Freakonomics Radio: "Ten Myths About the U.S. Tax System (Update)"

Host: Stephen J. Dubner
Guest: Jessica Riedel, Budget and Tax Fellow at the Brookings Institution
Date: April 8, 2026

Main Theme

This episode revisits and updates a much-discussed Freakonomics feature debunking ten widespread myths about the U.S. tax system. Host Stephen Dubner interviews policy expert Jessica Riedel, formerly of the Manhattan Institute and now at Brookings, about bipartisan misperceptions in tax policy, the looming debt crisis, complexities around federal spending, and the near-impossibility of meaningful reform—punctuated by Riedel’s pragmatic, often blunt nonpartisan perspective.

Key Discussion Points & Insights

Jessica Riedel’s Background and Perspective

• Riedel describes herself as a “pragmatic, right-of-center” policy analyst with a reputation for “cold economic truths” and bipartisan criticism.
  • “My nonpartisan approach is to be critical of everybody in Washington.” (02:31)
  • On being unpopular: “Much of my policy has been sharing uncomfortable truths and, frankly, angering people.” (02:39)
• She transitioned gender identities in recent years, emphasizing continuity in her professional rigor:
  • “My hope for my name change from Brian to Jessica was that it shouldn't matter. I'm still an economist. My research is still what it is, and I want my gender to just blend into the background.” (09:20)

The U.S. Debt and Political Dysfunction

• U.S. federal debt is at a historic high: ~124% of GDP ($39 trillion), expected to reach $200 trillion in 30 years if trends continue. (39:10, 43:34)
• Interest payments are now the second largest budget item:
  • “Interest on the debt has tripled from $350 billion to nearly a trillion dollars… going to $2 trillion a decade from now.” (40:10)
• Neither major party has a credible plan or will for deficit reduction; both increase spending and avoid hard choices.

Why Tax Policy is So Misunderstood and Manipulated

• Both parties push self-serving tax myths:
  • Conservatives overrate the power of tax cuts (“tax cuts pay for themselves” and “starve the beast”).
  • Liberals exaggerate regressive effects and overstate how much new taxes on the rich could accomplish. (21:37–23:16)
  • “Both sides are promising their voters a free lunch.” (23:35)
• Politicians shape narratives for electoral gain, not to educate or to solve actual problems.

The Ten Most Pervasive U.S. Tax Myths

(27:18–30:48)

Riedel concisely debunks each myth—here paraphrased:

1. Tax cuts pay for themselves
Usually, they don’t. Revenue gains from increased economic activity rarely offset revenue lost.

“Tax cuts can bring some extra revenue. They almost never pay for themselves.” (27:18)

2. Tax cuts will starve the beast
History shows Congress usually increases spending after tax cuts — the opposite of theory.

“When we cut taxes, Congress increases spending, and when we raise taxes, Congress cuts spending.” (27:18)

3. The middle class pays higher tax rates than the rich
In reality, effective tax rates rise sharply with income.

“Top 1% pays 33%; middle class pays 12; bottom pays roughly zero.” (27:18)

4. The 1950s’ 91% tax rate produced huge revenues from the rich
These applied to almost no one; actual taxes paid were far lower. (27:18)

5. Europe funds big government by taxing the rich more
Europe’s higher revenues come from broad-based sales taxes (VATs) that hit the middle class. (27:18)

6. Tax cuts for the rich caused large budget deficits
Most deficit growth stems from increased spending, not “giveaways” to the rich. (27:18)

7. Taxing corporations and millionaires can close the deficit
Even at 100%, it’s not enough. The math just doesn’t work. (27:18)

8. 2017 tax cuts mainly went to the wealthy
Rate reductions were proportional across income groups, not skewed. (27:18)

9. Undoing Reagan/Bush/Trump tax cuts would fix the deficit painlessly
Restoring old rates would hike middle-class taxes far more than the rich. (27:18)

10. U.S. corporate taxes are far below international norm
Even post-2017 reforms, U.S. corporate taxes are among the world’s highest. (27:18)

Notable Quotes & Memorable Moments

• On political expediency:
  • “Politicians win elections by creating narratives… Both sides are promising their voters a free lunch.” (23:35)
• On professional honesty:
  • “My take was, I'm gonna go where the numbers say, and I'm not gonna be bullied or intimidated. I don't really care.” (12:00)
• On the middle class being undertaxed:
  • “The middle class in America is dramatically undertaxed compared to everywhere else in the developed world.” (55:02)
  • “According to IRS data, the median earning family in America … pays a 3% income tax rate … 12% if you include Social Security, corporate, and excise taxes. This is less than half what it was when Reagan got elected.” (56:31)
• On Social Security/Medicare’s unsustainability:
  • “Over the next 30 years, Social Security and Medicare are going to run a cash deficit of $124 trillion.” (46:01)
• On the ultimate solution:
  • “The only way we're going to fix this stuff is if both parties privately come together and put everything on the table... Because if you just try to do one piece of it, that’s going to be seen as a partisan scheme.” (53:02)

The Perpetual Budget and Entitlement Crisis

(46:01–54:32)

• Social Security and Medicare, even with payroll taxes, are facing mammoth funding shortfalls.
• Middle-class tax increases are mathematically necessary for real deficit reduction—conflicting with U.S. political realities. (55:02–57:41)
• Suggests means-testing Social Security (i.e., reducing benefits for wealthy retirees). This is politically toxic but fiscally rational. (49:37)
• Both parties tacitly acknowledge these problems in private, but public discussion is taboo.
  • “If I revealed the names [of bipartisan deficit reformers], I would not be able to start my car.” (54:37)

Behavioral and Comparative Insights

• Consumption taxes (VATs) are efficient and widespread abroad, but politically fraught in the U.S. (60:09)
• Behavioral economics can explain why Americans rarely support tax increases or future-oriented reforms:
  • “People are more worried about losing what they have than gaining what they can.” (61:12)
• Climate activism among the young is rare example of sacrificing now for future gain; could analogous framing help on the debt? (62:15)

Timestamps for Key Segments

| Segment | Timestamp | |------------------------------------------|-----------| | Intro to Riedel, her career and outlook | 02:31–14:38| | Politicians’ narratives and tax myths | 21:37–23:35| | Riedel’s “Ten Tax Myths” rundown | 27:18–30:48| | U.S. debt, spending, and deficit reality | 39:10–44:42| | Social Security/Medicare insolvency | 46:01–49:34| | Middle class “undertaxed” argument | 55:02–57:41| | Closing reflections and behavioral econ | 60:09–62:53| | Riedel's update on Trump administration | 63:42 |

Update: Trump’s Second Term on Tax Policy

(63:42)

• Trump’s mantra has shifted from “broaden the base and lower the rates” to “create new tax loopholes and lower the rates.”
• Examples: No tax on tips, overtime, car loan interest; quadrupled deduction for state and local taxes.
• Spending cuts have not materialized and focus more on “culture war totems” than broad reform.

Concluding Reflections

• “Your credibility in Washington is all you have.” (35:11)
• “The laws of economics always win. Eventually we’re going to get to where we need to be, whether we like it or not.” (63:08)
• Despite the bleak policy landscape, Riedel finds hope in the persistence of honest, behind-the-scenes efforts, but doubts about their ultimate effectiveness.

This episode serves as a reality check on U.S. tax and fiscal policy, laying bare the political and psychological obstacles to meaningful reform. Riedel’s clarity, data, and dry humor deliver a sobering but essential overview for anyone puzzled by the country’s relentless budget drama.