Episode 686: If Elected President : Planet Money Today, we bring you the future as dreamt up by presidential candidates. Also: sober economists poking holes in the candidates' dreams.
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Episode 686: If Elected President

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Episode 686: If Elected President

Episode 686: If Elected President

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DAVID KESTENBAUM, HOST:

We have a special guest warning today.

RICHARD THALER: Hello, this is Richard Thaler. I'm a professor at the University of Chicago. Warning is that listening to this podcast may be a waste of your time.

KESTENBAUM: (Laughter) Thank you - sort of.

ROBERT SMITH, HOST:

We felt like we should include this warning because today's show is about the future. It is a vision of things that are yet to be. It is a vision of things that may never happen.

KESTENBAUM: It's about the promises of presidential candidates.

(SOUNDBITE OF ARCHIVED RECORDING)

BERNIE SANDERS: Raise the minimum wage to 15 bucks an hour.

TED CRUZ: You pay 10 percent as a flat tax going up. No...

HILLARY CLINTON: So let's establish an infrastructure bank that can channel more public and private funds.

DONALD TRUMP: There will be a major tax reduction.

SANDERS: We pay for it through a tax on Wall Street speculation.

MARCO RUBIO: That income from that business is taxed at a flat rate of 25 percent for all business income...

CLINTON: I want a plan to make community college free so we get more young people able to go to community college.

KESTENBAUM: It sounds so good.

SMITH: They are very, very good at their jobs.

KESTENBAUM: When I hear these things, I'm always, like - wait, wait, wait. Stop clapping. I just want to think about that idea you just said because I know how politics works. I know the candidates make all kinds of promises. But I want to think about what they're proposing.

SMITH: OK. So today on the show, we will ignore professor Thaler's warning, and we will take the politicians at their word.

What would the world like if those proposals actually came to pass?

KESTENBAUM: Would it be a better world or a worse one?

(SOUNDBITE OF SONG, "I CAN'T WAIT")

JUSTIN TAPP: (Singing) Take a look at the bright side, whoa. Take a walk on the wild side, whoa.

UNIDENTIFIED WOMAN: Support for NPR and the following message come from Personal Capital, combining free online financial tools that provide unprecedented transparency with personal attention from dedicated financial advisors. The result is a complete transformation in the way you understand, manage and grow your net worth - on the web at personalcapital.com/money.

(SOUNDBITE OF JUSTIN TAPP SONG, "I CAN'T WAIT")

KESTENBAUM: Here's what we did for the show today. We assembled a panel of 22 economists from all across the political spectrum - left of center, right of center, in the center, people who said you can't put me in one of those categories - all kinds of economists.

SMITH: We sent them a list of the economic idea from the presidential candidates and asked them - good or bad? - and then we called the economists up.

KESTENBAUM: And, since we're talking about the future here, we also needed one other person's help. There is a podcast we like called "Flash Forward." It's about the future, and it is hosted by Rose Eveleth.

ROSE EVELETH: Every week, we take on a specific potential tomorrow and try to really overthink what it might be like. Every episode starts with a trip to the future. Got it? Great.

KESTENBAUM: On the show, Rose tackles questions like - what would the world be like if we killed all the mosquitoes, or what if we could have sex with robots?

And at the beginning of each show, there are these little scenes from the imagined future. So we asked Rose to create some economic scenes from the future just to get a feel for each of the proposals.

SMITH: So we have our economic panel. We have our futurist. And now let's start with the proposals. The first one comes from a Democratic candidate. Imagine, if you will, that you're watching daytime television - it's the year 2020 - when this short ad comes on.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ACTOR #1: Hi, I'm Naomi Jin (ph), dean of admissions at Middle Ohio University. Our students attend our beautiful campus located in the heart of middle Ohio, full of world-class professors and state-of-the-art facilities.

So what would you pay for this kind of education? Ten thousand dollars? Twenty thousand dollars? (Laughter) Well, at Middle Ohio University, tuition is totally free. That's right. The degree is free.

UNIDENTIFIED ACTOR #2: Terms and conditions may apply. Offer good for those who meet admission criteria. Meal plans, extracurricular activities, Hacky Sacks, Frisbees, dorm decorations, textbooks and beer are not included.

SMITH: Free tuition for public colleges and universities - it is not science fiction. This is Bernie Sanders's proposal. Obviously, it is a popular idea if you are a young person or someone who has kids. But we asked our economists - good idea or bad idea?

