But Why: A Podcast for Curious Kids
Episode: What are Taxes and Tariffs?
Host: Jane Lindholm
Guest: Stacey Vanek Smith, Business Reporter and Bloomberg Senior Editor
Release Date: March 7, 2025
Introduction
In this enlightening episode of But Why: A Podcast for Curious Kids, host Jane Lindholm delves into the complex worlds of taxes and tariffs, making these intricate economic concepts accessible and engaging for young listeners. Joined by business reporter Stacey Vanek Smith, the episode breaks down fundamental economic principles, current issues, and everyday examples to help children understand how the economy affects their lives.
Understanding Economics
Defining Economics and the Economy
Jane begins by addressing basic economic questions posed by young listeners, starting with James from Wilmington, North Carolina, who asks, “What is economics?” ([02:36]).
Stacey Vanek Smith explains:
"The economy is basically like this little ecosystem that we all live in of things that are bought and sold around us. So almost everything we do is somehow part of the economy." ([02:20])
Jane further elaborates:
"An economy is a system for figuring out how resources are used to make goods and services and all the ways those goods and services are bought and sold and used." ([03:48])
Scope of the Economy
The discussion expands to various scales of the economy:
- Global Economy: International trade and global markets.
- National Economy: The United States' economic activities.
- Local Economy: Regional and community-level economic interactions.
Jane emphasizes:
"You are part of the economy, too." ([03:48])
Inflation: Causes and Effects
What is Inflation?
Curious Kids Alex, Miriam, and Cole inquire about rising prices ([04:51] - [05:19]).
Stacey Vanek Smith defines inflation:
"Inflation is just a fancy way of saying prices going up." ([05:23])
How Does Inflation Happen?
Using relatable examples, Stacey explains how increased money flow can drive prices up:
"When people have more money, then they are generally going to end up paying more money because you just have more money to spend." ([07:17])
The Balanced Nature of Inflation
Jane summarizes:
"Inflation can be kind of good if it's slow and in balance with how much money people have to spend, but kind of bad if it's too slow or really bad if it's too fast." ([12:45])
Current Inflation Trends
The episode explores recent spikes in prices, such as eggs and chocolate, attributing them to factors like avian flu and climate change affecting production:
"If there are fewer chickens, that could mean fewer eggs. And if everyone still wants eggs but there aren't as many or it costs a lot more to produce them, the price of eggs is going to go up." ([04:51])
The Stock Market Simplified
What is the Stock Market?
Judah from Los Angeles asks about the stock market ([14:39]).
Stacey Vanek Smith compares the stock market to a video game:
"It's a big network... like its own world... you can buy a piece of Starbucks and you give them $10." ([14:47])
How the Stock Market Works
Jane adds:
"The value of these pieces of companies tends to go up and down... people are always trying to figure out what they think is going to happen next." ([16:26])
Importance of the Stock Market
Stacey highlights its significance:
"It's really important in our country. They make a big difference in how many people have jobs, how much people get paid in those jobs." ([16:53])
Understanding Taxes
What are Taxes and Why Do We Have Them?
Young listeners Naomi, Ben, and Xavier ask about taxes ([18:04]).
Stacey Vanek Smith explains taxes as a "deal" with the government:
"The government provides us with things like police, fire departments, roads, parks... And in order to pay for those, the government takes money from us." ([18:30])
Types of Taxes
-
Income Tax:
- Based on earnings
- Progressive in the U.S., meaning higher earners pay more
"If I make $100 and you make $200... I am paying $10 in taxes... you are paying $20." ([20:09])
-
Sales Tax:
- Added to the price of purchased goods
"It's just a little bit of a brain trick that companies will play on us." ([21:14])
Stacey further explains:
"A sales tax is another way to make money... the government uses it to pay for all kinds of things." ([21:26])
Debates Surrounding Taxes
Stacey discusses differing opinions on government spending:
"Some people say, no, the government should do a lot more... Others say, we shouldn't pay very much and the government shouldn't do that much." ([18:30])
Tariffs Explained
What is a Tariff?
Brooke from Morristown, New Jersey, inquires about tariffs ([21:54]).
Stacey Vanek Smith defines tariffs as a type of tax on imported goods:
"Tariffs are exactly that, a kind of tax. A tariff is a tax on something that was made in a foreign country." ([22:06])
Impact of Tariffs on Prices
Using scooters as an example, Stacey illustrates how tariffs influence pricing:
"If the scooter made in China costs $15 and the one in the U.S. costs $20, tariffs can make the Chinese scooter also cost $20." ([22:51])
Tariffs as a Bargaining Tool
The discussion moves to the geopolitical implications of tariffs:
"Tariffs are a way that you can reward your friends and punish people you're not friends with or you're trying to, like, make them do what you want." ([24:32])
Current Tariff Developments
Jane touches on the U.S.'s recent tariff actions toward Canada:
"Canada is the US’s largest trading partner... President Trump wants to use tariffs as a way to make different deals with different countries." ([26:12])
Historical Context and Future Implications
Stacey provides historical context:
"Ever since the end of World War II, countries have traded with no tariffs... President Trump wants to shake up the way that tariffs have been done." ([26:21])
Pricing Strategies: The .99 Trick
Why Do Prices End in .99?
Brooke's bonus question explores pricing psychology ([28:22]).
Stacey Vanek Smith explains the psychological aspect:
"It's a little illusion in our brain... it just seems like a better deal because our brains are kind of funny." ([28:36])
Jane adds:
"It's just a little bit of a brain trick that companies will play on us... it still works." ([28:57])
Conclusion and Resources
Jane wraps up the episode by acknowledging the complexity of the topics discussed:
"We've been through a lot in this episode, from inflation to the stock market to taxes. All of those things are really complicated." ([29:44])
She encourages listeners to continue exploring these subjects through additional resources:
"With the help of Stacy, we put together a list of resources to help kids learn more about money and the economy." ([30:50])
Listeners are invited to visit butwhykids.org for more information and to submit their own questions.
Key Takeaways
- Economics encompasses the systems of production, distribution, and consumption of goods and services.
- Inflation refers to the general increase in prices over time and can have both positive and negative effects on the economy.
- The stock market allows individuals to invest in companies, reflecting the overall economic health.
- Taxes are essential for funding government services and infrastructure, with different types impacting individuals differently.
- Tariffs are taxes on imported goods used as tools for economic and political bargaining.
- Pricing strategies like ending prices in .99 leverage psychological factors to influence consumer behavior.
Notable Quotes
-
Stacey Vanek Smith:
"Inflation is just a fancy way of saying prices going up." ([05:23])
"Tariffs are a way that you can reward your friends and punish people you're not friends with." ([24:32])
"A sales tax is another way to make money... the government uses it to pay for all kinds of things." ([21:26]) -
Jane Lindholm:
"You are part of the economy, too." ([03:48])
"We've been through a lot in this episode, from inflation to the stock market to taxes." ([29:44])
Additional Resources
For those eager to learn more about money and the economy, But Why: A Podcast for Curious Kids provides a curated list of resources available in the show notes and on their website.
Stay curious and keep asking questions! For more insights and to submit your own questions, visit butwhykids.org.