papers written on all the bad things that the mortgage interest deduction does. For one thing, our economists said, the bigger your mortgage, the bigger the tax break you get. The richer you are, the more money the government gives you back. Here is a liberal and a conservative - Dean Baker and Luigi Zingales.

BAKER: It just makes no sense that, you know, if we have Bill Gates or whoever, some very wealthy person, we're subsidizing them to get an expensive home.

ZINGALES: So because rich people receive a much larger subsidy, the price of houses increase so much that it actually makes less affordable for the poor people. So it's a really perverse form of subsidy.

BLUMBERG: And by the way, this is not a secret. The mortgage interest deduction...

SMITH: Everyone knows about this.

BLUMBERG: ...Everyone knows about it. A lot of economists are on record as saying it's a very bad idea, somebody should come along and try to get rid of it or fix it.

SMITH: I'll tell you why. In fact, I will show you why. We're going to bring in an actor. We're going to put in some applause and some reverb. We're going to try out presidential platform plank number one.

(APPLAUSE)

DAN PIERCE: (As Fake Presidential Candidate) When I am elected president of the United States, I have a special plan for the middle class. All of you Americans who own your own homes, I promise to raise your tax bill by thousands of dollars a year.

BLUMBERG: Yeah. It doesn't sound good, does it?

SMITH: Yeah, no.

BLUMBERG: Now, of course, this candidate could go on to explain that it actually makes things fairer overall. It gets rid of these distortions in the housing market. And we've all seen what kind of problems distortions in the housing market can cause. It'll probably actually lower housing prices for people who want to buy houses in the future.

And in fact, the government will be bringing in so much money that it was formerly giving back to you and all your mortgage-holding brethren that maybe it could actually lower taxes on everyone a little bit.

SMITH: Explanation's a little hard to fit on a bumper sticker, but I think we'd go with it. That's plank number one. And if you like that, you're going to love plank number two, which involves another deduction. A deduction that may even be more distorting than the first one, the mortgage interest deduction.

OK. If you have a job that pays for your health insurance, then you are benefiting from this deduction right now and you might not even realize it. But our panel of economists, they immediately zeroed in on this as something that has got to go.

BAKER: The deduction for employer-provided health care.

BAICKER: The way we handle it right now is that if you get health insurance through your job, you don't pay taxes on that benefit the way you would on your wages. And your employer doesn't pay taxes on that benefit.

SMITH: OK.

BLUMBERG: We might have lost some people there.

SMITH: This is a little confusing because to non-economists, this is a very obscure point. But here's the way it works. OK. Think about your salary. If someone asks you, hey, Alex, how much do you earn? You say, oh, you know, whatever, $50,000 a year. But that's not your entire compensation. The company is actually giving you something else of value - health insurance. Which, frankly, when you look at it, is like giving you money.

BLUMBERG: But the IRS views these two forms of compensation very differently. They tax you on the dollars you get from your salary, but they don't tax you on that other form of compensation, your health care benefits. And this is the key. They don't tax your employer, either. Remember, your employer does get taxed on the salary they pay you.

SMITH: So you may be thinking, why is this a problem? We don't have to tax everything in life. And I think we can agree that having health insurance is a good thing. Why should we tax it?

BLUMBERG: Yes. But have you ever heard the phrase too much of a good thing? Here's Katherine Baicker, panelist and health care economist.

BAICKER: Some people actually have too much health insurance. And that's a controversial thing to say. But if you have health insurance that covers everything under the sun with no co-payments, you would be completely reasonable to say, well, I don't care how much benefit the MRI will give me. If it gives me even a tiny little bit of health benefit, I want it.

So when health insurance completely insulates people from facing any price of the care that they consume, they start to consume health care that has lower and lower and lower value in terms of producing health. And the question is, should federal government tax - should the tax code be subsidizing extra, extra, extra care that's producing lower and lower and lower health benefits when those monies could be going to alternative uses like education or housing or welfare or national defense?

