Q&A Part 1: Tax Philosophy, Liberal vs. Conservative Economists, Marriage vs. Poverty and More

Summary

Optimist Economy: Q&A Part 1 – Tax Philosophy, Liberal vs. Conservative Economists, Marriage vs. Poverty and More
Hosted by Kathryn Anne Edwards and Robin Rauzi
Release Date: July 29, 2025

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Overview

In this engaging Q&A episode of Optimist Economy, economists Kathryn Anne Edwards and Robin Rauzi delve into pressing economic questions submitted by their listeners. Covering a wide range of topics—from the regressiveness of student loan interest rates to the intricate dynamics between marriage and poverty—the hosts provide nuanced insights into how economic policies impact everyday lives. Their thoughtful discussions aim to shed light on the fundamentals of the U.S. economy and explore potential solutions to enhance its effectiveness for all Americans.

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1. Student Loan Interest and Economic Equity

Question from Melissa in Michigan
Timestamp: [03:15 - 05:50]

Melissa raises concerns about whether student loan interest rates are regressive, particularly affecting those with less family support, and questions why U.S. students don't opt for more affordable education abroad.

Key Points:

• Regressiveness of Student Loans: Kathryn acknowledges that student loan interest can be regressive, disproportionately impacting students from lower-income backgrounds who rely more heavily on loans. "[...] if it increases with the size of the loan reflecting need, then, yeah, student loan interest is going to be regressive" (04:03).

• Domestic Education Options: The discussion highlights that the U.S. offers a vast array of colleges and universities, reducing the necessity for students to study abroad, especially in states like Texas where in-state tuition is affordable and options are abundant.

• Systemic Challenges: Kathryn emphasizes that while the current system isn't perfect, government-backed loans are preferable to a purely private lending market, which would likely offer less favorable terms to younger borrowers. She suggests that enhancing federal support and financial aid could mitigate some of the regressive aspects of student loans.

Notable Quote:
Robin summarizes the issue with enthusiasm: "Descant on my Friend descant on."

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2. Liberal vs. Conservative Economists: Diverging Perspectives

Question from Corky Garco of Colorado
Timestamp: [05:52 - 08:21]

Corky seeks to understand why economists with similar academic backgrounds often hold opposing views on politically charged issues, such as the child tax credit.

Key Points:

• Human Element in Economics: Kathryn explains that personal values and risk preferences play a significant role in shaping economists' viewpoints. "It's not about there being a winner, it's about the trade offs and risk that are palatable to you" (06:30).

• Interpretation and Bias: The hosts discuss how differing interpretations of data and inherent biases contribute to the formation of ideological camps among economists. Kathryn mentions, "Where there's interpretation, there's bias and preference" (07:00).

• Complexity of Economic Policy: They acknowledge that many economic policies involve gray areas where consensus is hard to achieve, leading to varied opinions even among experts with rigorous training.

Notable Quote:
Kathryn candidly states, "We are sometimes human beings," highlighting the influence of personal experiences and values on economic analysis (06:30).

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3. Tax Rates: Labor vs. Investment Income

Question from Brad Nelson in Denison, Iowa
Timestamp: [08:21 - 14:38]

Brad questions the current tax structure, which he perceives as favoring investment income over earnings from labor, and suggests reversing the rates to encourage work over investment.

Key Points:

• Payroll Taxes and Eligibility: Kathryn explains that payroll taxes fund programs like Social Security and Medicare, tying these taxes to earned income to determine eligibility. "If you earn from investments, you wouldn’t be eligible for these programs" (09:47).

• Double Taxation Debate: The discussion touches on the argument that taxing both labor and investment income constitutes double taxation, though Kathryn counters that similar logic could be applied to investment, potentially discouraging savings and investment.

• Policy Choices and Trade-offs: Kathryn emphasizes that tax policies involve trade-offs, such as balancing revenue needs against incentives for saving and investment. She notes, "The evolution of the tax system has moved to favor investment wealth" (14:10).

Notable Quote:
Robin captures the essence of the issue: "Shouldn't we encourage people to utilize their skills and labor to earn money? Why do we encourage martini sipping and discourage earned income?" (08:42).

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4. Marriage Before Parenthood and Poverty

Question from Shelley Gardner in Utah
Timestamp: [14:38 - 21:09]

Shelley, a high school financial literacy teacher, inquires about the effectiveness of promoting marriage before having children as a strategy to avoid poverty.

Key Points:

• Income Dynamics in Households: Kathryn explains that dual-income households are generally less likely to experience poverty simply because two earners contribute more financially than a single income. "Two incomes are greater than one" (15:22).

• Historical Context: The hosts discuss how past policies aimed at reducing teenage pregnancy have impacted current poverty rates, noting a significant decline in teenage pregnancies as an economic and social success.

• Complex Relationship Between Marriage and Poverty: Kathryn points out that while marriage can be beneficial for economic reasons, it also intertwines with broader gender dynamics and labor market outcomes. She mentions, "Men benefit from earlier family formation, whereas women face motherhood penalties" (19:04).

• Policy Implications: The conversation suggests that focusing solely on marriage as a solution oversimplifies the issue and that improving labor market policies, such as raising minimum wages, might be more effective in addressing poverty.

Notable Quote:
Kathryn passionately states, “We shouldn't have an economy that has a success sequence. That’s a failure for the economy,” emphasizing the problematic nature of prescribing a one-size-fits-all path to economic success (20:29).

