What if our income was taxed ... totally differently?

Summary

The Indicator from Planet Money Episode: What if our income was taxed ... totally differently? Release Date: February 24, 2025

NPR's "The Indicator from Planet Money" delves into three intriguing listener questions in this episode, exploring the stability of banana prices, the implications of a flat rate income tax, and the mechanics behind after-hours stock trading. Hosted by Robert Smith and Jareon Woods, the episode offers insightful discussions with experts, making complex economic concepts accessible and engaging for all listeners.

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1. The Unbothered Banana: Understanding Price Stability

Listener Question: Tiffany Green from [Location Redacted] asks, “Can we talk about how bananas stay so cheap no matter the time of year, despite inflated prices of other foods or weather disruptions?”

Discussion: Robert Smith introduces the question, setting the stage for an exploration into the resilience of banana prices. Waylon describes bananas as "a very unbothered fruit" (02:17), highlighting their stable market presence.

Expert Insight: Luis Ribera, a professor at Texas A&M University specializing in trade policies and agricultural production, provides a comprehensive explanation. He emphasizes that bananas benefit from being a low input, high yield product, allowing producers to maintain volume-based profits rather than relying on high per-unit margins. This model affords bananas a buffer against market fluctuations.

Key Points:

• Low Input, High Yield: Banana farming is streamlined, reducing production costs and increasing output.
• High Volume Sales: Farmers prioritize selling large quantities, ensuring steady revenue despite low per-unit prices.
• Supply Chain Efficiency: Bananas are less perishable and less seasonal compared to other fruits like berries, contributing to their price stability.
• Market Resilience: These factors collectively make bananas "unbothered" by the economic pressures that affect other food prices (03:36).

Notable Quote: Waylon humorously refers to bananas as "the unbothered fruit. So poetic," underscoring the effortless way bananas maintain their market position (02:20).

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2. Flat Rate Income Tax: A Double-Edged Sword

Listener Question: Frank Rincon from Dallas, Texas, inquires, “My understanding is that a flat tax has a bigger effect on those making less money. But if the IRS were to go to a flat tax for individuals, what rate would everyone have to pay?” (04:29)

Discussion: Robert Smith acknowledges the prevalence of flat tax discussions, noting that six states, including Arizona and Louisiana, have adopted flat income tax systems (05:08). He explains the current federal progressive tax system, where tax rates increase with income, contrasting it with the proposed flat rate model.

Expert Insight: The conversation references a proposal by the nonprofit Tax Foundation, which advocates for a 20% flat tax rate (06:08). This proposal aims to simplify the tax code by eliminating major credits and deductions, thereby broadening the tax base and potentially increasing revenue from higher-income individuals.

Key Points:

• Progressive vs. Flat Tax: The current system taxes higher incomes at higher rates, whereas a flat tax applies a single rate to all income levels.
• Revenue Implications: Proponents argue that a flat tax could increase overall tax revenue by closing loopholes and limiting deductions, especially targeting the super wealthy.
• Economic Impact: The Tax Foundation suggests that a flat tax could boost the labor supply, GDP, and wages over the next decade (06:38).
• Public Reception: Flat tax proposals often face criticism, with some labeling them as “class warfare” due to their regressive impact on lower-income households and potential benefits for the wealthy (06:46).

Notable Quote: Robert Smith encapsulates the controversy by stating, “Someone called a flat rate income tax class warfare, a roundabout way of reducing the tax burden for higher income households while taking away incentives” (06:46).

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3. After-Hours Stock Trading: Navigating the Extended Market

Listener Question: Benjamin Gray from Denver, Colorado, asks, “Can I, as a normal runner, trade after hours? Why do prices after hours sometimes move with seemingly more volatility than during trading hours?” (07:12)

Discussion: Jareon Woods outlines the standard operating hours of major U.S. stock markets, such as the NYSE and Nasdaq, which run from 9:30 AM to 4:00 PM Eastern Time (07:05). The structure ensures an even playing field where all participants have access to the same information simultaneously.

