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Episode #112: Len Burman
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We take a turn towards public policy and communicating research in this week’s episode of the podcast. My guest is my Urban Institute colleague Len Burman, an Institute Fellow and the Paul Volcker Professor and a Professor of Public Administration and...
The post Episode #112: Len Burman appeared first on PolicyViz.
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Transcript
Podcast Introduction and Announcements
00:00:11
Speaker
Welcome back to the Policy Eviz podcast. I'm your host, John Swalvish. Welcome back to the show. I'm excited for this week's episode because I get to talk to an actual Urban Institute colleague in person, which is always more fun than chatting on the phone. But before we get to the show, I actually have two announcements for you. The first is to check out a new podcast. The Urban Institute has just launched a new podcast called Critical Value. It's going to explore issues of significance for research, policy, and people.
00:00:38
Speaker
Each episode will feature an Urban Institute expert and discuss the best available data and evidence on topics that matter. The first few episodes are already out talking about infrastructure and natural disasters and talking about justice policy. So it's a great show. It's on iTunes. It's on Stitcher. It's on all the major podcast apps. So I do recommend.
00:00:58
Speaker
you check that out. My second announcement is for a data visualization workshop taking place here in Washington DC at the Urban Institute. I'll be hosting a one day full day workshop on data visualization Tuesday, February 13th, starting at 9am. We're going to talk about core principles of data visualization. And then we're going to talk about how to create visualizations in Excel and extend
00:01:21
Speaker
the capabilities of that tool. So please do check that out. I'll put links to both of those to the Critical Value podcast and to my workshop on February 13th on the show notes. So please be sure to check both of
Interview with Len Berman on Tax Policy
00:01:33
Speaker
those out.
00:01:33
Speaker
But now, on to the show. And on this week's episode, we're going to talk about taxes, tax policy and tax data. And to help me do so, I am very pleased to be joined by Len Berman, former head of the Tax Policy Center, and now a tax policy thought leader. I'm just gonna say that should be your title. Len, welcome to the show.
00:01:53
Speaker
Thanks. Glad to be on it. Thanks for coming on. So you and I actually have sort of similar tracks, right? Because you started at Treasury, you started your career at Treasury, right? Yep. And then you're at CBO for a while. And now you're at Urban. And then you were also at Syracuse University, where I did my grad work. So like, yeah, I should take a job at Treasury just for a little bit. So I can say I follow the Len Berman path.
00:02:14
Speaker
I actually was at Treasury twice. I came to Urban, went back to Treasury. I clearly can't hold a job for very long, but the people who hired me in the past can't remember that.
00:02:26
Speaker
That's the key. That's the key is to get hired by people who don't remember where you've been. Yeah, where you've been there and they want you to leave. Right, right. So I want to talk about taxes. You've been a tax economist for quite a long time, been involved a lot of the hands on the policy discussions. And obviously, the tax discussion has been in the headlines the last few weeks. But can we start with a basic question of what do you think people don't understand about the US tax system?
00:02:56
Speaker
To be fair, it's really complicated. But they're really basic things that confuse people about the tax system, like most people don't know that they pay more in payroll taxes than income taxes. It's kind of interesting. Every April, people are up in arms about their income tax liability. But for the vast majority of Americans, when you include both what the employer and the employee pays for Social Security and Medicare,
00:03:22
Speaker
That's more than they pay in income taxes. For most people, it's a lot more. The difference might be that people actually, they understand what their payroll taxes are paying for, they think they do, and they support the program.
Corporate Taxes and Economic Impacts
00:03:33
Speaker
Social Security is a very popular program, whereas the income tax is more nebulous. What part of that destroyer do you own and do you feel good about it?
00:03:42
Speaker
I think people don't understand about business taxes. So, you know, Mitt Romney got into trouble in 2012 when he said, corporations are people, my friend. Everybody laughed at him. I did too. But every public finance economist understood that he's kind of right. Corporations are legal entities, but they're owned by people. People work for them. People buy their stuff.