KENNETH JUDD: Good idea.

SMITH: This is Kenneth Judd. He's an economist at the Hoover Institution.

JUDD: Having just a high school degree is not really adequate to have a nice, middle-class standard of living.

SMITH: We already make K-12 free. The idea here is just to extend it - K-16 free.

JUDD: Some kind of postsecondary education is necessary and valuable to almost everybody.

KESTENBAUM: I have to tell you - you are the only one who thought it was a good idea. We had 20 people saying it was a bad idea, one undecided and then there was you.

JUDD: (Laughter) Yeah.

KESTENBAUM: Most economists on our panel thought free tuition was a terrible idea.

SMITH: Now how could that even be? I do not think it's a terrible idea. Now, granted, I have two daughters who are nearing college, so I may be biased. So in order to figure out why economists hate his idea, we called up Steve Kaplan at the University of Chicago Booth School. He was a firm no.

KESTENBAUM: He said if make tuition free, sure, you help some poorer people. You know who else you help?

STEVEN KAPLAN: A lot of the benefits go to people who have money.

KESTENBAUM: So it helps the Robert Smiths of the world who don't really need the help.

SMITH: Well, I could need a - I need a little bit of help.

KAPLAN: That would be correct.

SMITH: The idea here - an idea that economists almost universally agree on - is that if you want to target a benefit, if you want to help poor people or help poor students, then just help poor students.

KESTENBAUM: Yeah, like increase financial aid or something like that.

We also asked the panel about Hillary Clinton's proposal - sort of related - to make community college more affordable. Students would have to contribute earnings from working 10 hours a week, but that would cover the tuition. The panel liked that a little better because it better targeted lower income people, you know, because this is for community college, not all public universities. Of the 22 economists on our panel, five thought it was a good idea, but eight said it was a bad idea, and nine were undecided.

SMITH: All right, the Democrats had their shot. Time now for our next proposal from a Republican. All right, it's April 15, 2020.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ACTOR #3: Hello and welcome to the automated phone line taking the place of what used to be the IRS. For help calculating your taxes, press one.

(SOUNDBITE OF PHONE BEEP)

UNIDENTIFIED ACTOR #3: Under the flat tax plan, taxes are calculated by taking 10 percent of your total income. If you have any other questions, press four.

(SOUNDBITE OF PHONE BEEP)

UNIDENTIFIED ACTOR #3: Ten percent. Whatever your question is, the answer is 10 percent.

(SOUNDBITE OF PHONE BEEP)

UNIDENTIFIED ACTOR #3: Still unclear?

(SOUNDBITE OF PHONE BEEP)

UNIDENTIFIED ACTOR #3: Just drop the last...

(SOUNDBITE OF PHONE BEEP)

UNIDENTIFIED ACTOR #3: OK, look at your fingers. That is the number 10. Divide by that. Or even better, use those figures to...

(SOUNDBITE OF PHONE BEEP)

UNIDENTIFIED ACTOR #3: Please see a tax professional.

KESTENBAUM: This is a Ted Cruz proposal to create a 10 percent flat tax. Lower income workers would get a break, but otherwise, he's proposing hugely simplifying the tax code - one 10 percent tax bracket.

KATHERINE BAICKER: Bad.

SMITH: (Laughter) I love that. This is Katherine Baicker, economist at Harvard.

BAICKER: Simplifying the tax code is a great idea. I think most economists would agree that our current system of all sorts of exemptions and different rates for different kinds of activities is no good, but I don't think 10 percent would raise enough money.

SMITH: It would be good if you could file your taxes over the phone by pushing a bunch of buttons.

BAICKER: Oh, I - a simplified tax code would be a great thing. It's the 10 percent that concerns me, not the simplification - and the lack of progressivity.

SMITH: Translation - this is what economists call a very regressive tax. Right now, we have what is known as progressive tax system. It's set up to take a much larger percentage of income from people who are well-off - from people who are rich. So under the flat tax, people who are now paying a marginal tax rate of around 40 percent will get a huge tax cut. Most of the benefit of this plan goes to people who are already well-off.

KESTENBAUM: Everyone pretty much agreed that Cruz's 10 percent flat tax plan was not going to work. Twenty-one economists said bad idea. Only one said it was a good idea.