Expert Insight: Ben Johnson from Morningstar explains that after-hours trading persists due to demand, much like niche products that survive because consumers want them. He analogizes after-hours trading to products like “Wendy's Spicy Chicken Sandwich Pringles,” highlighting its existence stems from user demand rather than market necessity (08:12).

Key Points:

• Liquidity Concerns: After-hours trading suffers from lower liquidity, meaning fewer buyers and sellers are active. This can lead to greater price volatility as trades are executed with less market depth (08:49).
• Price Volatility: With fewer participants, prices can swing more dramatically in response to trades, as there isn’t enough buying and selling activity to stabilize them (09:10).
• Extended Trading Platforms: Platforms like Robinhood and Charles Schwab have expanded trading hours to 24 hours Monday through Friday, creating alternative markets outside traditional trading times (09:43).
• Market Approval Efforts: The NYSE is seeking approval to extend its trading hours to 22 hours a day, reflecting a growing interest in accommodating diverse trading preferences (09:43).

Notable Quote: Robert Smith humorously downplays the necessity of after-hours trading by comparing it to Pringles: “After hours stock trading is a thing for many of the same reasons that Wendy's Spicy Chicken Sandwich Pringles are a thing. It's not because they need to be a thing, but it's because there's demand” (08:12).

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Conclusion

In this episode of "The Indicator from Planet Money," hosts Robert Smith and Jareon Woods adeptly break down listener questions that touch on the nuances of agricultural economics, tax policy, and financial markets. Through expert insights and relatable analogies, the show demystifies complex economic phenomena, providing listeners with a deeper understanding of the economic forces that shape everyday life.

Key Takeaways:

• Banana Price Stability: Achieved through high-volume, low-cost production and efficient supply chains.
• Flat Rate Income Tax: Offers simplicity and potential revenue increases but poses challenges regarding fairness and economic incentives.
• After-Hours Trading: Driven by consumer demand but comes with increased volatility and reduced liquidity, leading to a fragmented trading environment.

Whether you're curious about why your favorite fruit remains affordable, contemplating tax reforms, or interested in the dynamics of stock trading beyond standard hours, this episode equips you with the knowledge to navigate and understand these economic intricacies.

For more insights and analyses, subscribe to "The Indicator from Planet Money" and join NPR weekday afternoons to stay informed about the big ideas shaping our world.

Transcript

[NPR]

Npr.

[Robert Smith]

Welcome to Listener Questions.

[Waylon]

Three listener questions, zero competition.

[Jareon Woods]

Rylan, that doesn't actually sound like an appealing pitch.

[Robert Smith]

Let me try. I can do this.

[Waylon]

Oh, hello. Robert Smith.

[Robert Smith]

Hello. How about this? Three listener questions all explained into your very ears.

[Jareon Woods]

Yeah, let's go with that.

[Robert Smith]

Yeah.

[Jareon Woods]

This is the indicator from Planet Money. I'm Jareon Woods. Today we answer your questions that you, the listeners, have sent in.

[Waylon]

We are taking on the resilient banana, a flat rate income tax and stock trading all night long.

[Jareon Woods]

All night long. That's all coming up after the break.

[NPR]

This message comes from Schwab at Schwab. How you invest is your choice, not theirs. That's why when it comes to managing your wealth, Schwab gives you more choices. You can invest and trade on your own, plus get advice and more comprehensive wealth solutions to help meet your unique needs. With award winning service, low costs and transparent advice, you can manage your wealth your way at Schwab. Visit schwab.com to learn more. This message comes from Capital One. With the Venture X card, earn unlimited double miles on everything you buy. Plus get premium benefits at a collection of hotels when booking through Capital One Travel. What's in your wallet? Terms apply [e-mail] this message comes from Charles Schwab.

[Robert Smith]

When it comes to managing your wealth, Schwab gives you more choices like full service, wealth management and advice when you need it. You can also invest on your own and trade on Think or swim. Visit schwab.com to learn more.

[Jareon Woods]

All right, Waylon, your question is up first. It comes from Tiffany Green.

[Waylon]

My question is about bananas.

[Robert Smith]

Can we talk about how they stay so cheap no matter the time of year, the crazy inflated prices of other foods or weather disruptions, it never seems to bother bananas.

