All about taxes: The policies everyone loves to hate

There’s no doubt that Walter White is a horrible role model. As the main character from the popular crime drama “Breaking Bad,” he embodied a teacher-turned-drug lord bent on evading Uncle Sam – and all authority.

But at the SIEPR Fall Policy Forum on taxes, White was held up as the perfect illustration for why tax and economic policies fail most workers: His job teaching high school chemistry wasn’t sufficiently valued.

“Taxation is not only a way of raising revenue,” said Michael Sandel, the forum’s keynote speaker and a Harvard professor whose insights into the interplay of justice, ethics, democracy and markets have a worldwide following. “It is also a way of expressing a society’s judgment about what counts as a valuable contribution to the common good.”

Tax policies, he said, ignore the importance of “dignity of work” and of production over consumption in the economy. Policies, for instance, give Wall Street financiers and Las Vegas casino moguls advantages that workers like teachers and nurses — those who provide significant value to society — don’t get.

This imbalance, he said, is fueling political and economic divisions. To address them, policymakers need to fundamentally rethink priorities, Sandel argued in a keynote that capped a day of discussions on the nitty-gritty realities of tax policies. "This means renewing the dignity of work (in) our public discourse and in our way of thinking about economic policy."

Sandel’s case wasn’t the only provocative argument made during the Fall Policy Forum, held annually by the Stanford Institute for Economic Policy Research (SIEPR). Titled “Tax Policies for a Freer and Fairer Country,” the event on Oct. 27 featured leading experts on individual and corporate taxation nationally, internationally and in California. As one of the world’s largest economies, the Golden State has become an important research priority at SIEPR.

“Tax policy touches the lives of every single American and every U.S. business,” Mark Duggan, the Trione Director of SIEPR and the Wayne and Jodi Cooperman Professor of Economics, said in his opening remarks before an audience of some 200 policymakers, business leaders, academics and other SIEPR community members.

He added that tax policies signify much more than payments made and benefits received. “(They) affect both the efficiency of the economy and its equity,” said Duggan, who is also a professor of economics in Stanford's School of Humanities and Sciences. “There’s arguably no greater issue when it comes to short- and long-term economic policymaking than taxes.”

Watch the keynote and panel discussions. Read the newly released SIEPR policy brief on taxation.

Creative ideas, contrary opinions

The event took place amid renewed debates about tax policies at home and abroad. In August, Congress passed the Inflation Reduction Act, whose tax provisions include a corporate alternative minimum tax on some of the country’s largest businesses. Last year, the United States and 135 other countries agreed to a sweeping overhaul of international tax law in the hopes of cracking down on corporate tax havens. In Britain, Liz Truss lasted six weeks as prime minister because of opposition to her efforts to stimulate economic growth through aggressive tax cutting.

And on Election Day Nov. 8, California voters are poised to weigh in on a ballot measure that would raise taxes on the state’s highest earners to support investments in renewable energy.

Against this backdrop, speakers were both philosophical and pragmatic when addressing the policies that they think make the right trade-offs between fairness and efficiency. Among the ideas explored were a carbon tax and a systemic shift to taxing consumption instead of income.

“It’s easy for us to think about efficiency,” said Tyler Goodspeed, a former acting chairman of the Council of Economic Advisers under President Trump and a Hoover Institution fellow who called for fully eliminating deductions for state and local taxes and interest paid on mortgages. “It’s harder when it comes to tax fairness.”

Joshua Rauh, a SIEPR senior fellow and Stanford Graduate School of Business professor, detailed his research quantifying the extent to which increasing tax burdens on California’s wealthiest residents is driving more of them to move out of state. If their income taxes continue to rise, there’s reason to think more will leave. “I’m somewhat skeptical of further increases in income tax rates to generate much in the way of additional revenue,” Rauh said.

Kimberly Clausing, a UCLA law professor who oversaw tax analysis in the U.S. Department of Treasury early in the Biden administration, said the federal government needs to generate more tax revenues and should do that by raising taxes on investment income — and without adding to the disproportionate tax burden workers already shoulder.

But Scott Hodge, senior policy advisor at the Tax Foundation, said the problem with taxes on individuals isn’t that the rich should pay more, but that taxes should be more evenly distributed. More than a third of taxpayers, he said, don’t owe federal income tax and that’s because the tax code has become a vehicle for solving social ills.

“Supporting a wealth tax on (Amazon founder) Jeff Bezos,” Hodge said, “is not going to raise the income of a kid who graduates from San Francisco public schools with the inability to read and do math.”

Meanwhile, Alan Auerbach, a UC-Berkeley economist known for his influential research on the connection between tax rates and economic growth, took aim at last year’s global agreement calling for a 15 percent minimum corporate tax rate and taxation based on where customers are — not where businesses are located.

It introduces too many complications and is unlikely to succeed, Auerbach said. Making sure that Google, Facebook and other multinational firms pay their fair share is the right idea, but relying on international cooperation is the wrong way to go about it.

“Taxes based on where users are is something countries can do on their own and benefit from without having to engage in very difficult-to-achieve international agreements,” Auerbach said.

The importance of tax policy research

A key theme, raised in the SIEPR policy brief and echoed at the forum, is the importance of academic research in understanding whether tax policies are working as intended and whether they are harming taxpayers in ways policymakers and economic modeling don’t foresee.

Mark Wolfson, founder and managing partner at Jasper Ridge Partners and a former professor and senior associate dean at Stanford GSB, made the point while moderating a session on individual taxation. “There’s an important distinction that has to be kept in mind,” he said, when thinking about tax policy in theory and tax policy in practice.

By way of example, Goodspeed pointed to how Congressional Budget Office estimates had suggested that the 2017 Tax Cuts and Jobs Act was fundamentally unfair to everyone but the wealthiest taxpayers. Within two years, however, GDP and job growth had exceeded projections while the unemployment rate declined more than expected. What’s more, wealth grew at a faster pace for lower-income households than it did for the richest Americans.

Turns out, “(the law) wasn’t much of a trade-off between fairness and efficiency,” Goodspeed argued.

Emphasizing the role of research in shaping tax policy, Juan Carlos Suarez Serrato, a former SIEPR postdoctoral fellow who is now a professor at Duke University, made two predictions for what comes next in the evolving tax landscape.

“Economic policy research is going to have higher value in the future,” he said. And “accountants are going to be fully employed.”

In the meantime, students from an economic policy class who attended the event keynote said afterward that they were inspired by the thought-provoking discussion and the underlying frameworks with which to consider the government’s policymaking role.

“I was excited to see economists in positions of influence leading such meaningful dialogue around how we can improve tax policy,” said Joaquin Garcia, a senior majoring in economics.

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Other featured speakers at the event were Gabriel Petek, California Legislative Analyst; Marcus Heyland, a managing director at KPMG; and Michael Coleman, principal fiscal policy advisor to the League of California Cities. In addition to Duggan and Wolfson, session moderators were Gopi Shah Goda, deputy director and a senior fellow at SIEPR, and Rebecca Lester, a SIEPR faculty fellow and GSB associate professor.

"The panelists were amazing, and my mind is racing with all the questions that we were invited to contemplate. And your keynote speaker blew me away with how he was able to frame some of the toughest questions of our time into economic terms as a way to understand our differences." — Attendee Cari Templeton, District Representative for California State Sen. Josh Becker.