Bill Moyers
June 6, 2014
How Tax Reform Can Save the Middle Class

BILL MOYERS: This week on Moyers & Company…

JOSEPH E. STIGLITZ: It’s our policies and our politics that have shaped our economy, and shaped it in ways that have not served most Americans. And an important part of those policies are our tax policies.

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BILL MOYERS: Welcome. The Nobel Laureate Joseph Stiglitz says the situation in America is grave – that’s his exact word for it: grave. Inequality too great, unemployment too high, public investments too meager, corporations too greedy, and the tax code too biased toward the very rich.

Strong medicine from one of the world’s most influential thinkers – Stiglitz has been the economist most cited by his colleagues in the field. But don’t despair, he says; the barriers to solving our problems are political, not economic, and we can change what’s wrong, if enough of us insist. Our tax code, for example, wasn’t handed down from the gods on Mount Olympus; human beings devised it, and they can revise it, this time getting it right, as Stiglitz said on our broadcast last week:

JOSEPH E. STIGLITZ: We have a tax system that reflects not the interest of the middle. We have a tax system that reflects the interest of the one percent.

What I want to do is create a tax system that has incentives to create jobs. And if you tell a corporation, look it, if you don't create jobs, you're taking out of our system, you're not putting anything back, you're going to pay a high tax. But if you put back into our system by investing, then you can get your tax rate down.

They're willing to take but not to give back.

BILL MOYERS: So, argues Joseph Stiglitz, let’s change the tax code to make it fair. He shows us how in this new white paper prepared for the Roosevelt Institute here in New York: a clear, concise, and coherent plan to reform our tax system and rebuild our country. It’s his latest contribution to an extraordinary range of work that has earned Joseph Stiglitz a world-wide following that includes presidents, prime ministers, and grass-roots advocates working for justice. Joseph Stiglitz, welcome back.

JOSEPH E. STIGLITZ: Nice to be back.

BILL MOYERS: You said in a recent speech, “An economic system that only delivers for the very top is a failed economic system.” You were pronouncing judgment, America's economy has failed. Has our system failed?

JOSEPH E. STIGLITZ: Unfortunately that's what the numbers say. The median income of the American, median means half above, half below, median American today is lower than it was almost a quarter a century ago. Our economy has grown over the quarter century. Let's be clear about that.

In a particular sense, but all of that growth has gone to the top. So you look at the middle, they've stagnated. And if you look at, say, an important demographic group, males, median income of a full-time male worker today is lower than it was 40 years ago.

BILL MOYERS: 1972 I think you say--

JOSEPH E. STIGLITZ: That's right.

BILL MOYERS: --amazing.

JOSEPH E. STIGLITZ: It's amazing. And Americans have not yet grasped the reality of where we are. That our economic system has not been delivering for most Americans. And the fact that this has been true and that we have no longer a country where there's opportunity, where the life prospects of a young person are so dependent on the income and education of his parents means that our view of the way our economic system works has to change.

My view is that these are not inevitable. These are not just the result of the laws of economics. You know if it were just inevitable, just the laws of economics, you'd say, as an economist, you'd say, well, that's the way it is. You know, that's, nature didn't deal us a good hand.

But it's our policies and our politics that have shaped our economy, and shaped it in ways that have not served most Americans. And an important part of those policies are our tax policies.

BILL MOYERS: Can you fix a point where inequality becomes unconscionable?

JOSEPH E. STIGLITZ: And it's not just the level of equality; it's the form of inequality, the nature of inequality, the sources of inequality. So, the problem is that inequality of outcome typically translates into inequality of opportunity. America likes to think of itself as the land of opportunity, the American dream. The statistics show that America is among the advanced countries with the least equality of opportunity. Something that’s hard for us to accept, it's something hard for others to accept. But that's what the numbers show.

BILL MOYERS: So this is why Thomas Piketty in his book, “Capital in the Twenty-First Century,” is concerned about this enormous transfer of wealth that is about to happen from all the billionaires and multi-millionaires transferring their money to the next generation.

JOSEPH E. STIGLITZ: That's right. And a quite legitimate concern that we are creating a new plutocracy. And so what I've been trying to argue in this paper is that doesn't have to be. We can have a tax system that can help create a fairer society. Only ask the people at the top to pay their fair share. It's not asking a lot. It's just saying, you know, those in the top one percent shouldn't be paying a lower tax rate than somebody much further down the scale. Shouldn't have the opportunity to move his money offshore.

BILL MOYERS: Wouldn't they be arguing that, well, they pay a lot more taxes because they do make this money and why they shouldn't be able to keep as much as they have, are keeping after they paid their share.