[Waylon]

They're a very unbothered fruit.

[Robert Smith]

The unbothered fruit. So poetic.

[Waylon]

I know. It got me thinking, actually about the very dark history of banana cultivation and everything that has led to the banana being so cheap for American consumers today. So I took the unbothered fruit description to our expert, Luis Ribera, a professor at Texas A and M University.

[Jareon Woods]

Yeah, that's a very interesting way of putting it. But yes, you know, bananas, interesting.

[Waylon]

Luis works on trade policies impact on agricultural production, so he's familiar with this world. He says it really is true, bananas are both cheap and their prices barely move.

[Jareon Woods]

Yeah, I've often wondered how they keep banana prices so steady.

[Waylon]

Yeah, we've all seen food prices skyrocket since the pandemic started. Strawberries, you know, saw around a dollar increase per pound from 2020 to 2022. Then you look at bananas over that same period and. And their price spike was 6 cents.

[Robert Smith]

6 cents, pretty small. My fruit salad is 100% bananas. Now it's just a banana.

[Waylon]

Does that mean you're just eating a banana?

[Robert Smith]

It's just a banana.

[Waylon]

Louise says bananas have a bit of a buffer from market pressure. Banana buffer.

[Jareon Woods]

The way that banana production is, is very low input, high yield product. You'll be able to absorb more of those changes and not pass it down to the consumers as you have other products.

[Waylon]

For example, that high yield is important because banana farmers make their money more on volume than per unit. But Luis explains there are a lot of things in favor of keeping banana prices cheap and price resilient. Bananas aren't as perishable or expensive to produce as berries. They're less seasonal. So for all these reasons, the banana is, for now, are unbothered fruit.

[Robert Smith]

Unbothered fruit. Fruit.

[Jareon Woods]

I think there's a future for you in banana promotion, Robert.

[Robert Smith]

Love it.

[Jareon Woods]

Thank you, Waylon. Next up, we have a question for you, Mr. Robert Smith.

[Robert Smith]

Hi, my name is Frank Rincon from Dallas, Texas. My understanding is that a flat tax has a bigger effect on those making less money. But if the IRS were to go to a flat tax for individuals, what rate would everyone have to pay?

[Waylon]

Okay, I am really glad you're taking this on, Robert. We've actually gotten two emails about the possibility of a flat rate tax. People want to know.

[Robert Smith]

Yeah, it's been popping up lately. Six states, including Arizona and Louisiana, have decided to charge their income taxes through a flat rate, meaning only one tax rate is charged, whether you make, I don't know, $50,000 or $50 million.

[Jareon Woods]

And which of those two do you make?

[Robert Smith]

Robert, I am not legally allowed to tell you that. Anyway, when the federal government taxes my $50 million, I mean, whatever my income is, it's at a progressive rate right now. So people are charged more like me, the more money they make.

[Jareon Woods]

So under a flat tax, somebody on a lower income who's paying a minimal rate or even no federal tax at all will pay more. But people on the top bracket who are paying a higher rate will likely pay less.

[Robert Smith]

Yeah, and that's definitely true, but it is a mixed bag because ideally, when you have a flat tax, it'll bring in a lot more money from the super wealthy because it's closing loopholes and limiting deductions.

[Waylon]

Now, Robert, you mentioned a bunch of states that are taking on a flat income tax, but the listener is asking about the federal government. So is that even a conversation that's happening?

[Robert Smith]

Most recently it's come up through the nonprofit Tax foundation, who released a proposal on how it could work at a federal level, too.

[Jareon Woods]

And to our listener's question, did they come up with a number?

[Robert Smith]

They did. Drum roll, please. The Tax foundation calls for a 20% flat tax. Right now it's somewhere between 10 and 37%. But to make enough tax revenue, it's not just about the headline rate. The proposal would find new income to tax by eliminating some major credits and deductions. The nonprofit argues their plan would increase the labor supply, gdp, wages, while raising hundreds of billions of dollars in tax revenue over the next decade.

[Waylon]

All right, this all sounds a little too good to be true. The flat taxers, is there pushback?