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5. Congressional Budget Office (CBO) Credibility and Tax Policy

Question from Lauren Henry in Helena, Montana
Timestamp: [21:09 - 25:57]

Lauren seeks clarity on House Representative Troy Downing’s claims that the CBO is "historically wrong" regarding deficit projections from new tax bills.

Key Points:

• Role of the CBO: Kathryn clarifies that the CBO provides Congress with cost estimates for legislation, not precise predictions of the future economy. "The CBO can’t predict the future, and that’s not their job" (21:50).

• Dynamic Scoring Limitations: She explains that while dynamic scoring attempts to factor in economic growth effects, the CBO’s simplified approach ensures consistency across different pieces of legislation. Kathryn emphasizes that even dynamic scoring often shows tax cuts to be fiscally unsustainable without significant economic growth.

• Criticism from Politicians: The hosts note that political motivations often drive skepticism towards the CBO's assessments, particularly when projections do not align with desired policy outcomes.

• CBO’s Integrity: Kathryn defends the CBO, highlighting their role in providing accountability and reliable benchmarks, despite facing frequent political pushback.

Notable Quote:
Katherine firmly asserts, “What the CBO does in order to produce a set of comparable statistics [...] is that they just do for all legislation what they can do for all legislation” (24:10).

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6. Adjusting Social Security to Address Economic Inequities

Question from Sarah Lyons in Walden, Vermont
Timestamp: [25:57 - 29:50]

Sarah proposes modifications to Social Security to rectify racial and gender pay gaps and support those who provide unpaid care for children and elders.

Key Points:

• Progressive Formula: Kathryn explains that Social Security already incorporates progressivity, providing higher relative benefits to lower earners. "We put progressivity into the formula" (26:27).

• Additional Adjustments: While Social Security could theoretically be adjusted to further address specific inequities, Kathryn notes potential political resistance due to the program’s broad support. Possible adjustments include caregiving credits and differential retirement ages based on job physicality.

• Historical Context and Racial Impact: The hosts touch on Social Security’s history, acknowledging past exclusions but recognizing its current role as a crucial retirement asset for Black Americans.

Notable Quote:
Kathryn highlights existing progressivity: "Social Security is based on your highest 35 years of earnings [...] lower you earned, the more your benefit replaces that amount" (27:33).

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7. Incentives for Achievement vs. Social Support Programs

Question from Bob in Nevada
Timestamp: [29:50 - 38:07]

Bob expresses concern that uniform rewards and benefits might undermine incentives for personal achievement and work, questioning the effectiveness of current social support programs.

Key Points:

• Targeted Support Systems: Kathryn argues that most social support programs in the U.S. are designed for specific groups, primarily the elderly and those with severe disabilities. "After those two groups, there is really not a set of people who this applies to" (30:18).

• Effectiveness of Assistance Programs: The hosts discuss how programs like SNAP (food stamps) and Medicaid support individuals by removing barriers to economic success, such as ensuring children have adequate nutrition and access to healthcare.

• Addressing Persistent Poverty: Kathryn points out that able-bodied adults without children have seen little progress in poverty reduction over decades, suggesting that current policies inadequately address their needs.

• Structural Barriers vs. Personal Responsibility: They emphasize that poverty often results from systemic barriers rather than personal failings, advocating for comprehensive policy solutions that go beyond incentives.

Notable Quote:
Robin articulates a core issue: “It's not about incentives, it's about barriers” (35:00).

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Closing Reflections and Acknowledgments

Timestamp: [38:07 - End]

As the episode wraps up, Kathryn and Robin share personal anecdotes about their spiritual sponsors, reflecting on the importance of mentorship and support in their professional journeys. They also extend gratitude to their producers, Sophie and Andy, highlighting the collaborative effort behind the podcast.

Notable Quote:
Kathryn shares a heartfelt story about her mentor: “He truly is the reason why I am an economist because he was the first person to tell me you could do this” (40:27).

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Conclusion

This episode of Optimist Economy offers a comprehensive exploration of complex economic issues through listener-submitted questions. Kathryn and Robin adeptly balance technical analysis with relatable insights, making intricate topics accessible to a broad audience. Their commitment to fostering a better economic future shines through as they critically assess existing policies and propose thoughtful considerations for improvement.

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Resources Mentioned:

• Optimist Economy Website: optimisteconomy.com
• Support the Podcast: Subscribe on Substack | Buy Me a Coffee
• Email for Questions: [e-mail]

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Thank you for tuning into Optimist Economy. Join Kathryn and Robin in their mission to build a better economic future, one problem and solution at a time.

Transcript

[Robin]

Foreign.

[Katherine]

Hello, and welcome to Optimist Economy. I'm Katherine.

[Robin]

I'm Robin.

[Katherine]

On this show, we believe the US Economy can be better, and we talk about how to get there one problem and solution at a time. Today is a very special episode.

[Robin]

It's our second mailbag episode, so second.

[Katherine]

Mailbag episode to review. I have not seen the questions. Robin is hitting me cold. And we'll see how I do. But before we get into them, we should let you know. We might know it, but y' all should also know that we have a website, optimisteconomy.com and through that, we send out newsletters. We take your money through Substack and buy me a coffee. And you, of course, can always email us optimisticonomymail.com yeah, I wanted just also.

[Robin]

To say we broke a thousand newsletter subscribers this week, and Substack sent me this note saying we have subscribers in 49 states. So of course, I wanted to know who wasn't in the fold. And it's North Dakota. So North Dakota, get on the stick.