SMITH: Just to be fair, we also asked about part of Donald Trump's tax proposal. This would exempt half of all of Americans, the lower earners, from paying income tax.

KESTENBAUM: Trump likes to say that these people would get a new form they could send in to the IRS that just says, simply, I win. The panel did not like this idea either.

SMITH: Yeah, our panel felt that the Trump tax plan will not raise enough money to keep the government running.

And there was one other big issue - a lot of people already don't pay taxes. Under the earned income tax credit, about 45 percent of people pay no income tax. And we talked with Steve Kaplan at the University of Chicago - he describes himself as right of center - and he says the Trump plan worries him.

KAPLAN: I think it's not a good idea to have a culture where more than half the country doesn't pay taxes.

KESTENBAUM: Are you saying that it's important for democracy because it gives you a reason to, like, follow and care about politics, right? You're, like, that's my money they're spending. Right?

KAPLAN: I - that would be a good way of putting it, absolutely.

KESTENBAUM: If you're not paying taxes then you're like - that's someone else's money they're spending. And it just feels different.

KAPLAN: Yeah. And - or that someone else's money spending, let's spend more of it.

KESTENBAUM: So far, our panel has not liked anything.

SMITH: It must be hard to get Christmas presents for them.

KESTENBAUM: (Laughter) All right, let's try a different sort of dream proposal out on our panel. Imagine it is the year 2020. Either Hillary Clinton or Bernie Sanders is president. You might hear something like this.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ACTOR #4: Yeah, good morning. Pat here on the Channel 19 sky scanner. And it's another rough commute out there. Here's the infrastructure repair rundown. Whitestone Bridge still closed for cable work. Three lanes on the FDR expressway out for pothole filling. Major Deegan Expressway also closed for repairs. The Bruckner - don't even try it. Repairs are also on the 295, Holland Tunnel. Move quick. It closes at 10. Good news, the new Dodd-Hagel Bridge opens next month. That's the latest from up here with sky scanner. Back to you, Keith.

KESTENBAUM: This is the idea of an infrastructure bank - basically, a pot of public money that would make it easier for states and cities to replace all their crumbling bridges that they are always complaining about.

SMITH: And we thought this would be an easy one for economist because - believe me - you talk to enough economist, you know they love? They love them some infrastructure. Helps the economy grow. Here's Katherine Baicker.

BAICKER: Good idea, with an asterisk. Very much in favor of spending more money on infrastructure. The asterisk is I'm not entirely clear on the infrastructure bank versus just spending more money on infrastructure.

KESTENBAUM: The panel had a lot of questions, like - what exactly was this bank?

SMITH: (Laughter) How much money goes in it? As far as I can tell, it would not be actually paying for the construction itself. It would be guaranteeing the loans that are always taken out to build these projects so the money will flow in cheaper

SMITH: But who decides which projects get funded? And how would those people decide and how they'd be held accountable and who would get what?

KESTENBAUM: We had 10 economists saying this was a good idea. Eight were undecided. Four said it was a bad idea. Still, infrastructure bank idea - not off the table. Robert, let's do a couple quick ones here.

SMITH: Let's do it.

KESTENBAUM: Marco Rubio - he wants to reduce the corporate income tax rate from a top rate of 35 percent to 25 percent.

SMITH: I was pitching a skit that involved leprechauns - leprechauns bringing back their (imitating leprechaun accent) offshore gold back to America.

KESTENBAUM: Stop, stop, stop, stop. We hated your accent. Economists generally like this idea of reducing the corporate tax rate. They say if you want to tax rich people, just raise the income tax rate for them. Don't tax corporations.

But a lot of panelists worried that Rubio's proposal was just not going to bring in enough money. Ten economists said this was a good idea. Two said it was a bad idea. Ten were undecided.

SMITH: All right, another proposal your heard in the montage at the top - a big Sanders idea - raise the minimum wage across the United States to $15 an hour.

KESTENBAUM: Good idea or bad idea? Here's Kenneth Judd. He really liked Sanders's other proposal for free college. On this one...

JUDD: I think the whole idea of a $15 minimum wage is economically crazy.

KESTENBAUM: You're saying this as a guy who considers himself to be left of center.

JUDD: Yeah, yeah. Some minimum wage - you don't want some people to be fooled into doing jobs for $1 an hour or something. But a $15 minimum wage out in rural America would be a crippling problem for a lot of small businesses.

