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- [00:00]
A
The following podcast contains explicit language. Hello, and welcome to the Where's My Tax Cut? Edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon, and I have the most amazing podcast team here this week. We have not only Anna Shymansky.
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B
Hello.
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A
Not only Emily Peck from Huffington Post, but also Katherine Rampel.
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C
Hi, Felix.
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A
Welcome.
- [00:42]
C
Thank you.
- [00:43]
A
You write for the Washington Post about matters economic. And so we're gonna talk to you about matters economics. And it's like, you know, in the absence of Jordan Weissman, we have no one who knows anything about economics here anymore. But we are going to talk about what has happened to the country since these tax cuts went through. We are going to talk about the unemployment rate, as promised. Last week, we came out with this little factoid that there's 1.0 empty jobs per unemployed person, which is, like, an amazing thing. We'll dive into that a bit. And because it's my podcast and I get to do what I want, I'm going to talk. We are going to talk a little bit about my project that I've been working on for a few months and just came out on slate called the Slate 90. It's all about the nonprofit sector, and we will find something interesting to say about that. But first, Katherine, the tax cuts. This was the number one biggest thing that Gary Cohn and the sort of Republican donor class wanted to do, and they did. Did it, and they were celebrating, and now they get more money. I mean, has this.
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C
Yeah. In short, did they get.
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A
So they got what they wanted. Right. And so now they are happy?
- [02:07]
C
Well, yes and no. Tax cuts were supposed to basically save the Republican Party from Donald Trump. They were supposed to distract the American public from all of the many scandals that have been percolating. The, the Russia investigation and Michael Cohen and Scott Pruitt and his accumulating scandals, all that good stuff. So Americans were gonna get a little extra pocket money, and then they were going to not care about all of those embarrassing things that were happening. And instead they were gonna be like, yay, Republicans. I'm gonna vote for them in the midterms.
- [02:44]
A
Okay, so there's this idea that Americans want tax cuts because they're paying too much taxes, and then when they get tax cuts, they're happier. And so this has. We got the first two bits, right? They wanted the tax cuts and they got the tax cuts. But unless you're a gazillionaire, it doesn't seem you're happier.
- [03:06]
C
Well, so a few things, if you look at polling data. People want lower taxes, right? Like, yeah, who doesn't want to pay a little less to Uncle Sam? Or to your state and local governments, for that matter. But they don't care actually as much about how much they pay pay relative to how annoyed they are by how little corporations and the rich pay. So there's this great Pew survey where they ask people what bothers you most about the US Tax system? And the thing that bothers the most is that rich people aren't paying their fair share. And then I think second is corporations aren't paying their fair share. Or maybe it's the reverse, and then several levels down from that, it's I'm paying too much. So people care a lot more about the overall fairness of the system than what their actual liabilities are. So maybe they want to pay a little less. But this tax cut was heavily weighted towards corporations, heavily weighted towards the rich, which is part of the reason why it's very unpopular. So that even if people realize that they themselves are paying less, they're still really pissed off, essentially, that this whole thing was weighted towards the people who they already thought were shirking.
- [04:17]
A
And later on in this episode, we're going to talk about all of the people who are paying no taxes at all, which, weirdly, people don't seem to be as annoyed about as I feel they probably should be. But there is also this aspect of tax cuts being sort of behaviorally invisible, in that when. If you want a fiscal stimulus from tax cuts, if you want to make sure that people spend all of the money that they're getting in tax cuts, what you do is you make it as invisible as possible. So what Obama did was he. He suspended people paying their Social Security taxes, and no one really noticed.
- [05:03]
C
Nobody noticed. Exactly. So another thing to point out about the Republican tax cut is that nobody has noticed that their withholding fell in their paychecks, which should have already happened for most Americans, right? So they have not noticed that, in fact, they have already gotten a tax cut. It's not like it's gonna come next April. This has already happened. It's only like 20% of people realize that their taxes went down. The same thing happened with Obama, which was a bigger tax cut for the middle class by. And also the exact same thing happened with George W. Bush. George W. Bush also cut people's taxes. Both the Obama tax cuts and the George W. Bush tax cuts were bigger, were more generous to the middle class. And if you look at surveys at the time, people didn't Notice and there are a few reasons why, right? Like your paycheck changes for lots of reasons other than what you're paying in taxes, like your hours change or your wages change or your health insurance premium goes up or whatever. So it's just not that salient. So it's not like people are going to be like, oh yeah, I just got this, you know, huge, this windfall and I'm going to go out and buy a tv. You know, there was a like a one time rebate that we saw under George W. Bush, so it should have been more salient as well, but it still wasn't. So in any case, people are getting, they're getting to keep a little bit more of their money but like divvied up over the course of the year and given these other weekly changes, they're just not noticing it. So they're going to go out and buy stuff. You're not going to see like a big demand side increase in economic activity because people suddenly have a little more pocket money.