[Katherine]

Somebody find a friend in North Dakota.

[Robin]

Phone a friend.

[Katherine]

I have a friend in Nebraska. I don't have a friend in North Dakota.

[Robin]

We do well in Nebraska. We've been.

[Katherine]

We do well from our last.

[Robin]

Okay, our last Q and A. And we have two questions from Nebraska last time.

[Katherine]

I love it. Okay, so we're going to skip through our normal chapters and just go straight into each question.

[Robin]

You know what? Actually, I had a term and condition that I did want to just mention.

[Katherine]

Oh, so we don't skip our chapters and don't go straight into the questions?

[Robin]

No, I just. We had somebody who. Who became a, you know, I don't know, a legit optimist in this last week, and he sent in his spiritual sponsor, which was a choral descant. Now, I don't know if you know what a choral descant is. It's when you have a, you know, a choir singing, and instead of the sopranos who usually sing the melody, they sing sort of a counter melody that sort of soars like above everything else. It's extremely beautiful. And he said, you know, these just bring tears to my eyes every time. And, you know, as somebody who's done some church singing in my day, you know, I totally concur. But I wanted to look it up to make sure that it was always a treble melody, because, you know, it could just be some particular kind of counter. Musical counterpoint. And I found out that descant also means to talk tediously or at length as in, I have descanted on this subject before. I had no idea. I had no idea that that's what that meant. And we are going to descant on some subjects today in our mailbag episode.

[Katherine]

We're going to descant. I mean, that really sounds like something that I'm mispronouncing. Like there's a real word there, but I'm mispronouncing it in a Texas accent. Let's descant. I'm descanted on that. Let's go. It sounds like a word that's wrong when I say it.

[Robin]

It's descant, descant, descant, descant, descant. Accent on the first term. Okay, you know what? Close enough.

[Katherine]

Let's just do economics. I feel a lot more comfortable in that space.

[Robin]

Okay, let's go. All right, we have a question actually related to our student loans episode from Melissa in Michigan.

[Katherine]

Okay.

[Robin]

Would you consider student loan interest to be regressive? Those with less family support end up with more loans that grow almost exponentially with high interest rates on a high principle that compounds over time. And also, if it's so much cheaper in other countries, why don't us students go there?

[Katherine]

Okay, well, I think the two questions are related. Yes. If you have to take out loans because you have less money, but you have to pay interest on them, but not to your parents who gives you your education, then, yes, student loan interest is going to be regressive. If it increases with the size of the loan reflecting need, then, yeah, student loan interest is going to be regressive. The question as to why we don't go to other countries, I'm thinking about this from the framework that. Here's a question. Which state sends the fewest share of kids out of state for college?

[Robin]

Texas.

[Katherine]

It's Texas. Yeah. Because if you're big enough, you don't need to go far to have a lot of options is what we tend to think. Right. Like, not only is it a function of in state tuition being cheap if you're a public school, but you don't have to leave the state to have a ton of options. I think the same is true in the US we just have so many colleges and universities here and so many such a wide variety that you don't necessarily have to go abroad.

[Robin]

Yeah, true.

[Katherine]

I think I do wonder with her question of student loans being regressive. I'm not going to stop talking just because it looks like I came to the end of a point.

[Robin]

Descant on my Friend descant on.

[Katherine]

I think there's a question behind her question of if this makes it harder for poorer students to go and makes it more regressive for poorer students, then why do we do it this way? And I think that that's a fair question that doesn't necessarily have an answer other than this is the system we came to. You're making an investment. There should be more financial aid and support that comes from the federal government. And you know, my like mean economist answer would be, yeah, these interest rates from the federal government aren't great. But if you didn't have the federal government saying it's okay to lend to these people, nobody would go to college who didn't have their parents afford it because the private market for loans that have no type government guarantee for student loans, like you're not going to have a lot of banks lining up to give 18 year olds really good rates.

[Robin]

What.

[Katherine]

So it's, it's, it's not great from like the government versus say free college, but the government being a lender as opposed to, you know, a private bank being a lender, you know, the government's doing a better job than the market would do even though it's still flawed.

[Robin]

Okay, ready?

[Katherine]

Yeah.

[Robin]

This is from Corky Garco of Colorado. In a recent episode, I was struck by Catherine's comments about economists falling into left or right camps on issues like the child tax credit. I'd love to hear more about how these camps form, especially particularly among economists with PhDs. Not to be confused with those social media influencers who play economists online. I'm assuming these folks all go through the same kind of rigorous programs, study the same foundational literature and examine the same data. How do they wind up on opposite sides of politically charged issues?

[Katherine]

Well, the first part is the hardest part to understand is that in addition to being economists, we are sometimes human beings. What? But I think even for economic issues, I've said so many times on this show, what I believe to be true is that when it comes to economic policy and choices, it's not about there being a winner, it's about the trade offs and risk that are palatable to you. And so I think where you get camps in terms of economists, it part comes from what are the trade offs that you value or what are the risk that you are willing to take relative to others. And so you know, you have two economists look at a set of data around a child allowance. You give cash to every kid in the US some amount. If you are a conservative economist, you're going to look for the trade off that you don't want to risk, which is labor force participation and labor supply of the parent, probably the mom. If you're a liberal economist, you're going to look at the kind of decrease in child poverty and the effect that has on the long term, which you know, you're willing to risk labor force participation, whereas other economists are not. So that's one, but two, broadly, please do not let my demeanor fool you. We don't know everything and we still don't know most things. And that means there's just a lot left for interpretation. There's some things that we have, like a pretty broad consensus on, like tariffs aren't great, but you're gonna find some random economist who's now famous in the administration who will say, like, they're worth it. We need it right now because we can't predict the future. We don't know everything. And in that gray area falls interpretation. And where there's interpretation, there's bias and preference. And we suffer from it too. We don't always talk about it, but we suffer from it too.

