← Economic Update with Richard D. Wolff
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- [00:20]
A
Welcome friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of of our lives and those of our children. I'm your host, Richard Wolff. Before we begin today, we are happy to announce that enrollment for the Left Education Project's spring lineup of classes, new courses that are online and available to you, will begin this march. In other words, the Very soon I will be teaching a course on Marxian class analysis together with Professor Shahram Azer of Bucknell University. We will be doing the class every Wednesday from 4 to 6 Eastern Standard Time, beginning on March 4 and running for four consecutive weeks. You can find out details and register by simply going to www. Left forum.org LEP for Left Education Project. Your participation supports our work and makes these types of editorial and educational efforts possible. You can also support our work by visiting our website, democracyatwork.info by signing up as a paid subscriber to our growing substack community. And that is@Democracyatwork.substack.com we also offer members only content on our Patreon page and that you can Access by visiting patreon.com democracyatwork Please remember to like, subscribe and share this video and others we produce. This is the way you can partner with us to broaden our reach. Thank you for your continued support and your encouragement. It means the world to all of us. Okay, rather than tell you what we're going to do today, I'm going to just jump right into it. But I do want to mention that in the second half we will be interviewing Professor Richard Ray Madoff, a law professor at Boston College, about the US Tax system. I think you'll find it an extraordinarily interesting interview. I want to begin my economic updates by talking about the visit of the leader in Great Britain, Keir Starmer, who went to visit China first time a leader of Britain has visited China in eight years. A rather remarkable statement given that he has visited the United States more times than I can count, and Western Europe likewise. Why is Mr. Starmer going to China? Well, to use his own words, we're putting business over politics. I'm not sure I believe him. But the point is they need to diversify from the United States. They want to develop new, and here I quote again, strategic relations with China. In the course of his visit, he announced that the largest drug company in Britain, a company known as AstraZeneca, has committed to making a 13 billion pound investment in China to produce pharmaceuticals there. This will mean jobs in China. This will mean income in China. This will mean taxes paid to the Chinese government in China, all of those not in Britain. What did the British get? Well, they got visits to China without a visa, and they got some adjustment in other trade relationships. What is Britain doing? It is doing what many, including myself, have predicted for months now. The reaction to Mr. Trump hitting the whole world with tariffs, riding that horse like a tough cowboy, has been to teach the rest of the world that the United States is an unreliable, unstable trading partner. They'll hit you with a tax. They'll hurt your business by making Americans pay more. The price of whatever you sell, plus the tariff they pay to their own government. And so they'll buy fewer of your goods. And that will hurt you and hurt you badly. And first you're angry, and first you're pleading, and first you're begging. All of those things the Europeans, led by Mr. Starmer, have been doing. But at the same time, especially because it doesn't seem to work, they're looking to diversify. The United States is finding its trading partners looking elsewhere for their future. And you know what that is? It's not good for the U.S. economy. Not at all. May be good for headlines of tough Mr. Trump, but it is not what this economy needs. Quite the opposite. You know who else is doing that? Mr. Carney, the leader in Canada. He even says it out loud. Starmer doesn't have that courage. They're looking elsewhere. And China is one of the major places to go, which shouldn't surprise you since China is now the number two economy in the world. And catching up to the United States every year. You know, Mr. Trump commented on Mr. Starmer's visits to China. Mr. Trump said, that is a very dangerous thing to do. Really, Mr. Trump, it's dangerous? Look who hurt the British economy in recent months and years? The U.S. that's why he went to China. And he wants to cut deals with China because he can't cut comparable deals with the United States. You can denounce him all you want, but you're the reason he made the trip. But of course, with our media, that point won't be made. But it's all right. We'll make it. I want to turn next to the appointment of Kevin Warsh to replace Mr. Powell as the head of the Federal Reserve. Gives me a chance to remind you all why these appointments and why these institutions are important. Mr. Powell has been running the Federal Reserve. He's the chair for quite some years. Put there by Mr. Trump, by the way. But now Mr. Trump wants lower interest rates in America. I'll get to that in a minute. He wants them. And Mr. Powell doesn't agree that that's what the American economy needs. It's Mr. Powell's job to manage the money system in this country. That's what the Federal Reserve was established a little over a hundred years ago to do. You see, capitalism, everyone understood early in the 20th century capitalism is a horribly unstable system. It's given to inflations now, recessions later, up and down. That disorients, disrupts, destabilizes many people's lives because they can't make their mortgage payments if they're in recession. They can't keep up with rising prices. If there's an inflation, you know, like we've had the last few years, Mr. Trump's great worry is that we're about to go into a recession. Virtually