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D
And even, even when they are noticing, it's like there's a good piece in the Times where they went to Dayton, Ohio or something and asked people, did you notice you got a tax cut or whatever? And you know, a lot of people did notice. They're like, yeah, my, my weekly pay is up. It was like between $2 and $40 a week.
- [06:53]
C
Big whoop.
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D
Yeah, who cares? That's gas. That's not even gas money for some people. And gas prices meanwhile are going up, so it kind of gets evened out anyway. And like whether you notice and you notice it's not very much or you, you don't even notice, the fact is it's not a noticeable amount. It's not, I don't understand even why anyone would think that the politics of this would be amazing. It's not a lot of money.
- [07:17]
C
I think the other issue is that Republicans kind of over promised how much people's wages were going to go up and how much people's taxes were going to fall. And so if you think back to that poll I was talking about earlier, where people care much more about the fairness of the, you know, if they feel like, well, Republicans are saying everybody's getting more money, but I'm not getting more money, that very over promising can actually have the reverse consequence of what Republicans want. Like people are gonna get annoyed that they feel like they're the only ones who are not making bandits.
- [07:52]
D
When Paul Ryan, I think he either tweeted this, I think he tweeted A comment he said, I met a secretary in Lancaster, Pennsylvania and she was pleasantly surprised because the tax cut will cover the cost of her Costco membership. And he was like savaged for this. I mean, and that's the bottom line. Like yeah, maybe you pay for your Costco membership, but your life's like for.
- [08:12]
C
A lot of people any little bit of extra money helps. So I don't want to suggest that getting an extra thousand dollars over the course of year is nothing. But relative to how much the very rich are getting, it is nothing. That's what matters here. It's the relative aspect of this, the context.
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B
Right. Because even though the Republicans tried a little bit to as an individual tax cut, fundamentally this was corporate tax reform, which I think that there is, there was a strong argument that corporate taxes needed to be lowered. I mean Obama wanted to lower corporate taxes. Our nominal rate was too high. I think most people would agree with that. But the way that this tax plan was structured, I think most of us can probably agree was it was not particularly well structured. But this is why I'm saying I think that they tried to market it in one way, but that's not really what I even think their long term goals goal was because the theory behind the tax cuts, it's not really that individuals are going to have so much extra money in their pocket. It's that this is going to create a lot more capital investment and if you create a lot more capital investment, you're going to increase productivity. If you increase productivity, you're going to increase wage gains. That's the theory behind it, I think.
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C
Which is a much more long term mechanism. Right. So that's not something you would be seeing in the first quarter of this year when Republican politicians were claiming we were going to have this big booming economy. So yeah, so like there is this supp argument that that's about drawing in more capital from abroad and, and companies investing that capital. The problem is particularly in the short term companies, as I'm sure all of you know, were already sitting on mountains of cash. So like the thing that was preventing them from making big investments was that they weren't seeing profitable investment opportunities out there. Not that like it was hard to get cash.
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B
I agree. I mean to play devil's advocate a little bit, Capex spending has is increased significantly this quarter. Just to be honest, I think it's up like 24%. So they're defin is some push from having a lot of additional cash. But I think you're right, that's why with that famous talk where Gary Cohen said to a lot of CEOs, well, when you get this tax cut, are you going to, you know, increase capex? And they were like, no, because what are we going to invest in? And I think we're probably going to get to a limit after a quarter or two of profitable investments and the rate of capex expansion is probably going to decline.
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C
And a lot of that money is also just getting returned to shareholders because.
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B
Right. Which isn't necessarily a bad thing. If the shareholders could then potentially use that money to invest in companies that actually need capital. I don't think there's anything wrong with that. But I do think the idea that this is going to massively expend capex moving forward is a flawed argument.
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A
And also there's very little evidence that there are lots of companies which need capital. The whole sort of capital allocation function of the stock market seems to have failed recently. We have very few IPOs. And, but that's, that's, that's a different topic. But let's, but let's stay on this whole question of what are the companies doing with their money? Because there are two ways that the tax cuts are supposed to benefit people. One is directly by giving them more money in their paychecks. And so we've seen that's very invisible. And then the second way is indirectly by funneling money through corporations who are then going to use the money to employ people and to give people pay rises and this kind of thing. And as teased last week, we now have this kind of wonderful, I mean, you can't call it full employment. Maybe Catherine, you can tell me whether we're at full employment or not.
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C
Oh, there's huge debate about that, but.