[Robin]

Yeah. All right. Brad Nelson in Denison, Iowa says tax rates are higher on income earned by our own sweat than the income earned on investments. Those of us who work for a living pay income taxes, payroll taxes, consumption taxes, the trust fund babies and wealthy retirees can sit on the veranda sipping martinis, never break a sweat or earn a dollar from their own effort, and they pay favored tax rates, which are much lower. This seems backwards to me. Why don't we tax dollars that are earned through your own labor at a lower rate and tax dollars from investments at a higher rate? Shouldn't we encourage people to utilize their skills and labor to earn money? Why do we encourage martini sipping and discourage earned income?

[Katherine]

Wow, this is such a good question.

[Robin]

I love this question. Just for the imagery of the sipping martinis on a veranda.

[Katherine]

Yeah. I don't want other people who wrote in questions to feel like we have favorites, but like, I'm really loving this. I'm loving the effort that went in and like just the vivid imagery. So I can give you a few answers to break this down. First, let's think about payroll taxes, Social Security, unemployment insurance, Medicare. The reason why these are attached to work is because that is part of how you earn your eligibility as a worker or non worker. So it's the tax being set on workers is because that's how we end up determining your eligibility for the program.

[Robin]

So if all of your income in Your whole life only came from investments. You wouldn't be eligible for those because you would never have paid those taxes.

[Katherine]

Yeah, in theory you could have like a trust fund kid. I mean, because like, if you're self employed and you're getting earned income, you have to report it to Social Security and then you pay both sides of it. But if it's not earned income in its investment income, then no, it wouldn't be subject to Social Security. And I don't think you would have a tax record. You wouldn't have a wage record. You might not be eligible for it. Most people who aren't eligible for Social Security are immigrants who don't have a long enough work history. That's why the payroll tax is tied to the worker. The income tax, mainly coming from earnings, is a function of a few things. One, that is where most income in the US Is generated. Two, it's the easiest for the IRS to count because it's double reported. You report it and your employer reports it. This is my understanding of why people have argued that investment income needs to be taxed at a lower rate. So I earn money from my job, I pay taxes on it, and then I take the money that's left over my savings and I invest it into, you know, the stock market. I'm amazing. And I make a million dollars off of that money. And now the government wants to tax me again. I already paid taxes on that money. That was my earned money. And then I. Whatever. They're basically taxing savings and investments, and so they're double taxing. So the argument you have of like, they're taxing labor twice and therefore they're discouraging labor is the, like the inverse of the exact same argument that people would say about savings and investment is that you're taxing savings and investment, which is the product of the funds left over from when you were taxed as an earner. And so you're discouraging savings and investment by taxing the returns. And I don't know if you're just, you're discouraging investment.

[Robin]

And we want to encourage investment because that has all sorts of good effects.

[Katherine]

Yeah, we want people to invest their money. And so this, this whole idea of a double tax was really in vogue in the late 90s, in the early 2000s, of like, we need to reduce the capital gains tax rate because we're double taxing people and we're punishing them for being double tax. Yeah. So it's a lot more rhetoric than it is reality. Again, like policy choices Are all about trade offs. Like, are you willing to risk the possibility that someone will invest less because of the capital gains tax? Understanding that there are people who are now wealthy enough to exist entirely off of investment income who you never tax. Like, are you willing to forego tax income from investment because small dollar investors that have already earned like taken this money from their wages, you don't want to punish them twice or you feel that you are. We have a bunch of things left over from just how the system was started back in 1913. We have some taxes we've added relative to public programs, but then we have these really deep philosophical debates of are you taxing labor twice if you invest it, if you are taxed on the investment, and so on. There are so many good ideas here that we can pursue to kind of avoid the double tax, but not necessarily. Yeah, you buy a house, you sell the house. If you have lived in the house.

[Robin]

For three of the last five years.

[Katherine]

Or two for three of the last five years, you don't pay capital gains.

[Robin]

On the house up to a limit of $500,000 per couple.

[Katherine]

Right. That's an example of like, okay, if I'm someone who's really wealthy and buys six houses for investment purposes, stays with them for a week and then flips them that house as an investment vehicle. The federal government has come up with a means of taxing, separating out the majority people who buy houses which are just trying to find shelter and make it a long term investment. I'm not going to be taxed for capital gains from real estate realizations. If it's my actual house and I've lived there three of the past five years, There are ways to do it so that this idea of like, but we're double taxing can be sealed.

[Robin]

Yeah, that's exactly what I was thinking of was like, yeah, there's, there are, there are thresholds that you could put in place like above which the tax is different and really. And yeah, primary residence, the sale of your primary residence is a good, a good example of that.

[Katherine]

Yeah, if it's the stock that you've inherited versus like stock that you bought, you know, on the market, like there's all kinds of ways to do. And we have whole other, we have entire accounting systems of how to value things that you've held onto for a long time for tax purposes. I think the short version, which obviously is what I'll end with having talked for a long time, the short version is a lot of the evolution of the tax system has moved to favor that wealth investment wealth.

[Robin]

Yeah.

[Katherine]

Which means it's a choice and we can choose differently.