00:04:06
Speaker
When you impose a tax on corporations, it's borne by people. And a part of the debate this time around has been, well, who actually pays the corporate tax? The White House has been trying to argue that the big corporate tax cut, which they just got through, is going to really benefit workers. And it's plausible. It might be the companies will take all the money they're saving, buy lots of equipment that will make workers a lot more productive, and then they'll pay them more money.
00:04:31
Speaker
Evidence suggests there's probably a little bit of that but not enough to make people be singing all the way to the bank. But it is an issue. One of the fun things about this last year and a half is that even if you don't like the way the tax bill came out, there were a lot of really interesting issues that came up.
00:04:49
Speaker
There was an issue about how we should tax imports and exports. The value added tax, which is the sales tax that's collected all around the world except in the US, taxes imports and it doesn't tax exports. There are economic reasons for why you would do that.
00:05:07
Speaker
When you buy something, the place where you live should have the right to tax it. But a lot of people think that this is a subsidy to exports. Economists would say, well, it's not really a subsidy to exports. And one of the tax reform proposals had said, we're going to do that in the income tax. We're going to have a tax on exports, and we're going to have a rebate on imports.
00:05:28
Speaker
On paper and in principle, it was kind of brilliant. It would remove location as a factor in deciding where to produce things because the only thing that would matter for your tax bill would be who's buying it. If the things are being bought in the United States, you pay tax on it, whether you're in the US or in Belgium.
00:05:45
Speaker
And if the things are being bought in China, you don't pay tax on it, whether you produce in the US or somewhere else. But a couple of issues. One is that importers thought that they were really going to get whacked. Walmart and department stores didn't think this would be good for them.
00:06:03
Speaker
The economist said, well, don't worry, exchange rates will adjust and they won't hurt you. And the reasons to think that in the long run that might happen, that basically if you change the relative taxation that it's offset by the value of the dollar. But in the short run, some companies keep going bankrupt and they kind of understood that. The other thing, of course, is they have contracts. So even if in the long run they'd be good, in the short run, they would have promised to pay
00:06:27
Speaker
a certain amount in dollars and
Visualizing Tax Information Effectively
00:06:29
Speaker
the exchange rate change wouldn't change that. It kind of gets deep into the weeds. But it's fun to talk about these things and it's kind of maybe understandable people don't understand the issues. The other thing of course is that politicians don't really have an incentive to make things clear. People who supported this thing, you know, want to say, well, look, this is great for exports. No, it's not going to hurt imports. And the people didn't like it. So, you know, look, this is really going to whack companies like Walmart.
00:06:53
Speaker
So I'm guessing that there are people who are listening to this that just glaze over when you start talking about imports and exports. So you've been talking about these topics for a long time. So what are the sorts of strategies or techniques or words that you use or visuals that you and Tax Policy Center have used to try to get people to
00:07:13
Speaker
Focus and understand I think for me where this sort of came into focus was back in I think it's 2008 when Obama was running and there was Joe the plumber and President Obama when he was campaigning said we're gonna raise taxes above $250,000 right and or raise the rate and Joe the plumber said well I'm not gonna work more because it's gonna I'm gonna pay so much more taxes and and at that point I was like, okay So people don't understand the rate and bracket structure like the fundamental basics. They don't understand that right so
00:07:42
Speaker
Have there been things that you have found that have been successful in trying to convey even some of these simple concepts, either to a wide audience or to policymakers?
00:07:52
Speaker
First of all, it's hard. Again, tax code's complicated. And we all have a temptation to get into the weeds. I think people like graphs, a well-designed graph, can get across that this thing is really going to benefit Joe the plumber or it's not. You actually did something for us when we were looking at the effects of the tax legislation going through Congress the last month, just showing over time who would win and who would lose.
00:08:20
Speaker
And the visual, you know, people can kind of see motion, like, oh, well, there's a bunch of winners in 2025, but not many in 2027. We try to build tools that people can play with. At least nerdy people like playing with tax calculators. So every year we ruin Valentine's Day by putting out our marriage penalty calculator, showing millions of people that they made a big mistake when they got married because their taxes went up.