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A
Certainly there is exactly a one to one correlation between the number of empty job positions and the number of unemployed people. And obviously those unemployed people don't align neatly with the empty job positions. But in theory, if you just put each of those unemployed people into an open job position which exists right now, then there wouldn't be any unemployed position people anymore. And this is the first time that that's been the case since this data series started in what, 1991.
- [12:25]
C
No, 2000, 2000, December 2000 or 2001. Anyway, at the very beginning of the century. Yeah, so we have a lot of numbers to suggest that the labor market is doing really well. Unemployment rate is at 3.9%. Employers are complaining that they can't find qualified workers. If you look at the National Federation of Independent Businesses Small Business Survey, you know, they're complaining all over the place that like, they can't find good people. All of these things put together suggest that employers should be bidding up wages. Right. Like if you can't find someone to hire, the solution for that is pay more money and steal someone from another company or attract like one of the few people who is really qualified, who is looking for a job to come to your. To your firm and not a competitors. Right. And we're just not seeing that. We're not seeing much wage growth. We haven't throughout this recovery. And it's been sort of puzzling. To be fair, one would expect that pay raises would come kind of later in the cycle, like after unemployment has fallen. But unemployment has fallen a lot. And like you said, there are just not that many idle workers out there relative to the number of vacancies. So it's puzzling why we haven't seen more wage growth. And there are a bunch of different theories about why. One is that maybe the unemployment rate just isn't that revealing anymore. Right. Like you have relatively low labor force participation, meaning that there are a lot of people who aren't looking for work, who are working age, but if they were offered a job, they would take it. So maybe there's somewhere in between, you know, this headline unemployment group and people who are just retired or whatever, or stay at home, parents, or are completely out of the labor force. So maybe the 3.9% number just doesn't reflect the true population of people who are out there. So that's one theory we're kind of pushing to the limits of that. I think there are a bunch of other arguments for why pay raises haven't been stronger. One is just compositional. So you have a lot of baby boomers who are retiring. Baby boomers tend to earn more money because they're at the end of their careers. So you have people who earn more money being pulled out of the job market. And then the people who are coming into the job market are going to be younger. They're going to be people who have been unemployed. So they don't have as much bargaining power. And so it's just like it's an, you know, the fact that weekly earnings or average hourly earnings aren't that high. It's just. Or haven't been growing that much. It's just like a reflection of who's.
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A
Flowing in and out. If I'm a company and there's some, you know, middle management person retires who is making $100,000 a year, and then I replace them with some junior person who's making $40,000 a year, then wages have, my wage bill has gone down by 60% even though no one's wages have been cut.
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C
Right. And different measures of wage growth should control for those compositional effects, but not all of them do. So it kind of depends on what you're looking at. But that's one possibility. And the San Francisco Fed has argued that that's basically what's behind these numbers. But then there are a lot of other weird things that are going on, including that maybe employer, maybe just like wages are not the thing to be looking at when you're looking at what's happening with compensation, that maybe employers are shifting more of their compensation to other things besides wages. So that might be a one time bonus, for example. And if you look at the long term trend there, the share of compensation that's been going to bonuses has gone up. And I think the same thing is true of commissions and other things that may not show up in your standard wage numbers for a long time. Insurance, health insurance has been blamed for kind of like gobbling up pay raises, but actually health insurance premiums for employers, for employer sponsored insurance, they have not been rising that quickly, unlike the Obamacare market.
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A
So the very big picture, tell me in terms of like what proportion of economic activity goes to capital and what proportion goes to labor, how has that been evolving? Has labor seen any advance and do you think it, and I don't know, I mean is it going to.
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B
It's hard to say. And I think this is, this runs into a larger question that a lot of people talk about, which is productivity and that in order to increase wages you normally need productivity gains. And up until like 70s, 80s there was a very strong correlation between productivity gains and wage gains. And then that has moved a little bit, whereas productivity has increased faster than wage gains have. And part of the reason for that is because more the larger share of earnings has been going to capital as opposed to labor.
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A
Right. Productivity on its own doesn't cause wage gains. If, if a company gets to make the same amount of widgets with fewer people, then it just needs to pay less in labor.
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B
Well, no, having said that though, although it is true that there is more of a gap now between the two, there is still a correlation between productivity and wage gains. Larry Summ Summers has a paper about this and it's just that it appears that there are a number of other factors that are depressing wages. So they're not getting the full impact of productivity gains. And now of Course, we also have slower productivity recently.
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C
Yeah, so you have productivity slowing and then the share of productivity growth going to workers.
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D
Also, how does job composition feed into wage increases or wage stagnation? Like the jobs that are growing the most right now are maybe the lower paying jobs. Is it.
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This is the rise of the decline of manufacturing and rise of services and.