BLUMBERG: So here's the problem. If employers are being encouraged by the tax code to spend more and more money on Cadillac health plans, that drives up the cost of health care overall. Which just makes it more expensive for everyone, including people who don't have health care through their jobs. They are priced out of the market.

SMITH: So all this discussion we have about health care costs going through the roof we heard over and over again. And everyone wants to blame somebody. OK, blame the insurers or blame the doctors or blame the trial lawyers. But our economists say part of the blame is this ridiculous deduction, which amounts to a huge subsidy to an already bloated health care system.

BLUMBERG: All right. Let's go to our fake presidential candidate.

(APPLAUSE)

PIERCE: (As Fake Presidential Candidate) My opponent is always talking about those of you without health care. I understand that's a problem. But I alone am tackling a problem equally as great - those of you with too much health care. And so I pledge costlier and more restrictive health plans for most working Americans.

BAICKER: And that's why no one elects economists. It sounds crazy to say, I have the solution to rising health care costs. I'm going to tax your health insurance benefits. When you say it out loud, it sounds wrong. But the crazy thing about this particular provision in the tax code is that it's inefficient in driving use of health care that really has questionable value and it's inequitable.

SMITH: I am imagining fake voters streaming out of our fake auditorium in which our fake candidate is talking. They don't even want to hear this.

BLUMBERG: But fortunately, as you know, plank three I think is something that people can get around - a massive tax cut.

SMITH: OK.

BLUMBERG: Are you ready?

SMITH: Yeah.

BLUMBERG: A tax cut that's an insidious tax. It's felt everywhere in the American economy. It destroys jobs, stops innovation.

SMITH: I am all for it. OK. Who gets this tax cut?

BLUMBERG: Not who - what.

BAKER: If I'm being blue sky here, I would say the corporate tax is totally a waste.

FRANK: The corporate income tax makes no sense whatsoever.

SMITH: You are killing the voters here. So far we've got raised taxes on the middle class and eliminate taxes on corporations?

BLUMBERG: Yeah. And those were the two most liberal members of our panel, Dean Baker and Robert Frank. And here's the reason that they and pretty much all our panelists hate the corporate income tax, which by the way is one of the highest in the world here in the United States at 35 percent.

BAKER: It doesn't make sense really to tax the corporation as such. What we want to do is - I'm going to sound like a Mitt Romney here. What we care about is if the corporation is reinvesting the money. What's wrong with that? Why do we want them to prevent - why do we want to prevent the corporation from reinvesting the money?

What we might want to prevent is giving the money to wealthy shareholders or them buying a second, a third, fourth home, getting a new Mercedes every six months, whatever it might be. That's where we want to have the taxes. We don't want to prevent Microsoft or General Motors or whoever it might be from investing more in improving their product line. That's a good thing in my view.

BLUMBERG: So a lot of people, you know, when they think the corporate tax, they want to keep the corporate tax in place because they want rich people to pay more taxes.

SMITH: And rich people own corporations.

BLUMBERG: Right. But our panel agreed. If you want to tax rich people - and not all of our panelists agreed, by the way, that you should tax rich people more than others - but if you did, if that's what you wanted to do, just tax rich people - do that. Don't tax the corporation.

SMITH: OK. Plank number three. Roll it.

PIERCE: (As Fake Presidential Candidate) I say - read my lips. No taxes for corporations - zero, nada, nothing.

SMITH: Alex, people are streaming out of the doors of our fake auditorium. They're literally turning out the lights on our candidate.

PIERCE: (As Fake Presidential Candidate) Whoa, wait, hold on. I'm not done. There's more. You're going to like this, something else I'm proposing. I promise to eliminate all income and payroll taxes.

(APPLAUSE)

SMITH: OK. OK. There's something we can sell.