KESTENBAUM: It sounds so good, though. Just guarantee everybody gets at least $15 an hour.

JUDD: Yeah, but that doesn't mean they're guaranteed to have a job. Some people will have the job and have their wages rise to $15 an hour. Others are going to find that it's harder to find a job.

SMITH: When we looked through the responses from the economists panel, this number was a real sticking point for them, $15 an hour. There's been some research on small increases in the minimum wage, but no one knows what would happen with an increase this big.

KESTENBAUM: We had 16 economists say it was a bad idea to raise the minimum wage to $15 an hour. Four were undecided. Two thought it was a good idea.

KESTENBAUM: A lot of them said they did want to do something about inequality, sure. They just did not think this was a very good way to go about it.

SMITH: Oh, we have some breaking news from 2020.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ACTOR #5: And that's the closing bell at the New York Stock Exchange. I'm Tammy Lee (ph) with your recap. Another low-volume day today, the Dow down half a percent. The S&P 500 lost 72 points. And let's put our new index up on the screen. We're calling it The Bernie. It tracks the new speculator tax on stock and bond transfers. And hello - look at that pop for Bernie. Today's trading brought in a grand total of $205 million in taxes. Let's look at a couple...

KESTENBAUM: This is Bernie Sanders proposal to impose a tax on financial transactions. Every stock trade would be taxed at 0.5 percent. Bond trades - when a bondage changes hands - at 0.1 percent.

SMITH: And this is how I would pitch this idea on the campaign trail, right. You buy a house, right. If you buy a house, you pay tax on the transaction. If you buy a muffin at the corner store, you pay tax on the transaction. So why not when you buy and sell a stock or a bond? It is logical.

KESTENBAUM: The appeal of this is basically hey - Wall Street is a crazy place. There are people writing computer programs to trade thousands of shares in a fraction of a second. Let's slow it down a bit - or at least get some revenue from it.

SMITH: One panelist wrote - sure, sure. OK. Let's just throw a little sand into the gears of stock and bond trading.

KESTENBAUM: But most of them did not like it. Stocks and bonds are, like, the spine of our financial system. Here is Kenneth Judd again. Remember, he considers himself left of center.

JUDD: Why put sand in the gears (laughter)? There are many, many ways of taxing people. You have taxes on interest, taxes on dividends. You have taxes on capital gains. And when I did a comparison, it was, like, this was the worst way of doing it. Yes, you gain some revenue, but there are other ways of getting the same amount of revenue which are much less damaging to the economy. The whole thing about taxing is how to skin a cat with the least squealing.

KESTENBAUM: A lot of panelists worried there would be so much squealing over this tax that stock and bond trading would just move to the U.K., the London Stock Exchange or to some island somewhere.

SMITH: (Laughter) Sending all these ideas to the panel, I was starting to think that, like, maybe they will not like anything the politicians come up with. Maybe they just live in different worlds.

KESTENBAUM: Yeah, 'cause politicians are looking for some simple thing they can say that's going to get an applause line and get votes. And economists are asking - wait, what would actually happen if you did that?

SMITH: I feel you, David. That's why, near the end here, we have saved a proposal which is something of a miracle because almost all of the economists agreed on it - left and right, and they like something that a politician has proposed. OK, so this one affects hedge funds and private equity managers. Let's here the scene.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED ACTOR #6: And without further ado, our fearless leader the CEO of Gold Bay Funds, Mr. Benjamin Newman everybody.

(APPLAUSE)

UNIDENTIFIED ACTOR #7: Thank you. Thank you. Well, what can I say really? I can say that we made money, but that wouldn't quite express the magnitude of the thing because we didn't just make money. We made a lot of money.

(APPLAUSE)

UNIDENTIFIED ACTOR #7: We made more money this year than we have ever made in the history of Gold Bay, and we made it thanks to you...

(CHEERING)

UNIDENTIFIED ACTOR #7: ...And your endless fight, to your strength and stamina. Ladies and gentlemen, we made $17 billion.

(CHEERING)

UNIDENTIFIED ACTOR #7: Now, of course, winners never go unpunished. And as I'm sure you all know, tax laws changed this year.

(BOOING)

UNIDENTIFIED ACTOR #7: I know. I know. But winners like us, we always come out on top, even if they're forcing us to pay the same tax rate as everybody else, whatever that is.