[Robin]

Yeah. All right. This question is from Shelley Gardner in Utah. I teach financial literacy in high school in a conservative state. And it was brought to my attention that next year they are going to add to our strands and standards that we have to teach what's known as the success sequence, which, among other things, says you have a better chance of avoiding poverty if you get married before having kids. As an economist, what's your opinion and assessment of the research on this?

[Katherine]

Oh, man, it's so hard not to give my honest take here. So the question is, is having kids before marriage a predictor of poverty?

[Robin]

Yes, essentially.

[Katherine]

Or a cause of poverty?

[Robin]

Exactly. We have some causation and correlation questions there, don't we?

[Katherine]

Some of it doesn't need to rely on research. It's very intuitive. Two incomes are greater than one.

[Robin]

So if you're married.

[Katherine]

So if you're married and you have two people working, your income is going to be higher and therefore you're less likely to be in poverty. And it's. That tends to be why we have a lot of single parents have higher poverty rates. They have fewer earners in the household. So it's not as if they all have, you know, single moms are necessarily like people who aren't working or who are in terrible jobs. It's just that they don't have two incomes that would kind of mechanically. Tends to push people over the. The poverty line.

[Robin]

Yeah. I was also curious about whether conventional thinking on this came out of research that was done, say, in the 80s or 90s when the teenage pregnancy rates were so much higher.

[Katherine]

Yeah.

[Robin]

You know, I think that a lot of this was probably about encouraging people not to try to get pregnant when they were in high school, probably through abstinence in conservative states. But, you know, teenage pregnancy has just dropped like a stone.

[Katherine]

Yeah. Yeah. It's considered a massive economic and social and cultural success that we don't have as many kids pregnant at 16 as we used to. And it is, as we kind of said in the fertility episode, it's one reason why overall fertility has fallen, because we've very much tried to push down fertility of a certain group. So for everybody, it doesn't matter if it's one parent in the household, two parents in the household. Every kid is poorest on the day that they're born because that tends to be the youngest that their parents are. And young people don't earn as much as they do than when they're older. I earn more at 45 than I did at 25. I earn more over my lifetime. So, you know, yes, there's a kind of historical composition that a lot of single parenthood that happened in the past was experienced by younger people. And so you not only had single households where you have one income is less than two, you have younger households and younger income is less than older income. No one would say to a 40 year old woman who pulls down $200,000 a year that if she has a kid without a partner and she's a single by choice, like her success sequence is towards poverty. I tend to think of poverty as a function of the income going into the household, which has really key predictors as opposed to just the family situation. Now that said, there are a set of economists who think that marriage is better for kids and it's not just income. There are another set of economists who think that marriage is really only better for kids because of income. And it's very hard to tease out of what makes kids from two parent households on average more likely to be better off because they have two incomes or because they have two parents. And it's very hard to tease out the causal relationship. So I think the economics research would be divided. A lot of economists would say maybe we should promote marriage because marriage is good for kids. And other ones would say it's just a matter of income. I myself have written columns that have said single moms need higher wages, not husbands. I think we do a big get out of jail free card for terrible labor market policies when we say that women who have a kid but not a husband and they have some terrible job, that the problem is that they didn't have a husband and not that the minimum wage is $7.25 an hour. So I think that we put too much on the marriage decision when it's really just a mirror reflecting back the economic situation of those two people. And I just want to add, just because this is kind of a fun topic.

[Robin]

Yeah.

[Katherine]

The relationship between kids and marriage and earnings is crazy in terms of the gender divide. So men, basically, they make more after they get married and then they make more after they have kids. Where like there is a genuine set of evidence that shows that men benefit from earlier family formation because I think it basically forces them to grow up and that when they have responsibility of a family, they perform better in the labor market, whether that family is just a wife or husband or that family is actual kids. Whereas for women we have huge motherhood penalties. And so we have these big Conflicts over, like, should you get married earlier, should you get married later? Like, who does that favor and who benefits? But I would say if an economist is telling you what to do with your family, you should just run the other direction. We should not have influence in this space. People should make choices that work for them. And if the economy isn't working for them, it's always easier to say, well, that's your fault. And it has nothing to do with not having paid sick days in a country with economy worth $30 trillion. So I would say there is genuine economic research questions here that could be interesting in your success sequence. But success sequence is another way to say blame people for choices sequence.

[Robin]

Yeah. Our circumstances, not choices.

[Katherine]

And we shouldn't have an economy that has a success sequence. Like, that's a failure for the economy if you have to do these five things in order to succeed and we only support one family type. Like what an incredible, like, damnation of the US Economy that, like, it only works if you're a two parent household where both people are working and you had to have gotten married first. And if you don't follow those things, then you don't get to have prosperity. No, no. That is a performance measure of the economy on its own. So I don't know how you put that into a high school curriculum, assuming they only listen 5% of the time. But hopefully I gave you some fuel there.

[Robin]

Yeah. Good luck. Good luck, Shelley.

[Katherine]

Good luck, Shelley.

[Robin]

Okay. Lauren Henry in Helena, Montana, in a virtual town hall, my House Representative Troy Downing said that the CBO is, quote, historically wrong. And, and the projected deficit growth from the new tax bill is wrong because it doesn't factor in economic growth and the bigger economy in the future as a result of the tax cuts. Can you please help me understand his logic?

[Katherine]

Okay, so there's two questions there. One, is the CBO always wrong?

[Robin]

Historically wrong.