every president we've had has had to preside over a recession, which is dangerous for their popularity because Americans will blame the recession on whoever's sitting in office and vote in the other one, as if that were a solution, which it never is. When you vote in the other one and they come to their recession, you go back and the pendulum swings between Republican and Democrat, as we know. So Mr. Trump wants lower interest rates. Mr. Powell and the Federal Reserve have said no right up to the present. They're not ready to do it. They've kept them flat, they lowered them a little bit, but nowhere near as much as Mr. Trump wanted. Why not? Because they're worried about the other kind of inflation. If you lower interest rates, you make it easier for people to borrow, and they will. And here's the problem. If they can borrow more easily, every seller of a good or every seller of a service knows that the people out there to whom he sells whatever it is he makes have more money because they can borrow more cheaply. So he's more inclined to raise the price. In other words, if you lower interest rates, you boost your inflation. But we already have an inflation that nobody wants. So the Federal Reserve doesn't want to raise it, doesn't want to lower those interest rates, make the inflation worse. So they don't want to do what Mr. Trump wants. Mr. Trump apparently thinks that avoiding a recession is even more important for his upcoming election in November than controlling the inflation. But that's what's going on. Naming Mr. Warsh is supposedly Mr. Trump's effort to put his guy in there like he's doing everywhere else. Don't believe the words. The words are childishly fake. You know, it's like learning, as I did today, that Mr. Trump is closing the Kennedy center, you know, the one he named after himself, and he explained it's for renovations. You know what that's like? That's like a politician who gets caught doing something wrong and tells you how they're quitting in order to spend more time with their family. Oh, sure. Oh, sure. The Federal Reserve is an attempt to try to keep some balance in a system that goes off the rails. Inflation, recession, all the time. It hasn't worked real well. And in fact, the only defense of the Federal Reserve is we would have even more instability if we didn't have it. And now that Mr. Trump is manipulating it for political advantage. All presidents do it, but not as aggressively as Mr. Trump. We're seeing the rest of the world backing away from the United States because it's becoming more unstable, by the way. That's why we haven't had jobs come back to the United states the way Mr. Trump promised. Every corporate executive sees the chaos in the streets, the bitterness in the population, the instability of the economy, the. They're not moving their factories back to the United States. They'd be nuts to. You know why? They might have thought of going to Minneapolis, but they're not going to do that. Minneapolis just had a general strike. The government of the United States sent troops into the city of Minneapolis. The mayor there said, we don't want them, we don't need them. The governor said, we don't want them, we don't need them. The people said, we don't want them, we don't need them. They came in and because they are very much out of control, they killed two people, Renee Goode and Mr. Two upstanding American citizens. These people, supposedly engaged in ferreting out criminal illegal immigrants, are busy hurting and terrorizing all sorts of people. And I won't even go to what it means for those of you that take Christianity seriously. Refugees, immigrants, weren't we supposed to welcome those people? Weren't we supposed to say, there but for the grace of God go I and give them a glass of water, a warm place to sleep. Oh, no, we have a special Gestapo. And the people of Minneapolis, to their everlasting credit, rose up, called a general strike. 700 stores across Minnesota closed. No shopping, no school, no job. That was on the 23rd of January. A week later, on the 30th. All around the country, people followed, began to organize boycotts, strikes, general strikes. The whole country is finding in this moment the courage and the determination to begin to say this craziness has got to stop. And all I can say is what we all the rest of us, owe them an enormous debt of gratitude. Stay with us. We're going to have a remarkably good interview on our tax system coming right up. Before we jump into the second half of today's show, I wanted to thank you for your very generous response to our fundraising efforts this year and in particular in the last couple of months. And in part responding to that, we are extending the availability of our limited edition, linen covered hardcover version of Understanding Capitalism, the book I wrote and that we have been making available now for quite a while. If you are interested, I will be signing copies of that hardcover and they will be available to you as they have been over the last few weeks. Just simply send an email to us@infodemocracyatwork.info and put in the subject line limited edition. We will send you all the information you need to order and receive your copy signed copy of Understanding Capitalism in its hardback. And thank you again for your kind attention to the fundraising dimension of what we do. Welcome back, friends, to the second half of today's economic update. I am very pleased to bring to our microphones and our cameras Professor Ray Madoff. She's a professor of law at Boston College and the author of the new book the Second how the Tax Code Made an American Aristocracy. It's an expose of how the richest Americans avoid taxes using tools that we, the people, through our government, gave them. Her book was recently listed in the New Yorker best books of 2025. So first of all, Professor Madoff, thank you very much for being with us and giving us a little of your time.