JOSEPH E. STIGLITZ: Well, that's the problem. They haven't paid their share. The point is that they're getting, say, the top 1 percent gets 22.5 percent of the income. That doesn't really fully include all these unrealized capital gains. So, it really doesn't really capture the full degree of inequality. The question is because they are so wealthy, they have the ability to pay an even larger share of the taxes to our country. But instead they're using their money to avoid paying taxes. You know, these offshore tax havens are not something that we need to make our economy grow.

BILL MOYERS: You say that we could stop these tax havens overnight. How?

JOSEPH E. STIGLITZ: Well, you know, we did that, something almost, very similar after 9/11. We realized that these tax havens were also being used for funneling money to terrorists. And we started figuring out what they were doing and we put the pressure on them and that stopped almost overnight. Now I was giving a talk on one occasion to, in one of these tax havens. And I don't know why, but they sometimes invite me to give a lecture. Maybe they think that it's a penance for their sins. So I was telling them how bad it was for the global economy, especially bad for developing countries because these tax havens are also used for corruption, money laundering, narcotics, you know, all of these kinds of things.

And after my talk a couple of the bankers came up to me and said, you know, you got us wrong. We don't do money laundering. We don't do corruption, we don't do narcotics. We just do tax avoidance. And that was their business model. And it gives a mindset of what this is about. And totally unnecessary.

These offshore tax havens exist to avoid taxes and to avoid regulations and the other things that, so it's avoiding responsibility.

I want to put it in a broader context. Corporations, are corporations people, should we treat corporations, you know, the point is that what the Supreme Court decision of saying corporations have the right to contribute to campaigns as if they were people.

But the interesting thing is while we give them those rights, we haven't made them, given them those responsibilities. If when corporations do misdeeds, we typically don't hold them accountable. Look what the corporations, the banks did to our economy in 2008. Have they been held responsible? Not really.

So what we're saying is, oh they ought to have free speech, they ought to have the right to contribute unlimited amounts to distort our politics. But, by the way, once they do something wrong like create a financial, global financial crisis, we'll just give them more money. We won't make them accountable or their officers accountable for what they did.

BILL MOYERS: There was a remarkable moment in an interview that Jon Stewart did recently with Timothy Geithner about Geithner's new book. And there's a moment in which Geithner says we had to save them from their mistakes. They didn't pay for their mistakes. The country did.

JOSEPH E. STIGLITZ: Exactly. And, you know, he makes a very good point about saying they paid back all the money. Well, first of all, there was a shell game that the Federal Reserve lends the money at close to zero interest rates. They lend the money back to the government at much higher interest rates.

Look it, if the government lent me hundreds of billions of dollars at a zero interest rate, I, too, could become a wealthy person by just investing in government bonds. This doesn't take a genius, a 12-year-old could do it. And yet, they walked off with bonuses for doing that. And they used that money to help pay back the government. So this is the kind of shell game that will do any con artist proud. But when somebody brought, you know, makes an accident, somebody gets injured, what we did was analogous to we take the perpetrator, the guy who was the drunk driver to the hospital, but we leave the guy that has been hit on the street.

And then we say, oh, by the way, you don't have to pay for any damage that you've done. So even after they paid back the government the real question is who's responsible for all the damage that's been done to our economy? The people have lost their job, that lost their home? The banks haven't paid back a cent of that liability. And that's a real corporate responsibility.

BILL MOYERS: So, how did you come to bring this sense of moral responsibility to the study of economics, this notion of a social contract? Was there a defining fork in the road?

JOSEPH E. STIGLITZ: Probably was no defining fork in the road. I had the good fortune, you might say, of growing up in Gary, Indiana. An industrial town. Most people would say, that's not good fortune. But it was good fortune in that it exposed me to the real America.

My mother was a primary school teacher. Dedicated. They were very both dedicated. And, but Gary was an industrial city, marked by a lot of poverty, discrimination, episodic unemployment, business cycle going up and down. You couldn't help but feel that the market economy, capitalism, wasn't working quite the way that some of the people who say it's this wonder of wonders.

When I was an undergraduate at Amherst College I had thought I was going to be a physics major, theoretical physics. I really loved mathematics, loved trying to understand how the world worked. In my junior year I said, you know, what really motivates me is trying to understand our social problems, our economic problems, and I want to become an economist.

Then I went to MIT. And never lost that original motivation for being an economist even as I was working on some very abstract, abstruse, mathematical economics issues about the consequences of asymmetry of information.