[Katherine]

Historically wrong. And two, is that because they don't account for economics growth?

[Robin]

Right. Obviously the way he stated this was politically loaded. But where is he getting this, this idea that the CBO is historically wrong?

[Katherine]

The CBO can't predict the future, and that's not their job. And they're not trying to predict the future because that's not their job and because it's not possible. What they're trying to do is give Congress a toolkit, some type of reference to understand the relative value and cost of a piece of legislation. The cost part is the part that they can focus on because that's what they can control. I know how much money is going to go out the door. I know how much money is going to come in, how that money that goes out the door is then spent in the economy. We have less and less of idea of how that happens. So some things that the government does, we have a really good idea of what the economic kind of basically callback would be. Some of them we have almost no idea. So how does the Congressional Budget Office prepare comparable estimates for pieces of legislation? If some of them we have an incredible degree of knowledge of what we think is going to happen in the economy. And some of them we have almost no idea what it'll do in the economy. What the CBO does in order to produce a set of comparable statistics for a set of people that don't seem to show a ton of sophistication in this space is that they just do for all legislation what they can do for all legislation. So they show you how much something costs. That cost estimate has to come with a set of assumptions about the economy, but it's not a prediction. It's a projection of a certain aspect of government behavior and it's meant to be simplified. So Congress is going to be able to compare it across pieces of legislation. What I'll say about the economic growth part is that if legislation has the capability of paying for itself, it's over the 30 to 50 year time horizon. If it's going to generate enough investment, it takes that long for that investment to re accrue back into tax dollars. So what's ironic about all of this is that Republicans in the past have gotten so pissed off that tax cuts are expensive with almost no economic return. According to the CBO that they have previously mandated, that legislation have, quote, unquote, a dynamic score where the projections from the economy are taken into account. And they still hate this because the cbo, it still doesn't show it because the CBO is like, well, we've had four tax cuts and they've each been multi trillion dollars and they increase the economy for one year at maybe a half a percent rate and they'd have to increase it 9% to pay for themselves. So these really are just like sunk cost lost dollars. So what's funny in particular is that when they did the dynamic score for the 2025 tax bill, what they found is that if you took into account the economic distribution and economic effects of the tax bill, it costs more and not less because it requires so much borrowing from the federal government and the entire thing is debt financed. That the dynamic cost that takes into account economic effects, it makes it more expensive with a smaller effect on the economy than their dummy projections because their sophisticated projections are like, well, yeah, this is actually going to hurt the economy that the federal government is so much in debt. And you're making this worse. This came at a very specific moment in the fight about the 2025 legislation because once the CBO back and said, this is so terrible, it's worse for the economy, if we actually look at the detail, they all stopped talking about it and then just went back to their talking point about how the CBO is historically wrong. I have friends at the cbo. These people are heroes. They are serving probably like the least satisfied and respectful customers than anybody else in the United States. And they are doing an incredible service for Americans by giving us a benchmark to hold our representatives accountable. And if you find that your congressman is outmatched and outgunned by the cbo, he's in good company because most people are. And if you want to say shit about the cbo, you do not say it in front of me. Sorry, Helena. If you just want to print that out and give it to him, that's fine.

[Robin]

Our next question is from Sarah Lyons in Walden, Vermont. Has anyone actually considered making adjustments to Social Security payments as a way to address inequities or undesirable outcomes in the economy? Could, for example, we adjust Social Security to correct for racial or gender pay gaps? Could we have adjustments for people, mostly women, who spend years of their lives providing necessary unpaid care for children, children and elders? Could a boosted Social Security payment make things fairer until we have comprehensive policy solutions in place?

[Katherine]

So the answer is yes and probably not. So, yes, Social Security is adjusted to affect inequities in the labor market because it's a progressive formula for the benefit. So that is determined by the replacement rate. If I were to look at how much you typically earned over a 35 year period and then you get a Social Security benefit reflecting that the lower you earned over those 35 years, the more your benefit replaces that amount. So if you earned on average two grand a month, your Social Security benefit might be as high as 11 or 1200. But if you earned 20 grand a month, your Social Security benefit might be 4000 or $5000. But it's not going to be half. It's going to be closer to a quarter of what you used to earn. So we put progressivity into the formula. You could interpret this as Social Security makes the correction, but just on the wage so side and it doesn't make extra Corrections for, say, racial imbalances or gender gaps. It's just going to assume that those things are all reflected in the wage, which is then progressively adjust for.

[Robin]

Right. And the wages. And the wages calculated over time, too. So that. That includes years missed years out of the workforce.

[Katherine]

Social Security is based on your highest 35 years of earnings. So if you were out of the workforce for some time, you could have zeros in that calculation.

[Robin]

Yeah.

[Katherine]

Now, could it do more than that? Sure. I mean, it's our program. We pay for it. We could say that, like Black people get 10% higher Social Security. A lot of advocates would be scared of doing that because the program right now has such a broad political buy in that using it for this purpose would be risking the support that it has long had. That said, there are specific policies that could be incorporated into the program to address very specific things like a caregiving credit so that if you took five years out of the workforce to look for kids at home while they were younger, you didn't pay into Social Security. So it's a zero. But Social Security, like, credits you. You know, basically what you. Yeah, yeah. And that's a popular credit. There's policies to have Social Security adjusted so that if you worked in a physical job, your retirement age is earlier.

[Robin]

Meaning like a manual labor job that you have to.