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D
The decline of unions as well. Decline of unions, decline of, of good jobs, basically, you know, at the upper level people are making lots and lots and lots of more money. But for everyone else, yeah, there's this.
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C
Hollowing, hollowing out David Otter's work on this stuff.
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B
And that's actually important what you just said. If you're talking about why more of a share of earnings have gone to capital, a lot of it does have to do with the fact that we have far fewer people in unions. Especially private sector union participation has declined dramatically. You have the rise of other things like non compete clauses. And you also have now a number of areas where you have a situation like called monopsony, where you almost have only one buyer of labor, where you just have one main company. And so we see this with Amazon quite a bit where they have warehouses where they can keep their wages very low because they're essentially the only employer. And so that's. These are a number of factors that are depressing wages. So you're not getting any of the gains from productivity growth.
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C
Well, so the monopsony story is plausible, but there's actually a lot of controversy around it within the economics profession. In part because it's a little bit intention with some other findings suggesting that these superstar firms pay a lot more. Right. So like you want to work for a Google, you want to work for a company that does have a lot more.
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A
Sure. But no one wants to work in an Amazon warehouse. That's not. I mean it's a superstar firm. But there's a big difference between working in a warehouse and working in a.
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C
But my point is that the monopsony story is basically conditioned on this idea that there are firms that have a lot of market power and they are using it to hold down wages, but the firms that have at least product market power tend to pay more. So I think it's. We don't really know.
- [19:54]
B
I agree with you and it certainly is complicated. I think it is certainly true that a lot of the highest paying jobs now are in very concentrated markets. But I think there's a slight difference between concentrated markets and cities in regions where you have very few employers.
- [20:13]
A
And then, and then the other Thing, of course, is that the highest paying jobs, if we're talking about the Google jobs and that kind of stuff, are increasingly being compensated with equity rather than cash. And that makes it almost impossible to determine the share of profits going to labor versus capital, because it looks like a stock issuance. You know, it looks like capital.
- [20:39]
B
Well, also, if you're an employee, but you are paid primarily in stock options, then as your, the share price goes up, your, your portion of those earnings are also going up. So it is a bit more complicated.
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D
I think overall, the power of labor, not just labor unions, but just of workers, has declined a lot over the past few decades in terms of how much money you can expect to make and how much employers even need to pay you to have a job at this point. I mean, you just see a lot of good jobs, manufacturing jobs, other kinds of jobs being replaced by just less good jobs. You see all the teachers out there protesting, haven't seen a raise in forever, aren't making enough money anymore.
- [21:18]
C
Yeah, I mean, it certainly suggests that looking at what share of total national income is going to workers. But again, like the fact that we have really low unemployment should suggest that workers have a little more power. Maybe they're not banding together and bargaining en masse, but like they should have a little more power to ask for rates that we're not seeing it.
- [21:37]
A
Maybe they need to band together and bargain en masse. And maybe the fact that, you know, as you say, the decline of the unions basically says that a labor force divided is a labor force that doesn't really have that bargaining power.
- [21:51]
B
And it is hard now too, because you do have a lot of firms that if there is a tremendous amount of pressure to increase wages, that will incentivize firms to invest more in technology that could potentially eliminate employees. I mean, it's complicated because on the one hand, investing in technology to increase productivity can actually help wages, but it can also, on the other side, allow you to eliminate certain jobs.
- [22:12]
A
And I do think that basically over the past 30 or 40 years, it has now become standard corporate thinking in sort of C suites and at board level, that high wage bills are a bad thing and that ideally what you want to do is pay less in wages, and the less you pay your workers, the better you're running your company. And that's not how companies thought in the 1950s, and that's not how companies think in Germany. You know, it is a mindset.
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C
Well, I was gonna say related to that. You also see this, I think it's been called the fissuring of the workplace where employers want to have fewer people on their payrolls. They're contracting out a lot of labor. And there's some evidence to suggest that when this stuff gets contracted out, the wages go down. So, like, if you're a janitor who works for a big company, you're probably going to earn more than if you're a janitor who works for a subcontractor of a subcontractor of a contractor, especially if you are. You are yourself an independent contractor and you're exempted from, like, minimum wage laws. So this whole kind of breakdown of the employer employee relationship and what responsibility firms once felt like they had to having a robust workforce and what's good for General Motors is good for America. And I want to pay my workers more so that they can go out and buy cars. That whole philosophy has kind of disappeared.
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D
There was that wonderful piece in the Times, I think, last year. I think it was about Xerox where they showed this one person had been started as a janitor at Xerox and worked her way up to the executive position. And now, now Ursula Bentz, the CEO, Was it Ursula?
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A
I think so.
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B
Okay.
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D
And then, you know, now they just contract out for their janitors and they get paid, you know, whatever, 10, $15 an hour.