[Robert Smith]

Yeah. Is there ever? I've read that someone called a flat rate income tax class warfare, a roundabout way of reducing the tax burden for higher income households while taking away incentives. It is hard to something this big in the American economy without a lot of people hating you.

[Waylon]

Okay, well, Frank Rincon, thank you for your question. Darian, you are up next with a question from Benjamin Gray from Denver, Colorado.

[Robert Smith]

My question for you is why is after hours stock trading a thing?

[NPR]

Can I, as a normal run of.

[Robert Smith]

The mill person, trade after hours? Why do prices after hours sometimes move with seemingly more volatility than during trading hours?

[Jareon Woods]

So let's start with the basics. US Stock markets like the New York Stock Exchange or the Nasdaq are open from 9:30am to 4pm Eastern Monday through Friday. And those hours are in place for a reason. It means that everybody in the US can trade on an even playing field.

[Waylon]

Yeah. It's like they all get the same business news and everyone goes to sleep at roughly the same time.

[Jareon Woods]

But if it's in the evening and you get a notion that you just have to buy some, I don't know, Home Depot shares, there is one way you can do that, which is extended hours trading. This trading happens electronically between a smaller number of traders earlier in the morning and further into the evening. Ben Johnson is with the investment services company Morningstar. And we asked why it became a thing.

[Robert Smith]

After hours stock trading is a thing for many of the same reasons that Wendy's Spicy Chicken Sandwich Pringles are a thing. It's not because they need to be a thing, but it's because there's demand.

[Waylon]

There's, that's a thing. Wendy's Spicy Chicken Sandwich Pringles, I haven't.

[Jareon Woods]

It's the first time learning about this.

[Waylon]

I have a different question. Let's answer this question instead.

[Robert Smith]

Do not answer this question.

[Jareon Woods]

I have not heard about these Pringles either. But going back to stock trading hours, it is a disadvantage to trade after hours. You have less liquidity for one thing.

[Robert Smith]

So Darian, I'm just going to hop in here to translate what less liquidity means, please. During the day there's so many people buying and selling stocks that if you want to sell a stock at $200.00 during the trading day, you are more likely to find someone willing to pay that price $200 because there are more people, more money, more liquidity.

[Jareon Woods]

Exactly. So the risk with after hours trading is that there would be less liquidity. If somebody wanted to sell the same stock after hours, the highest bid might only be $190. Morningstar's Ben Johnson explains that fewer traders means more Vol the normal trading day.

[Robert Smith]

After hours prices tend to be more erratic precisely because there's less trading, there's less buying and selling activity, and by extension there's sort of less informational content going into setting the prices.

[Jareon Woods]

Robin Hood, Charles Schwab and others have taken this extended hours concept one step further. 24 hour trading Monday through Friday. They kind of create their own market for when the real stock markets are closed. And also the New York Stock Exchange wants approval to extend its own hours to 22 hours a day.

[Waylon]

Thank you Ben for the question and also to Tiffany and Frank. If you have your own economics question, please email us. We [e-mail] this episode was produced by.

[Jareon Woods]

Cooper Katz McKim with engineering by Gilly Moon. It was fact teched by Sierra Juarez. Cake and Cannon edits the show and the indicator is production of npr.

[NPR]

This message comes from NPR sponsor Oracle Cloud Infrastructure. AI needs lots of speed and computing power, so how do you compete without cost? Spiraling Upgrade to Oracle Cloud Infrastructure OCI is the blazing fast and secure platform for your infrastructure, database, application development and AI workloads. Now till the end of March 31, 2020 five new US customers with a minimum financial commitment can cut their current cloud bill in half. See if your company [e-mail] NPR this message comes from Capella University. With Capella's Flexpath learning format, you can set your own deadlines and learn on your schedule. A different future is closer than you think with Capella University. Learn [e-mail] this message comes from Mint Mobile.

[Robert Smith]

Mint Mobile took what's wrong with wireless.

[NPR]

And made it right.

[Robert Smith]

They offer premium wireless plans for less and all plans include high speed data, unlimited talk and text, and nationwide coverage. See for yourself at mintmobile.

[NPR]

Com switch.