[Katherine]

Yeah. Like if you were in manual labor, your retirement age is. Is, you know, 60. But if you are, you know, some like, highfalutin actual economist who sits in a computer at an air conditioned office with a nice window, my retirement age could be like 70 or 85. Right. It's just you could use the physicality of jobs to push back the retirement age. That's another proposal. So there's lots of ways to make adjustments that reflect labor market decisions and labor market realities without adding in race and gender or things like that. Because the truth is, all those things are reflected in the labor market. I will say that Social Security does not have a great racial history. When it was founded, a lot of people allege that it was designed to exclude black workers because it excluded domestic workers and agricultural workers from being incorporated into the program when it was started in 35. But that is no longer the case. Social Security is now one of the greatest sources of retirement wealth for black people, if you counted it as an asset as opposed to an income stream. So, man, when I know it, I get it out fast. You do.

[Robin]

Very nice. This is from Bob in Nevada. I think this is a response to something you did on Social. My concern is that you cannot build a thriving economy if there is no incentive for achievement. If everyone gets a similar reward, whether you work or live off the taxpayer, the incentive to work is eliminated. How can we create more effective programs to acquire work and benefits, job training, tax incentives for companies to hire, et cetera? What are your thoughts on that?

[Katherine]

Well, previewing the next episode, we're going to talk a lot about people in poverty. So there is a set of people readily identifiable that we can say with certainty are living off of the taxpayer and it's old people. And that is the only group where you can categorically say, yeah, there is a set of Americans that live off of workers and it's retired people. If there is a second group of people for whom that applies, it would be people with a disability who have a severe enough disability that they qualify for a cash disability benefit, which is either going to get them at some point Medicaid or Medicare. That's not all people who have a disability, but just people who have been certified disabled enough to get onto either Supplemental Security Income or Social Security disability Insurance. After that, I don't think you could point to any part of the population that has enough to live off a taxpayer because after those two groups of people, there is no cash entitlement in the United States.

[Robin]

You can get snap. The cash welfare system is like non existent. Basically.

[Katherine]

We used to have Aid to Families with Dependent Children, which we commonly refer to as welfare, and predominantly went to low income families. But like Harken back to the earlier question, one income is less than 2. That was often a single parent family. And the people who are single parents are moms. So single moms in the US had a cash entitlement that if you were poor and you had kids, you got to have cash. We ended it in 1996 and right now there are about 400,000 women on that program. It has a work requirement that is incredibly harsh. So none of them are sitting around like they all have to do something. Most of them are put into temporary low paying jobs and they can't be on it for more than five years of their entire lifetime. And of course if you are a drug felon, you can never get it. Just drug felon though. No other type of felon. So I'm gonna like do the nice interpretation of this question and say I'm okay with having my grandma live off the taxpayer and I think that she deserved it. She was a teacher for a really long time and so I think she retires and she deserves to live off the Taxpayer. My mom is living off the taxpayer now and I think she deserved it too. She also worked for a really long time. And that we should take pride in our country and that we do support people who enter their old age and that they're not left destitute and they do live off the able bodied and working among us. You know, as far as people with a disability, if their life is so nice, go walk in front of a car and become disabled and get a cash benefit. I bet you won't do it. Because having a disability is so much more than just getting cash from the government. And after that, there's really not a set of people who this applies to.

[Robin]

I mean, I think the heart of his question though is whether or not we were doing things that disincentivize achievement in the overall economy and that you need that sort of incentive to build this thriving economy.

[Katherine]

What I would say is the like kind of the counterpoint to that question is do you think that the limit to people's achievement comes solely from their personal motivation and laziness or some type of barrier they face? Because if it's just personal achievement and laziness, well then yeah, don't give them anything and they'll be fine. But if you think, say having a medical condition and not health insurance means it's gonna be really hard for you to get a job, then we give people health insurance because it's a barrier to economic success to not have it right. And we're giving people the stepping stones to success by helping them. And his question kind of premises the idea that if you help someone, there's no way for them to succeed on their own. Completely ruling out the possibility that there are people who can't succeed on their own without help because they face certain barriers. And that with decades of research onto all of these programs, like food stamps, Medicaid, we've learned a couple things. Healthy people do better at work than non healthy people. Healthy people hold down jobs better than non healthy people. Kids do better in school when they have food. In fact, they do better on test all the way to the SAT if they had a good lunch before. So when we think of SNAP as giving money to households, mostly households with children, we're banking on the fact that a 15 year old kid doesn't need the incentive to do better on the test. He needs a full belly. And so the incentive lens is important, but it's not exhaustive of how or why we help people. I would say if you were to look at all the incentives facing Low income Americans versus all the hindrances. There's a lot of things we still don't help with but need to. So this goes back to something like, should every kid in the US get money? Well, the incentives would be, you're not motivating their mom to really go out and work if she gets cash for every kid. But the barriers that can be reduced with cash for kids is that it makes people less poor and that kids who grow up in poverty face a lot of hindrances to success when they grow up. And so we're trying to basically buy a higher performing set of kids because we're not making their parents limitation the predictor of their future success. It's not about incentives, it's about barriers. So his question probably only applies to adults. I would assume. I would assume.

[Robin]

I think, you know, he's sort of like, he's sort of like, you know, people make choices when they're, you know, to party and do drugs or whatever it is. And why should we support them when they didn't make the choice to get a job and work hard and perform in the economy?