BLUMBERG: Yeah. And it's not just pandering. There is good, solid economic reasoning behind plank number four - getting rid of the income tax and getting rid of those payroll taxes, you know, the taxes on your check that are for Social Security and Medicare. Here is registered Democrat Robert Frank.

FRANK: Taxes have two effects. They raise revenue, that's the one we're focused on here. But they also have a second effect, which is to discourage the thing that you tax. We tax income for the first of the two effects of a tax because it's an easy way to raise revenue. But if you ask is income a bad thing, should we discourage income?

Answer - no. That's not a useful thing to do at all. Right? And the payroll tax is another offender. How is it that creating a job is a harmful activity? It's not only not harmful, it's absolutely beneficial. Why do we want to discourage that when there are other things that we could and should tax, even if we didn't need extra revenue?

SMITH: So clearly there is a problem here. The government gets most of its money from income tax. And although at least one of our members - Russ Roberts, I'm looking in your general direction - at least he wouldn't have too much problem with shutting down most of the government. The rest of them - in fact, they all agreed there needs to be some form of taxes. The question is, what to tax?

BLUMBERG: Now, most of the panel, if you asked them they would say some form of a consumption tax. Now, this is a tax that's embedded in everything you buy. And I should say as an aside, Dean Baker, he was not in favor of a consumption tax. He said it's too hard to make it work.

But everybody else was in support of it and had interesting, clever ways of making it progressive so that rich people and yacht owners would pay a bigger share of the tax burden and people struggling to put food on the table would pay less.

SMITH: And just to get enough money to keep the government running, there is another type of tax that our economists love. And it fits into a theme that we've been sort of dancing around with all these other planks in our panel. Which is if you subsidize something, you get more of it. This is a basic principle of economics. If you provide a deduction for somebody, if you make something tax-free, people will consume more of it, sometimes more than you want.

And here's the flipside of this principle. If you tax something, you get less of it. So economists say, let's use that to make the world a better place. Here's Luigi Zingales.

ZINGALES: So I think that would be useful to introduce what we economists call Pigouvian taxation, which is taxation of bad things. Like, for example, smoking is considered sort of damaging to health, not only of yourself but other people as well. And so we tax it to try to force people to internalize the costs that they produce.

BLUMBERG: And so when you ask the panel what are the worst things - the things that are causing the most problems in the world right now, it's pretty clear - pollution, carbon, which is causing global warming. You got to tax that.

FRANK: Raise taxes on gasoline, raise taxes on pollution of all forms.

BAICKER: Tax energy use or carbon emissions in a way that reflected the cost to the environment that we all share.

BAKER: I mean, we're causing damage. And we, you know, we can't seriously deny this.

SMITH: Now, I should say our libertarian, Russ Roberts, he rolled his eyes at this. He had these practical questions, like how do you get the size of the tax right? And how do you enforce it all around the world, which as we know winds blow over from China. If you're going to do this, you have to do this worldwide. But even with all those disclaimers, Russ Roberts said...

ROBERTS: The environment is one area where I think the case for government intervention is the strongest because the spillover effects are most obvious.

BLUMBERG: All right. So even our libertarian, Russ Roberts, sort of onboard? Hit it, fake presidential candidate.

PIERCE: (As Fake Presidential Candidate) When I'm sworn in on day one, I have a word of advice for the American public. Make sure you have a full tank of gas. I promise to raise the price of gasoline by 60 cents, 70 cents, dollar on the gallon, maybe more. Whatever it takes.

SMITH: I feel like we've gone from crazy to so crazy it just might work. I mean, there's a point at which a candidate offends so many people. He's either completely off the rails or maybe he's telling the truth. Maybe he's saying things that may be painful right now, but provide the most good for the most people. Things that the United States has to hear. Things that may offend special interests but we need to hear.

BLUMBERG: Well, if you like that kind of bold proclamation, I present the final plank. Remember, this is from our team of highly-respected, dignified economic thinkers from some of the leading academic institutions in the country. Plank number six - illegal drugs.