00:08:47
Speaker
Actually, most people pay less tax, but just sort of illustrating, people like to personalize this, people showing how the different tax bills would affect people at different income levels or you. You put in what your wages are and how many kids you have and so on, how old you are.
00:09:03
Speaker
There's a risk, which is that you can miss a lot of parts of the story. Like for example, taxation of businesses is important. You're not going to see that when you look at how effective you're on tax bill. The deficit is important. Say, wow, you know, I get this big tax cut. Wow, this is fantastic. But somebody's got to pay for it. It can be a cut in spending or taxes will go up or something. You can't capture that.
00:09:25
Speaker
You know, these things are helpful. We're trying to design other tools to show people the structure of tax brackets. You know, one thing that would surprise people is that when you cut the lower tax brackets, you really help people with very high incomes. Or when you put more people in, say, the 10 percent bracket, because if you would otherwise be paying 37 percent and now you're paying 10 percent, you get a huge break. Whereas if you'd be paying 15 percent, that's so much. So we're trying to think of things like that. The other thing is,
00:09:55
Speaker
You know telling stories trying to simplify it tell Joe the plumber how it's really going to affect him and one thing we did a long time ago was we hired a really smart careful reporter to run the TPC blog and he takes the nerdy technical stuff that we write and he writes a story that you know might go in a popular publication and
00:10:18
Speaker
It's still maybe not the kind of thing somebody's going to read instead of watching primetime television, but for people who want to understand things, I think it helps.
00:10:28
Speaker
Yeah, absolutely. When going back to the current tax law, the current debate we just had, what do you think are the top few things that people don't understand about that debate? I was perhaps surprised on both sides of the aisle what people were focusing on and not focusing on. The deficit didn't seem to me get as much attention as I thought it would. I also on the other side, I was surprised that the Republicans weren't saying, well, we're cutting
00:10:55
Speaker
the corporate tax rate by so much historical evidence may not be sufficient to be able to do this model that you're doing now. So that's sort of on the end of the modelers and the economists and the policymakers. But generally, what was your feeling that people weren't really understanding or grasping about how this was going to impact their households and the country?
00:11:18
Speaker
I think a lot of times people outside the Beltway who aren't obsessed with this and honestly probably aren't listening to your blog don't really understand how tax changes affect them. In 2009 when we passed a big economic stimulus which was designed to make people richer and get them to spend money, a lot of people thought President Obama had raised their taxes. The same thing happened to George W. Bush in 2001 when they also
00:11:44
Speaker
Part of the rationale for that tax cut was to try to get the economy going. So the Republicans and Democrats are arguing about whether people are going to like this bill or not. A sobering aspect is that a lot of them might have no idea at all as to what it actually does to them. And there's a problem, of course. Both parties have an incentive to spin the legislation in the most favorable way for them or
00:12:07
Speaker
I don't want to disillusion you, but sometimes they even say things that aren't true. I know. I think the Democrats want to get across that middle-income people are hurt by this bill. It might be in the long run or even in the short run, if there are big cuts in spending, they will be, but most people are going to get a tax cut. I say, well, middle-income people are getting a tiny tax cut compared to really high-income people. That's an issue to discuss, but most people are going to get a tax cut.
00:12:32
Speaker
Yeah, the people up in arms in New York State, in Connecticut, New Jersey, who think because we limited property and sales tax deductions, they're going to pay more, the vast majority of them are going to pay less because we raised standard deduction, cut tax rates, and so on. Again, it's kind of understandable. We have a nice calculator on the Tax Policy Center website. Anybody wants to find out how the bill will affect them, you can get at least an approximation by using the calculator. But there are a lot of people who are just going to
00:13:01
Speaker
make judgments based on their source of news or who they talked to or maybe just biases about how one party or the other works. From your perspective, what were the things that you thought the bill
Evaluating Tax Bill and Future Implications
00:13:14
Speaker
did well? Well, maybe you don't think so, but what did the bill did well and what did it do poorly?