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B
Thank you so much for having me, Richard. This is a wonderful opportunity. Thank you.
- [17:43]
A
Good. That's what we try to do. Let me begin by setting things up a bit. The history of capitalism as a system is a history that is replete with examples of things that most people are not happy with. I'm talking about racial prejudice. I'm talking about the subordination of women. I remember how shocked my students have been when I explained to them that at the beginning of the history of the United States, non white people, non male people, non rich people, none of them could vote. None of them had any political, all that lofty language about the rights of everybody. Everybody was a very small group and there had to be a fight. The whole history of the country is a fight to bring in, to literally include in these lovely languages the the majority of the people who had been executed. And it was A long and a difficult fight, and we're not done with it yet. But one of the particulars that I'm really interested in and that Professor Madoff's work addresses is the recognition that capitalism produces extraordinary inequality. You know, in the age of Elon Musk and all of those people, I don't have to make that case. And we have seen that the government in our country has been looked to as a possible way to compensate, to offset, to do something about what capitalism does by making it less extreme, less unequal, less harsh, less exclusionary. And the tax system, since we have to raise taxes for the government to be a government, was always understood to be able to do some redistribution to offset what the system on its own did. And so we are especially interested in and disappointed that our tax system seems not to have been able to do that. And I don't know of anyone's work who has done a better job of explaining how and why that is than our guest today. So let me begin by asking you the basic question. How is it that our tax system doesn't offset the inequality so that we see greater inequality today than we did five years ago, and that was worse than it was 10 years ago? It's really extraordinary.
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B
Thank you so much. First of all, that's a perfect setup for this discussion, because, in fact, our system that we have today was put in place a little over 100 years ago to do exactly what you said, to serve as a counter to the excesses of capitalism. And it was designed to do so by imposing progressive income taxes, right? So that the more income you had, the more, the greater taxes you paid. And on top of that, an additional estate tax that was designed to be imposed on the richest 1% of Americans to ensure that their transfers by gift and at death would be subject to an additional level of tax. And all of this was designed to make our system highly progressive and to basically serve as a counter to the excesses of capitalism. And what has happened is that while our tax system has retained that same structure, right, we still have a progressive income tax. We still have an estate tax. However, the world has transformed in the last 40 or 50 years such that the richest Americans are able to avoid both income taxes and estate taxes. And effectively, for the richest Americans, taxes have become optional. And I think that because it has happened within this structure that appears to be progressive, it is confusing to people. It raises a lot of confusion about whether the rich are or aren't paying taxes. Right. On the one hand, we all sort of hear phrases like Tax the rich. And people on some level understand that the rich are somehow getting away with things. But because people don't understand about how it's happening, they are open to hearing this other point of view, which is, no, the richest are already paying all the taxes. That's the other thing we hear. And what I want to talk about is how it is possible that both things are true. That for the richest Americans, they are truly not. For them, taxes have become optional. But for high income earners, our top earners, taxes are indeed quite burdensome and progressive. The problem is the big divide that we have in our country today between earners, people who get salaries or other forms of compensation, and between Americans who have sufficient wealth that they can live off of the growth of their assets and their inheritances. It's because we are not taxing investments and inheritances and we are heavily taxing earnings. That is what has brought us to this situation today.
- [23:33]
A
All right, I want to get exactly at that, what you just said. In other words, I want to help our audience understand as precisely as we can, without getting lost in the details, what it is that enables. Let's start this way. What is it that enables the wealthy to escape the level of taxes that was in the minds a hundred years ago of the Progressive Era when the income tax and so forth were instituted? What are they doing that enables them legally to. To escape?
