Pod pick: Tough truths about the U.S. tax system

During this recent tax season, several podcasts I follow produced episodes about the U.S. tax system. While many—especially the late filers—might understandably want a break from tax talk, I actually find taxation to be a useful lens through which to view our society's priorities and dysfunctions. The first podcast fits into current conversations in progressive politics about accelerating inequality and a proposed wealth tax in California. The second focuses more on the exploding deficit and how politicians have shaded the truth when it comes to taxes.

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In his episode of his Plain English podcast called "America's Tax System is Broken," Derek Thompson interviews Gabriel Zucman, an economist who studies tax inequality. The conversation starts with a look at what share of their income Americans pay (Zucman says this includes all taxes, including payroll tax, sales tax, property tax, etc.). This is the rough breakdown:

Working class (0 to 50th percentile)	~27–28%
Middle class (50th to 90th percentile)	~30%
Top 10% (minus the super rich)	~32–33%
Top 0.1%	~23–24%

The number for the top 0.1% was closer to 60–70% as recently as the 1950s. Zucman says the explanation is lower corporate tax rates (and higher rates of corporate tax avoidance) and changes in the estate tax, especially more exemptions and non-enforcement.

The roughly 1,000 billionaires in the United States pay a lower effective tax rate than people in lower income groups mainly because their wealth is derived from ownership of stock. It's not uncommon for CEOs of giant companies to draw salaries of less than $100,000. The uberwealthy fund their lifestyles by taking out loans using their immense stock wealth as collateral. Changes to the estate tax (as recently as the 2024 One Big Beautiful Bill Act, where the exemption rose to $15 million and $30 million per married couple) mean that more wealth than ever will be transferred to the heirs of the wealthy without being exposed to the estate tax.

Over the course of the interview, Zucman answers some questions about wealth taxes. Past wealth taxes, especially in Europe, have failed due to generous exemptions and the tendency of the wealthy to decamp to a country with lower taxes. He also explained some interesting details about the proposed wealth tax in California. The proposal is a one-time 5% tax on billionaires who were residents of California in January 2026. Proponents argue that the tax could raise enough money to offset federal changes to Medicaid expected to cost California around $30 billion. Opponents argue that cash-poor residents will struggle to pay (a dubious argument since the tax only applies to those with $1 billion or more in wealth). At the rate that billionaire wealth has been growing in the last four decades—about 10% per year—a one-time 5% tax seems like it wouldn't so much as dent their wealth as slow its growth for a short period. A federal wealth tax law would most likely be ruled unconstitutional, but a successful wealth tax in California could lead to similar proposals in other states, much in the way states experimented with income taxes prior to the 16th Amendment. Zucman points to the exploding wealth of the super rich and the widening gaps in the income spectrum as reasons for action. The interview included a few incredible stats:

• Billionaires together own about 7% of all U.S. wealth (this was less than 1% in the 1980s).

• The wealth of the 19 wealthiest households in the U.S. (0.00001% of the population) is three times what it was during the Gilded Age. Their wealth is about 10% of U.S. GDP.

• The 100 richest Americans account for about 10% of all election spending.

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In an April episode of the Freakonomics podcast called "Ten Myths About the U.S. Tax System," Stephen Dubner interviews tax-policy expert Jessica Riedl. Riedl admits that she has few friends in Washington because she is relentless in her critique of politicians across the political spectrum who she says continuously lie about taxes and the national debt. The latter is definitely more of a focus of this podcast, and Riedl explains the staggering scale of the national debt, including trillions of dollars added most recently under Biden and during both the first and current Trump administrations. The national debt is now almost $40 trillion and payment of interest on that debt is now the federal government's second largest expense, surpassed only by Social Security.

Riedl explains that tax cuts don't pay for themselves and don't "starve the beast" (shrink government) as Republicans like to claim. Instead, tax cuts are correlated with higher government spending. Riedl also points out the flaws in typical Democratic talking points, explaining that the U.S. tax system is already more progressive than many around the world (Zucman also mentioned this surprising fact) and that balancing the budget by solely taxing the wealthy is not feasible. She claims that if every penny of wealth were seized from every American billionaire, it would fund the operations of the U.S. government for eight months. Even a 100% tax on all earnings greater than $500k (if such a thing were possible), would not balance the federal budget.

As the conversation shifts to drags on the U.S. budget, Riedl explains that Americans have deep misconceptions about Social Security and Medicare. Social Security is not self-funding: todays seniors are getting much more out of these programs than they contributed. For example, it's not uncommon for a multi-millionaire retiree to draw $60k annually from Social Security. The average senior is getting triple the monetary value in medical care that what they paid into the program through payroll taxes. For these reasons, discussions about balancing the budget or reducing the national debt are absurd without drastic changes to entitlement programs. Surprisingly, the federal budget is actually relatively balanced over the next 30 years without accounting for Social Security and Medicare. As it stands, these programs will add about $124 trillion to the national debt over that period.

Riedl offers her own accounting of how taxes are paid across the spectrum of earners. Unlike Zucman, she doesn't present her data in terms of tax paid as a proportion of income. She claims that collectively, the bottom 40% of earners actually pay a negative income tax when including all deductions such as the earned income tax credit. She points out that middle class earners pay much more elsewhere in the world, such as in Europe, where a value added tax (VAT) is mostly a tax on consumers. These are the sorts of taxes that Riedl favors as an actual fix for the budget deficit, together with an overhaul of Social Security (new taxes, a higher age to claim benefits, and means-testing).

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Both these podcasts are worth a listen if you are curious about wealth and how our government taxes it (or doesn't). For other explanations of some of these same ideas, I really liked this episode of the Ezra Klein Show. And if you are curious about corporate taxes (and why maybe we shouldn't have them at all), this opinion piece by Megan McArdle was good as well.

All this analysis and commentary raises the question: is it possible to change any of this? As Riedl points out, modern politicians seem intent on lying to voters about matters of taxation and promising them an easy solution (with a bogyman too of course). Meanwhile, the wealthiest Americans have completely captured the political system and live under a different taxation regime than the rest of us.

How can we elect representatives that have the will to control exploding wealth inequality? What eventual calamity will force the demos to face the problem of the national debt? Whatever the answers, a basic understanding of the facts is a reasonable place to start.