ROBERTS: Make them legal. We spend a huge amount of resources putting people in jail and trying to catch them and discourage them all. All it does is make cause some nasty gang members rich. And we waste a lot of resources on putting them in prison, which is just a luxury form of hotel. I mean, it's a crazy, crazy system we have right now that makes no economic sense. But I think it also makes no philosophical sense.

BAKER: Absolutely crazy policy. I mean, we should be looking to decriminalize. You know, drugs like marijuana are to my view probably much less harmful than alcohol. The idea we have people spending years in jail and we have a whole illegal - we have a whole underground system of supplying these drugs, you know, crime syndicate that supplies the drugs. It's absolutely crazy.

SMITH: You know, reforming the whole tax system, that's going to be tough. So plank six, legalizing marijuana - kind of takes the edge off the rest of that.

(APPLAUSE)

PIERCE: (As Fake Presidential Candidate) Thank you. Thank you. Thank you. God bless you. And God bless the United States of America.

(APPLAUSE)

SMITH: (Laughter) I love our fake presidential candidate. I want to run him.

BLUMBERG: (Laughter) Yeah. And we should thank Dan Pierce (ph), the actor who played that role. But, you know, if you think about this. If you think that all economists agree on, like, the platform...

SMITH: To be serious for a moment.

BLUMBERG: ...Yeah, the platform that our fake presidential candidate was espousing, those six planks. You know, all of our economists do actually agree about that. And you'd think that at least some form of these recommendations would make it into candidate's platforms.

SMITH: Yeah. You would think that. But there's very little overlap between our panel and the real presidential candidates. It's like this is political poison. Like you just can't say, yeah, I'd be open to talking about eliminating the mortgage interest deduction. Like, why not? Let's talk about it. Economists agree with this.

BLUMBERG: And this is really sort of sad, right? We have this six plank platform. All these economists from all over the spectrum, they agree to it. And it deals with some of the biggest challenges that we face as a country, you know, rising health care costs, competitiveness, fairness, climate change. And yet, you can't say any of these ideas out loud in public.

(SOUNDBITE OF MUSIC)

SMITH: Robert Smith here again, by the magic of radio in 2016. Hillary Clinton and Donald Trump have not yet suggested the changes that our economists put together. Clinton and Trump are not going to get rid of the corporate income tax, although Trump wants to lower it. They're not going to get rid of payroll taxes or the mortgage interest deduction. Still, no one will talk about that. The only part of the platform the candidates are sort of close to adopting is some form of legalizing marijuana. They both seem onboard with medical marijuana, but they're not exactly ready to have pot for sale at the corner store.

There is one candidate though that has come pretty close to adopting the PLANET MONEY presidential economic platform, and that is Gary Johnson. Gary Johnson of the Libertarian Party. He appears to support five out of the six proposals. It's a little bit hard to tell on the mortgage interest deduction because Gary Johnson says he wants to just get rid of the entire tax code. So I assume that means mortgage interest, too. The only thing he disagrees with the economists on is taxing carbon emissions. He does not want to see a tax on carbon emissions. So what does this economic truth get Gary Johnson? I looked at the RealClearPolitics polling average. Currently 5.8 percent of Americans say they will vote for Gary Johnson. See, that's what you get.

Email us at planetmoney@npr.org or reach out on Facebook or Twitter. Today's rerun was produced by Rayna Cohen (ph). Maybe you've listened to every single PLANET MONEY episode - twice we recommend - but maybe you've done that too and you're trying to figure out which podcast to listen to before our next episode comes out. The Big Listen is ready to help. It's NPR's newest podcast. Host Lauren Ober introduces you to podcasts you might have never heard of and gives you the inside scoop on shows you already love, like Nerdette, Bullseye and the one you're listening to right now. When you want something new, find The Big Listen on NPR One or wherever you find podcasts. I'm Robert Smith. Thanks for listening.

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