00:13:20
Speaker
There was some simplification in the bill. Not as much as I would have liked. Raising the standard deduction will make things easier for a lot of people because they won't have to keep track of their mortgage interest, charitable contributions, state and local taxes. There's a flip side to that, of course, which the people, home builders who think people buy homes because they like the mortgage interest deduction, charities who think people get the charity in part because they get a tax break.
00:13:45
Speaker
They're a little bit worried about this. The bill got rid of some obscure provisions that complicate the tax code and really don't belong there like the phase out of itemized deductions and personal exemption phase up. They also got rid of personal exemptions. They changed the way the tax code adjusts for inflation.
00:14:05
Speaker
warranted. The measure we've used for, you know, back since 1983 or 1984 was one that assumed that people couldn't adjust the changes in prices and obviously they can't, so the new measure adjusts for that.
00:14:18
Speaker
Cutting corporate tax rates is a good thing. Our corporate tax rate was high relative to the rest of the world. The worst thing about the bill is that it adds a whole lot to the deficit. Some of the advocates tried to argue that by lowering tax rates and providing other good incentives,
00:14:36
Speaker
make the economy a whole lot more productive and GDP would go up. We think GDP will go up a little bit, but not anywhere near enough to offset the revenue loss than the official score keeper in Congress and other independent analysts have reached the same conclusion. So CBO updated their estimates of what happens to the national debt. And they concluded that by the end of 2027, 10 years from now, it'll be 97.5% of GDP.
00:15:05
Speaker
Which is really high the last time it was that high was right after world war two and we got the debt down very very quickly there's no giant piece of it and it's gonna make it easy to cut the debt now and it doesn't make sense to be accumulating enormous amounts of debt when the economy is at full employment and when we know that they're gonna be a lot of
00:15:26
Speaker
The government has a lot of obligations going forward. It's already going to have a hard time managing. Well, it's got those obligations plus paying back the debt and the interest on the debt. And it also makes this very sensitive to increases in interest rates. The bill was regressive in the sense that tax breaks were a much larger share of income for people at the top than people at the bottom. When you look at what's happened over the last 30 years, high income people
00:15:52
Speaker
economic performance doesn't seem like it would be at the top of the list of concerns. Big concern is middle income people have been really struggling and low income people, Bill didn't really do much for them. It's created some large new tax shelters. There's a big tax deduction for people who are self-employed or in partnerships. I guess I can tell Sarah right on this podcast that I'm going to be an independent consultant starting this. No, kidding. But if I did that, if you did that,
00:16:21
Speaker
Instead of being employees of the urban city 20% of our income would be exempt from tax that makes no sense Yeah, it's regressive in the sense of benefits high income people the most I don't encourage all sorts of shenanigans and it's not going to help the economy to grow you talked about
00:16:38
Speaker
trying to convey this complex information and trying to tell stories and get people to see themselves in the tax code and in the data. Do you think the other complication is this the 10-year or looking out in the future when you say, you're going to get a tax cut in the first few years of this bill, but 10 years from now, you're not going to have the same cut as those in the top of the distribution. Do you think that's a hard way to sell policy to people?
00:17:05
Speaker
I mean, it just has the complexity to think of these things that have very complex patterns over time. The thing I didn't mention, which I think you were alluding to, is that most of the tax cuts end after 2025. That's because of alleged fiscal responsibility. All the advocates say, well, we're going to extend those tax cuts, which means it's even more expensive than we thought. But in 2026, 2027,
00:17:29
Speaker
a lot of people are going to actually have higher taxes because the thing that's left is slower adjustment for inflation, which will raise their taxes. I think people have a hard time understanding how taxes are going to affect them next year or the year after and saying, you really should worry about 2026 is maybe a stretch.
Improving Tax Filing Processes
00:17:46
Speaker
The problem the country has is that we have so many
00:17:49
Speaker
looming problems that are kind of growing over time, not just in the tax area. And I think it's time for people to make space for them in their consciousness while they're also figuring out how to get by from week to week or month to month. But we try, you know, I think actually your charts were a good way of showing this is how things will change over time. And I think there's more we can do and I think the challenge is figuring it out.