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B
And then.
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D
And that's it. Like the. The company hiring the contractors has no incentive to ever raise their wages. And these people just bounce around and their wages never go up. And I think that's.
- [24:15]
C
And you can't work your way up.
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D
You cannot work your way up. And people talk a lot about the gig economy, but I think the contracting out that employers are doing is really a much bigger and much more invisible kind of problem. Because when newspapers are covering businesses, they're not covering these contractor employers. They're not really examining the business at all. And they're kind of screwing over workers left and right. So that could be a problem, too.
- [24:42]
B
And partly also, it used to be that you didn't need a higher level of education in order to work your way up in a way that now you do. One thing I will say, just as a little bit of a pushback, is that I don't think it's that CFOs are saying, we want to keep wages as low as humanly possible. People understand that if you want to maintain good talent, if you want to reduce costs in other areas, you do need to keep your. Your workers happy to a certain extent. But having said that, on the other side, and I know people may not like this, but if you're analyzing a company, you're going to have lower cash flows if you have higher employment costs and that is going to affect how your company is valued. And that is simply. If you're a public company, that is simply a reality that you also have to consider.
- [25:33]
A
Right, exactly. The CEO wants to maximize the share price. And this is something which is, is new in recent decades. Like it was not always that way.
- [25:45]
B
Right. And my last. Sorry, this is my last thing. I just is Germany. Because I feel like Germany is, is often brought up as this place that has this like strong manufacturing economy. But what people often don't look at is part of the reason they have that is because the unions in Germany have kept wages low. The union, there's strong unions but they have kept wages low so that the companies won't leave to go to cheaper EU areas. That's part of the reason that the standard of. And Germany hasn't increased us at the rate as one would have thought, because wages have actually remained low.
- [26:19]
A
I feel like we need a Germany segment because the German economy is.
- [26:23]
B
We totally should. I would actually love to do.
- [26:25]
A
Really fascinating. I want to talk about.
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C
They've had huge labor reforms.
- [26:29]
A
Yeah, I want to talk about the labor reforms in Germany. I want to talk about the way the unions have board representation. I want to talk about the homeownership situation so much. Yeah. We're going to have, have a Deutschland episode. We need to find if you're listening and you know, the best possible person for us to bring on who's a Germany expert, let us know slatemoneylate.com and we'll try and get that person on and, and examine one of the more important economies in the world. Let's stick with taxes. I feel like this is going to be a whole tax themed episode. But let's talk a little bit about the tax free part of the economy because there's no bigger tax cut than just not paying any taxes at all. And I just put this project up on Slate. Well, it wasn't just me, there was a lot of people involved in this. And what we did is we looked at one part of the tax free economy. There are many, many parts. There are foundations, there are credit unions, there are lots of bits of the tax free economy which don't file these things called Form 990s. But there's also this part of the tax free economy which does, which people generally think of as charities, you know, the Red Cross, that kind of thing. And so we looked at who the biggest ones were by revenues. And it turns out that the biggest charities by revenues are not the biggest charities that you think of as the places which people donate a lot of money to. There's sports organizations. There's a lot of weird pharmaceutical things going on. There's the Battelle Research Institute. There's the Partnership for Supply Chain Management. There's Ducks Unlimited. There's of course, lots and lots and lots and lots and lots of hospitals and universities. And you look down the list and you're like, wow, none of these organizations pay taxes. Is that fair?
- [28:36]
B
And this really is a very fascinating series because you have things like the Big Ten or. I think there was an article about how.
- [28:44]
A
And that's a sports organization.
- [28:46]
B
Yes. That has.
- [28:48]
C
Advancing the public good.
- [28:49]
B
Yeah, exactly. The Big Ten that I think has 14 teams in it now. So.
- [28:53]
A
Well, what sports is that?
- [28:54]
B
It's college sports. So it's actually a number of different sports.
- [28:57]
A
Oh, okay. I know nothing.
- [29:02]
B
So the Big Ten organization brings in quite a bit of money in revenues and then they distribute it to the different organizations. And a lot of the teams actually don't make money. And the teams that do don't make a ton. But the reason they don't actually make a ton in terms of, like, profits is because they spend so much money on coaches and facilities. And this raises the question, should taxpayer dollars be used to subsidize football coaches?
- [29:32]
D
No, absolutely not. The whole package was outrageous, I thought. I mean, the Big Ten, the NCAA should not be making millions and millions and millions and millions of dollars.
- [29:43]
A
Billions.
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D
Billions of dollars tax free to entertain people while the players themselves don't get anything. I mean, I guess they get sch. But if they get injured or. I mean, these are not amateur sports.