KESTENBAUM: This is the future under a proposal backed by Donald Trump and Hillary Clinton and Bernie Sanders. It would effectively raise taxes on the people who run private investment funds, closing what is sometimes called the carried interest loophole.

SMITH: You may remember this issue, carried interest, from when Mitt Romney ran for president. When you have a private equity firm - these are firms that buy and sell companies - they basically split their profits at the end of the year, and the partners at a private equity firm will go home with a big check. But because of how the tax code is structured, this money - it's called carried interest - this money isn't considered wages for their hard work, showing up at the office all year long. This money is considered investment income, and so it's taxed at a much lower rate.

KESTENBAUM: So this proposal would say - hey, rich guys, knock it off. A paycheck is a paycheck. You have to pay the same tax rates as everybody else.

SMITH: Panel loved this. Here's Katherine Baicker.

BAICKER: Good. I'm in favor of this one. There's no reason for this kind of income to get preferential treatment - that the work they're doing's no more valuable than lots and lots of other people like doctors and people who run soup kitchens and people who do all sorts of jobs. So they shouldn't get preferential treatment. They shouldn't get worse treatment. It's just income like anybody's else income.

KESTENBAUM: Well, the other economists agreed with you.

(LAUGHTER)

KESTENBAUM: Almost all of them - 20 said this was a good idea. Two were undecided.

SMITH: OK. OK, undecideds, there was one final proposal that did get unanimous agreement from the economists. Every single person thought this last one was a terrible idea.

KESTENBAUM: This is a proposal by Donald Trump to expel undocumented immigrants.

SMITH: There are more than 11 million people who have entered the United States illegally. And Trump says they should all leave.

KESTENBAUM: Everyone had something to say on this one. Here is the Steve Kaplan, Katherine Baicker and Richard Thaler.

KAPLAN: Bad idea. Sending everybody home who's productively employed - and in many cases doing jobs that Americans don't want to do - would be a mistake.

BAICKER: I think it would have bad effects on the economy, but it's such a terrible idea that it's hard to put those economic effects as the first thing you think about.

THALER: I think that if the betrays all the values I thought that we all agreed upon - that we're a nation of immigrants.

KESTENBAUM: Here are some of the other comments we got. Is this a joke? Either impossible or just stupid or both. Why not bring in the Stasi as well?

SMITH: I can see the end of the podcast from here. That's how close we are to the end of the podcast. Let's do a quick recap. We're going to do a final scoring here. Imagine 22 economists are sitting around you as you're listening to a presidential candidate talk. This is their scorecard.

KESTENBAUM: Agreed upon good ideas - only one. End the carried interest loophole.

SMITH: Maybes - maybe an infrastructure bank, maybe make community college free-ish, maybe lower the corporate tax rate.

KESTENBAUM: Bad ideas - flat tax, no. Trump's tax plan, no. Financial transaction tax, no.

SMITH: You're going to need help with this. Free tuition, no. Fifteen dollar an hour minimum wage, no. Kicking a large chunk of your workforce out of the country...

KESTENBAUM: Definitely no.

Not a lot - mostly bad idea.

SMITH: (Laughter) Mostly bad ideas

KESTENBAUM: Thank you, panel. We'll get back to in four years.

SMITH: The election of 2020.

(SOUNDBITE OF SONG, "I CAN'T WAIT")

TAPP: (Singing) Oh, is there something I'm missing? Is there more to existing? Can you tell me it all will be OK?

SMITH: We are going to put the results of our survey online at npr.org/money.

KESTENBAUM: About our panel, we got the list of economists from the Chicago Booth School of Business, which does regular surveys like this. It's called the IGM Economic Experts Panel. Thank you so much to all our panelists for responding on such short notice.

SMITH: And we especially want to thank Rose Eveleth who did our little scenes from the future. Her podcast is called Flash Forward. I highly recommend it. It's like she's invented a whole new form of journalism.

KESTENBAUM: Our episode today was produced by Jess Jiang, Lee Hale and Nick Fountain. Thank you, everyone, for getting this one out.

I'm David Kestenbaum.

SMITH: And I'm Robert Smith. Thanks for listening.

(SOUNDBITE OF SONG, "I CAN'T WAIT")

TAPP: (Singing) I can't wait.

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