- [24:14]
B
So I want to start first with what regular Americans are subject to, and then, because then it's a useful comparison about the wealthiest Americans. So regular Americans who have salaries, compensation, are subject to heavy taxes because they pay income taxes at rates up to 37%. And on top of that, they pay payroll taxes at rates up to 15.3%. And what that means is that even somebody with very moderate income of $60,000 still has to pay $13,000 in taxes. That's a heavy burden for somebody who earns $60,000. Now, let's move over to our wealthiest Americans and the way that they are able to avoid taxes is the very first step of what I call the tax avoidance playbook is that they avoid salaries. And, and if you look at the salaries of the richest Americans, you will see that all of them take surprisingly modest salaries. So Warren Buffett's salary and bonus has never been higher than 100,000. Jeff Bezos kept his salary at 82,000, enough to enable him to claim the child tax credit, which he did. And Zuckerberg and all these other fellows, they're dollar a year guys, right? They don't take any Salaries at all. Musk's salary at one point was so low that the state, California, went after Tesla to say, hey, you're, you're not meeting our fair wage and labor standards, right? But these people are not. So they avoid taxes the first way by avoiding salaries, which is the way that the vast majority of Americans pay taxes. But you might think, but you know, they're not avoiding compensation altogether. Instead, their wealth has grown enormously. So through their stock ownership, they are receiving enormous compensations in the now hundreds of billions of dollars. And so the question is that people think, well, yes, but that will surely be subject to tax because when they sell it, it will be subject to capital gains taxes. But the answer is they don't have to sell. They can simply borrow against their growing assets to support their lifestyles. And this is what they do. They, they borrow and they borrow enough to pay the ongoing interest, and so they never have to sell. And what this does is this enables them to maintain ownership over their assets and enjoy the continuing growth in value. And this has been particularly powerful in recent years as, as our stock market has gone up and up in value, their compensation has gone through the roof. So, so the first two ways that the wealthy avoid taxes is they avoid salaries and then they avoid sales. The problem is that our system allows them to do that because we only impose taxes when you sell property. This is unlike the rule in Canada where you would also have to pay taxes when you give the property away or pass it at death. Then you'd have to tally your gains. I think that's a rule we should be following down here in the United States. But because we don't have that rule, wealthy people don't pay taxes during their life. The other way they avoid taxes is because of our rules regarding inheritance. Many people have come to think of inheritance as something that's a double tax, right? And that imposes special burdens on the richest Americans. But in fact, the way the world is today, it imposes hardly any taxes at all. And that is because our income tax system completely excludes those forms of income from income. So inheritances, gifts, life insurance distributions, all of those are received entirely tax free. And because they are exclusions, you don't even have to tell anybody. So what this means is that if somebody goes out in the street and they find a hundred dollar bill, they are expected to that to the IRS and pay taxes on it. But if somebody is handed a million or $10 million or even 100 million or billion dollars, that's their own business, they don't have to pay any taxes on it, and they don't have to tell anyone about it. Now, you might say, yes, but we have this heavy double tax, which is the estate tax. But the problem is that the estate tax has undergone a significant transformation over the past 40 years, and that is because Congress has engaged in quiet quitting. And we have time for a quick back story. For much of the 20th century, the estate tax was maintained like a regular tax. So in 1976, and then in 1986, Congress adopted the generation skipping transfer tax to close loopholes about multigenerational trusts. In 1990, they went after valuation gaming by creating these special valuation rules to stop people from being able to game valuation. But since 1990, Congress has done nothing. So we have had 35 years of inaction. And the reason is because of a campaign that was funded by 18 of the country's richest families. Many of the names, you know, the Waltons and the Gallows and others. And they financed a campaign to shift how the American people thought about the estate tax. So instead of it being an innocuous tax that serves to encourage progressivity, and as a backup to the income tax, it became an immoral death tax that hurt family farms and businesses. And this campaign was so successful that both Democrats and Republicans became afraid to legislate in the area. And so since 1990, not a single loophole has been closed. And to give you a sense of how strong of an impact that has had, the richest 1% of Americans own an astronomical amount of money. And as of 2024, they owned $50 trillion. And by the way, to put this in perspective, total revenue raised by the government in 2024 from all sources, corporate, individual, payroll, estate, and gift taxes, was 5 trillion. And yet the wealthiest Americans own $50 trillion. Okay, how much was raised by the estate tax in that period? $30 billion. Basically an amount that Elon Musk has earned and lost in a single day. The estate tax is doing nothing except for providing cover for the richest Americans.
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A
Professor Matt, I could listen to you for hours. Really, this is absolutely wonderful. What I wanted my audience, but we've run out of time. And what I. No, please. It's a compliment. I had nothing to add. I didn't want to interrupt. It was really extraordinary. Would you be willing to come back and continue this conversation at a time in the next few weeks?
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B
I welcome the opportunity.
- [32:00]
A
All right, thank you very, very much. And to my audience, I know you learned a lot, and I will assure you that we will bring Professor Madoff back to continue in the very near future. And as always, I look forward to speaking with you again next week.