- [29:57]
A
And this is in general. I wonder why we are spending. If you add up the total tax, for one thing, it's actually almost impossible to add up the total tax expenditures involved in the nonprofit sector. No one has. It's basically impossible, for instance, to work out how much property tax would Harvard University pay were it to pay property tax or the University of Pittsburgh Medical center or something like that. So it's not like when people think of the tax expenditures, they think, first of all of the charitable deduction. They're like, if I give money to charity, then I get to deduct that from my tax return, and that's part of it. And it's a multi billion dollar tax expenditure that the American government makes every year. But. But I kind of get the feeling that that pales in comparison to some of the other tax expenditures, especially at the local level, which people just don't see at all.
- [30:51]
C
Well, I think some of these schools do like a voluntary pilot, it's called.
- [30:56]
A
What'S it called, Payments in lieu of taxes pilot. Some of them do it, not all of them.
- [31:00]
C
Some of them do it. And I'm sure it's way less than whatever they would have to pay if they were not a. Not for profit.
- [31:06]
D
I mean, Harvard Business School, does that really need to be a non profit institution? My idea is that like a charity benefits soc writ large or some portion of society that really needs help that they're not getting through the tax system. But this is like a lot of money that could be paid in taxes that would actually benefit so many more people than Harvard Business School.
- [31:30]
A
Yeah, I really want to hear Anna, Anna's defense of the nonprofit status of Harvard Business School. Bring it, Anna.
- [31:37]
B
Okay, so my argument is going to be that Harvard Business School, like a number of educational institutions actually would not be very profitable at all if all they were doing was MBA programs. They're just, they're what they're known for their MBA programs, where they actually make money is in executive education that actually essentially funds and through. They have a publishing arm that's very lucrative. And then that publishing arm actually then funds the, the academic research that they have. So I do think that, I think that what Harvard Business School does, I mean, you may disagree with me, but I do think it serves a public good. I think what a lot of universities do serves a public good. Do I think that there should be no oversight about how essentially taxpayer dollars in many in a way are being spent? No. I mean I think that there are, there are serious issues here, but I don't think the answer should be all of these university should just be entirely taxed the same way.
- [32:39]
A
Hang on, let's, let's unpack this a little bit. We agree that most of the money that Harvard Business School makes is made in things like executive education and publishing. And executive education and publishing are both industries where there's lots of for profit activity. And there's no particular reason why Harvard Business School should be able to do those things with the artificial advantage of being a nonprofit.
- [33:03]
B
See, this is where actually Jordan wrote an article about this that I actually think was good because one of the things he pointed out that was interesting is that it does seem like the publishing wing of Harvard Business School should be taxed the same way any other publishing company should be. However, the money from the publishing company is used to pay for research as opposed to other institutions that essentially are using taxpayer dollars to fund academic research that is then sold to the public or sold to students through for profit institutions that are basically, you know, providing no value whatsoever, which isn't necessarily a good system either. So I feel like when you do have profits being put back into the institution, it makes it a little bit more complicated.
- [33:52]
D
I mean, I think you said in your introduction, it's basically so much of these organizations just rich people giving back to their, the places where they go so they can have their name on a thing. So when their friends come, they could see their name on the thing.
- [34:05]
C
Like yeah, well, most donations do not are not sufficiently large to get naming opportunities. So I'm not sure about that.
- [34:12]
A
But I, but there is, there is definitely a tendency, if you looked at. So the slate 90 is a successor to the slate 60, which was this series that Slate had for many years where they looked at the biggest donation individual donations in America. And what they found over the years of the slate 60s was that rich people essentially wind up giving to rich people things. And so they give money to their alma mater, which has lots of money. They give money to, I know, the Metropolitan Museum where they love to wander in and look at the Velasquez or the opera or the Central Park Conservancy or even to the very expensive hospital on the Upper east side where they're going to go when they get sick. And there's again that feeling of the money sadness. The rich people money stays in the rich people neighborhoods. And it's not clear why the tax code should encourage that.
- [35:07]
B
And I'll definitely agree with that. I mean, I am not going to tell anyone how they should spend their money. But it does seem like if you're trying to do the most good with your money, it's probably not going to be served by giving to these institutions.
- [35:20]
A
And there's no reason why taxpayers in Wisconsin should be subsidizing this, which is essentially what they are doing every time one of these gifts is made. One third of that gift basically comes from normal taxpayers, middle class taxpayers in the form of a tax expenditure.
- [35:39]
C
Well, and middle class people are giving money to other tax exempt organizations like churches. And then there's a question about.
- [35:47]
A
And that isn't a tax expenditure that's really interesting is that that normal middle class Americans are extremely charitable, more charitable in fact, than the richer. And they give a huge amount to churches and they're very generous to other charities as well. And almost none of that gets deducted. So almost none of that is tax free.