It was all partly to try to understand why do we have so much unemployment? Why do we have discrimination? Why is the world that some economists depict, something that works like a clock, beautifully, why is that not right? Why is that so inconsistent with the world that I see? And so, that was always in the back of my mind as I was working on these more abstruse theories. And--

BILL MOYERS: So, is that the heart of what you call, or is called asymmetrical information, that contributed to your receiving the, your work in, that brought about the Noble Prize?

JOSEPH E. STIGLITZ: --that's right.

BILL MOYERS: Asymmetrical information. What is that?

JOSEPH E. STIGLITZ: It's that some people know something that other people don't know. Very simple idea. But the whole theory of perfect markets that the devotees of Adam Smith and Milton Friedman, and all these people who think that markets work perfect, totally ignored.

So, the idea was that markets where people have different information, where some people know more than others, where markets work imperfectly, are fundamentally different from this world that they had described where there was perfect information. You know, if worlds were perfect information, wouldn't be any discrimination, there wouldn't be any of this monopolies and all, you know, those kinds of perfections are not part of the world that we live in. And so what my research did is to help clarify, and with other people's research, help clarify why our economy doesn't work quite so smoothly as the advocates of free markets have claimed.

Why we had a crisis in 2008. You know, that's not the way market economies are supposed to operate. Why it is, you know, the basic law of economics is you have supply and demand. With supply, the law of supply and demand, there's not supposed to be unemployment.

You know, we have 20 million Americans who would like a full-time job and can't get one. We have an economy where, you know, in 2009, '10 we were throwing people out of houses. We had homeless people and empty homes. That's not the way a market economy is supposed to operate. There's so many aspects that are so central to our economy that seem out of sync with that theory of perfect markets.

And the evidence is so overwhelming that our markets don't work perfectly, that markets can and are an important force. But we have to shape markets. Come back to our theme of taxes, taxes are one of the ways we shape markets.

If our tax system says speculation is going to be taxed at a lower rate, you're going to get more speculation. If our tax system says if you keep your money abroad, you don't have to pay taxes, you're going to get more money abroad and you're going to get less job creation inside America. If your taxes say we want to encourage real investments in America, then you can get more investment in America. So I'm an economist who believes that incentives matter. But I also believe that you have to shape incentives and that markets on their own don't necessarily shape them the right way.

And that when we have a distorted tax system, distorted by a distorted political system that has given a huge amount of weight to the upper one percent, to the corporations, then that kind of distorted political system leads to a distorted tax system, which leads to a distorted economic system, which leads to an economy that is not performing as well for most Americans.

BILL MOYERS: There was a quiet urgency in this white paper. I also read an excerpt of your speech when you received the Daniel Moynihan Prize for social science research. And you said in that speech that this country is at another pivotal moment in history. What do you mean by that?

JOSEPH E. STIGLITZ: Well, what I was referring to at that moment was there had been two periods in our history where inequality had risen to what I thought was an unconscionable level. The Gilded Age, the end the 19th-century. And the Roaring Twenties, right before the Great Depression. In both of those instances we stepped back from the brink. We realized where we were going as a country. We said, that's not where we want to go.

And the Gilded Age was followed by the Progressive Era, anti-trust policies trying to get at the monopolies, getting at the, some of the sources of the inequality that was undermining our society. The Roaring Twenties was followed by the legislation creating social security, created labor legislation that, minimum wages, maximum hours. Lots of things that we take for granted now but are a part of the social fabric.

The question I asked was inequality has now gotten back to the level, that peak that it had back in 1928 before the Great Depression. Got back to that same level back 2008.

So, the question I posed at that point was will we, again, pull back from the brink like we did at the end of the 19th-century, like we did in the Roaring Twenties? I'm hopeful. But there's one note of caution.

And that is, have our politics changed? Have decisions like Citizens United changed the power of money so that the inequalities in income and wealth that are so great today translate into more political inequality than they did? That's an open question. And in my mind that's what this battle is about.

BILL MOYERS: Joseph Stiglitz, there's a lot more in these 27 pages than we have touched on in our time together. We have posted your paper, “Reforming Taxation to Promote Growth and Equity” on our website and urge people to download it and read it whole. Meanwhile, thank you for joining me and sharing your time and your ideas.

JOSEPH E. STIGLITZ: Thank you very much.

BILL MOYERS: At our website,, we’ll link you to more of my conversation with Joseph Stiglitz and to his white paper on tax reform. You’ll also find some startling numbers on the public goods and services that America could purchase with all that money being hidden away by corporate tax dodgers.

That’s all at I’ll see you there, and I’ll see you here, next time.

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