[Katherine]

I will say, you know, for what it's worth, we don't support those people. If you don't have kids, if you don't have a disability, you don't get much help from the federal government. In some states you get Medicaid, but we just voted to kick you off of it. In some states you can get food, but we also are actively trying to kick you off of it. And they're the only group of people in the United States for whom there has been absolutely no progress in poverty over the past 50 years.

[Robin]

Introducing poverty.

[Katherine]

Yeah, so I'm an able bodied adult and I don't have kids at home. My poverty rate has seen no progress in five decades and I get almost nothing from the federal government. Other groups like children, parents, people with a disability, we've made all kinds of strides. We've almost eradicated elderly poverty. But this group of people, we have always dealt a very like, you need to go out and fix yourself. And when they've made no progress.

[Robin]

So that didn't work out for us.

[Katherine]

The other way to interpret this question is like we've done the incentive hard work thing for like 50 years and it's not making that much of a difference. So maybe we ought to try some like really aggressive stuff of like let's do felony records clearing and. Yeah, the other thing too is that a lot of programs that could in theory help those people are so under Resourced, understaffed and meanly provided that they don't end up up helping people.

[Robin]

So like we don't have the enroll in and stay in and.

[Katherine]

Yeah, and we, and you know, I want to go get workforce training and the government's going to help pay for workforce training but because I don't have kids at home and I'm able bodied, I don't get any help like cash help while I'm doing workforce training. And so now I have to find a job that like has not benefited from training that's going to keep me afloat to support training. Well, now I'm in a low wage workforce, I probably don't have a regular schedule, I don't have predictable hours and if I tell them I have a class I want to go to, their response could be legally, fuck off. So I think incentives and the firm kick have been shown not to be successful.

[Robin]

Okay, we gotta wrap this up. We actually do wrap our show up every week by thanking the spiritual sponsors for our show. We had Berat in Fremont, California join us as a spiritual sponsor this last week and I want to thank him and also to all the people who've been so patient and understanding when I perhaps mispronounce their names. My personal spiritual sponsor this week is stationery stores. I love a good stationery store and I went into one of my favorites over the weekend and my wife bought me this pen which I love and there's actually a stationery store crawl going to happen in Los Angeles in a few weeks. Like if you go to all of them within the long weekend. I don't know, you get entered to win something, but I don't know, I may just do it. Just to do it.

[Katherine]

You just get six duplicative calendars, which is what I need.

[Robin]

Exactly.

[Katherine]

Yeah. Take it from my oversized wall calendar of a 365 day calendar that I have up on my wall that I also love paper stores.

[Robin]

Yeah. Your spiritual sponsor this week?

[Katherine]

My spiritual sponsor this week is a now former professor at the University of Texas at Austin. I found out that he is retiring, would be mortified if I said his name, so I won't. But when I was a lost young thing of 20 trying to figure out what to do in life and full of highly impractical and ill advised aspirations of what I was going to do, I took a class in economic statistics and I didn't want to take it because I thought economists were fascists and I didn't do well on the first exam and I was like, oh God, I gotta go to office hours. But the professor was super engaging. He was very helpful. And he was tough. Like, he was a very tough professor, but he was tough because he's like, oh, you are not gonna get away without learning exactly what I want you to learn. And you will not be able to trick your way out of learning something like I had been been able to do actually in a lot of classes. And I turned my grade around and I made 100 on the final. And he said that I completely wrecked his curve and that I don't think I'd ever seen someone look more proud in my entire life than when he told me that. And it led to.

[Robin]

I'm sorry, he was proud or you were proud?

[Katherine]

He was proud. He looked so proud. He was like, you totally wrecked the curve. Just like lights in his eyes. And I think over the course of that semester in which I learned nothing about economics, but applied a lot of hard work to learning something that I could be good at, he very much steered me towards becoming an economist. And when he found out I was an English major, he was like, excuse me, but you can do this. And I was like, yeah, it's a little boring though. And through the course of mentorship and stewardship and boost to my confidence when I needed it, and a reality check when I needed it, he truly is the reason why I am an economist because he was the first person to tell me you could do this. He was like, you need to go get a PhD in economics. And I was like, my brother, I don't know who you're talking to, you are crazy. And he was like, no, you need to go get a PhD in economics. You could be good at this. And I was like, I think I'm going to get a master's in creative writing and move to New York. And he was like, oh my God. And so he was very funny. And I don't think many people can look back and say, I have the career that I have because of this one person that told me to do something. Maybe this is revealing that I'm like highly suggestible. But he really did. He was insistent and it was like a multi year campaign where he was like, I need you to get the confidence to go do something that you're scared of but could be good at because the profession doesn't have enough people like you. And, you know, you shouldn't be scared away. He truly saw something in me that I did not see in myself. So my spiritual sponsor is a retiring economics professor who I could not be really more grateful or indebted to.

[Robin]

I'm grateful for. It's his fault that I am now on a bike. So.

[Katherine]

Yeah. I mean, honestly, he took down a lot. I mean, I took a lot of people down with me going down this career path, Robin, my dad's aspirations, that I become a trial attorney. Like so many.

[Robin]

So many things could have gone differently. And yet here we are.

[Katherine]

And yet here we are. So for the mentors that make a difference, that is my spiritual sponsor.

[Robin]

Good. Good. We always like to thank our producers, Sophie and Andy, who are been standing by for a long time now.

[Katherine]

Just like Jesus, these people are still talking.

[Robin]

Descanting. Descanting.

[Katherine]

Descanting. Discanting. Discanting to scanting.

[Robin]

Thanks, guys. We appreciate it.

[Katherine]

Thanks, guys.