- [36:07]
B
Right. And that's because most people don't itemize their deductions, which is. Now you could say this could be one positive thing of the tax reform law is that because they've increased the standard deduction, you're actually going to have. Have fewer people who are going to have charitable deductions. So if you're not, if you're not in favor of the charitable deduction having a higher standard deduction, you would probably like.
- [36:28]
C
Well, that's, that's why a lot of nonprofit organizations were freaking out about the new tax law.
- [36:33]
B
Yeah. So unless you have a large mortgage, you're probably not going to be itemizing.
- [36:38]
A
But this doesn't affect the very many nonprofits who we're talking about here, who, most of whose revenues do not come from donations. And that's the thing which I just find incredibly difficult to get my head around, is that if you're, you know, these places which are getting revenues from like, not donations from things like publishing Harvard Business Review or from selling television rights to basketball games or something, or.
- [37:06]
C
From patients and insurance companies.
- [37:08]
A
Oh, exactly. Or for charging millions of dollars for pharmaceuticals, then like, at that point, do we really need to subsidize that with the tax code? That seems to be weird.
- [37:19]
D
Is there another way where it's not that they're totally tax exempt, but they're paying taxes on certain things? Like, is there a way to rejigger the tax code to make it not like they're public companies, but some, some in between kind of situation to any other countries have a different.
- [37:33]
C
I think actually we do that. I think that there are certain activities that fulfill your tax exempt purpose and some that don't. And I, I'm not an expert on.
- [37:40]
A
This, but I think that it's a highly complex part of the tax code. And obviously what's happened over the decades since the income tax was introduced in 1913 is that legislators, accountants and whatnot have just spent a huge amount of effort to try and move as much economic activity into the tax exempt sector as possible because that saves them money. And trying to reverse that is really hard.
- [38:06]
B
Yeah, trying to run against charities is hard.
- [38:09]
C
Yeah.
- [38:11]
A
Okay, let's have a numbers. Let's have a numbers round. I feel like this is going to be a fun one. Catherine, you are the very special guest, so you get to go first.
- [38:21]
C
The specialist guest.
- [38:23]
A
The specialist guest.
- [38:25]
C
So My number is 60.2. And that.
- [38:29]
A
Is that a percentage? It sounds like a percentage.
- [38:32]
C
It is the number of babies born to every 1,000 women of childbearing age in 2017. And that number 60.2 out of a thousand.
- [38:46]
A
So that's 6.2%, basically, if you were to do it as a percentage.
- [38:51]
C
Is that right?
- [38:53]
A
Oh, 6.02%. Yeah. There you go. So every 1,000 women of childbearing age have 60 babies.
- [39:03]
C
Yeah. Last year, which is significant because it's the lowest fertility rate on record.
- [39:08]
B
I'm curious, does that partly relate to the restrictions on immigration?
- [39:14]
C
Well, if you look at. Within each ethnic and racial group, the fertility rate is also going down. So some of it is possibly compositional. I don't actually know, but. But even within group, birth rates are going down. And actually they've gone down more for, I believe, Hispanics and black women.
- [39:36]
D
Drastic for Hispanics.
- [39:37]
B
Yeah.
- [39:37]
A
And yet it's still much, much higher than the equivalent number in, say, Italy or Ireland or Spain.
- [39:43]
C
Well, we're both. I believe we're below replacement rate right now. Those other countries have been.
- [39:47]
A
They've been below replacement rate for a very long time.
- [39:50]
C
Yeah, yeah.
- [39:51]
A
So now. So while Japan and Italy and Portugal have been below replacement rate for ages, one of the advantages that the United States has had in the global economy is it's had this growing population both in terms of women having babies and also in terms of immigration. And now both of those components are falling.
- [40:16]
C
Yeah. This creates major long term structural problems for the economy. Right. Because you have an aging population, which means a larger share of people who are not working relative to the people who are working, who have to pay for the benefits of the people who are not working. So. Yeah, in the long term, this is a really big problem. You know, there are some good things that you could read into these numbers, including that birth rates for teenagers have gone way down. We probably don't want teenagers having a lot of kids, so that's a good thing. But in terms of, like, women in their twenties, the fact that their birth rates are falling is somewhat concerning.
- [40:53]
A
Emily.
- [40:54]
D
I also have a percentage. It's 94. That's the percentage of school teachers who pay for supplies out of their own pocket, according to a report I think that came out earlier this week. And it's just another sign of what we were talking about.
- [41:07]
A
And the median amount is like 300 bucks, something like that.
- [41:10]
D
Yeah, it varies between 300 and about a thousand dollars. And it's teachers in all different kinds of schools. So it's not just confined to, you know, schools that are struggling. It's everywhere.
- [41:21]
A
And as we have seen from all the teachers out on strike. These are very underpaid teachers.
- [41:26]
D
These are very underpaid teachers to the point where now I think there was a story recently about schools that are looking abroad for teachers now hiring from other countries because they'll take those workers, will take less pay rather than raise pay. They import the workers.
- [41:43]
B
Yeah. And a lot of this is because you have Republican governors or legislatures that have just dramatically cut taxes. And so they are not spending anything on education.
- [41:56]
D
So no wonder no one wants to have a kid.
- [42:00]
A
My number is talking about kids and education. I have a segue here. My number is $3,000. If you have a high schooler and you worry that your high schooler is not particularly financially literate, then you can send your high schooler to Whitney Tilson's one week financial literacy course. And this one week financial literary literacy course, run by Whitney Tilson, who's a failed hedge fund manager, will cost you $3,000.
- [42:33]
C
Do you learn at the end were not worth it?
- [42:36]
A
The joker on Twitter was basically, you only passed this test by not taking the course in the first place.
- [42:45]
B
Your final exam is getting a refund.
- [42:48]
A
But I mean, there is a broader thing here. I mean, quite beyond Whitney Tilson trying to reinvent himself as an educator is this idea of financial literacy being something which can be taught or should be taught, and that somehow we will all be much better off if only we take some kind of financial literacy course. People have studied this over and over and over again, and there is no evidence that being taught financial literacy helps outcomes in any measurable way. And in fact, sometimes, often it makes it worse because you just get people who feel, who think that they know this stuff even though they really don't.
- [43:24]
B
So I know Felix is not going to like my number. It's $11 million. So that's the amount of money that that hedge funds have given to the Robin Hood foundation that has then been given to different organizations that protest hedge funds. And so there was this Wall Street Journal piece, and there's not a lot of there there to this piece. I just thought it was kind of funny that, you know, the Robin Hood foundation is kind of like the philanthropic wing of the hedge fund community, but a number of the organizations that they support are using this money to then. It's like the hedge clippers to then go and protest hedge funds.
- [44:06]
A
Well, I mean, you can do anything with the fungibility of money. The idea that they're using the Robin Hood money to protest the hedge funds is basically false. That the Robin Hood money is going to very specific programs which do not involve protesting hedge funds.
- [44:21]
C
Right.
- [44:21]
B
But because they can spend the money, because they don't have to spend the money on those programs, they now have more money to spend on protesting hedge funds.
- [44:28]
A
Perhaps. Catherine, you were at the Robin Hood gala. Denny, you got to see JLo.
- [44:33]
C
Well, that part was off the record. I was told I could go to the JLO concert as long as it was off the record, But I don't know. You've outed me. I don't know if I'm gonna get in trouble. There were like 4,000 people there recording the. The event and putting it on Facebook, so. Not exactly.
- [44:48]
A
I have. I have a piece about gala dinners if you want to read it, as part of the Slate 90 package. They are ridiculous boondoggles. But weirdly, I do believe that in some cases, and I think Robin Hood is one of those cases, they do genuinely raise money that would not be donated to these organizations otherwise.
- [45:09]
C
They do a lot of projects around New York City.
- [45:12]
A
But the question isn't so much, does Robin Hood do good things? It's more if they just went to the people who attended the gala dinner and asked them to donate to Robin Hood, would those people give nearly as much money as they do if they.
- [45:26]
C
If they didn't get to see Oprah and a Rod and John McEnroe and all of the other leading lights who were there? Yeah, I mean, probably not. I think that's the function of these galas. It's to give people some motivation to donate money to organizations that they might not otherwise be interested or whatever in getting an involvement in. But because they get to buy a ticket and go to the. This glitzy event and see all these celebrities and take photos of the off the Record concert that I did not attend. And it's like conspicuous consumption, but for donations is sort of how I would think about it.
- [46:08]
A
On which note, I think we shall round this episode up to a close. Down to a close. Round to a close. Anyway, on which note, we shall bring this episode to an end. Katherine Rampel, thank you for coming on.
- [46:23]
C
Anytime.
- [46:23]
A
Brilliant. I feel educated now on the tax code. I'm sure the feeling will pass. Okay, we're going to do a very. We're going to do an amazing quick thing about Broadway economics. Because the one thing that Catherine knows more about than anything else is not actually the tax code. It's Broadway. So I'm going to have a quick thing about Broadway. If you listen to Slate plus listen to us talk about Broadway, otherwise, send us an email slatemoneylate.com and thank Dan Schrader for being an awesome producer. He really loves those emails so much. Thank you for listening and we'll talk to you next week on Slate Money. Sam.