00:18:14
Speaker
The calculators that you've mentioned that TPC, tax policy centers put out.
00:18:20
Speaker
They allow individuals to select scenarios or of sort of made up people or units or to put in their own information. And I wonder whether you think there's an opportunity or an opening there to change the way the tax forms actually work. The tax forms, even if you do them electronically, it's still basically the paper form. We're just typing them in. So have you thought about how to make the actual filing of the taxes better, easier, more intuitive?
00:18:50
Speaker
Yeah. One thing we could do would be to try to adopt a system like the one in the UK where most people don't even have to file a return. That requires making the tax code a lot simpler. It also requires people to share more information with their employers than we might be comfortable with. So it might be that we can't do that. But in the UK, basically, the employer takes money out of your paycheck. And for most people, that's the end of the story. They don't ever have to file a return.
00:19:15
Speaker
Another less drastic option would be to have the IRS put together all the information they collect on your behalf on a tax return and say, here's a start for you.
00:19:26
Speaker
We've gotten wages from your employer or employers. We know from your bank, we know how much interest you earn from your stock worker. We know how much dividends you got. And they could start to fill out the return for you. You would need to check it, add or correct information. The thing I would actually like the IRS to do would be to use tax filing as an opportunity to provide people information about how a tax system works.
Engaging Audience with Social Media and Data
00:19:50
Speaker
that I think people don't understand too well is that the tax system has got two functions. One is it raises revenue to pay for the government. Second is there are a whole bunch of programs we run for the tax code. Some say it's for children, childcare, building housing for low-income people, buying a home, giving the charity and all of those things. And what I would like would be for the IRS to, in exchange for you giving them a form, for them to send you back a form saying, here's how much tax you paid before taking account of all these
00:20:19
Speaker
subsidy programs run through the code and here's how much you got to help you pay for your mortgage, charitable contributions, children and so on. And the reason I think that would be useful is that one, I think people don't understand that there really are a lot of breaks that apply to middle and lowering of people and not just hiring of people. Second, tax reform might involve trading off some of those things for just lowering the top line tax obligation. I think
00:20:48
Speaker
People in the house kind of wanted to go in that direction. They got really hard pushback from people thought they would lose from eliminating one tax break or another, but that's the kind of trade-off you should think about. If you got rid of a lot of the special tax breaks, you can make the tax system a lot simpler and arguably fairer.
00:21:07
Speaker
So you mentioned these tax calculators, you've mentioned the blog and the different types of writing. Are there other ways or other communication devices that TPC is used or that you've used on your own that you find are successful in conveying information about the tax system?
00:21:24
Speaker
Social media can be useful. So we get into conversations with people who are engaged on it. And on occasion, if you can come up with a particularly salient way of getting across some important piece of information, thousands or maybe tens of thousands or more, people will share it. One thing that's useful about that is you get instant feedback. We put out a paper, and sometime later, we'll get a report as to who read the paper. And this thing, it's like instant.
00:21:54
Speaker
some ways that's a drawback. You can get sucked in to see whether your viral tweet, how far it's gone when you should be doing other work, but it is useful. I mean, actually, the message I get a lot of the times is that I'm talking to 10 other people, but sometimes you strike a nerve, and I think there are things we can learn about that.
00:22:13
Speaker
I think we could also do a lot more just with creative data visualizations, the kind of thing you really, really get at. We've had a hard time figuring out how to do that when we're scrambling to get things done on really, really tight deadlines with limited budgets. I'm hoping that the technology makes it easier to do those kinds of things and that maybe we can figure out ways to
00:22:32
Speaker
build it into the production process where we can get that kind of graphical representation out in real time. The CBO does a really, really good job of telling stories with graphs, pictures, a combination of words and graphical presentations.
Using Data Sources in Tax Analysis
00:22:49
Speaker
I would love to be able to do more of that. Right. I want to ask one last question on the data that TPC uses. A lot of it is administrative data. I know a lot of people want to use administrative data because it's really rich, but can you just talk a little bit about the administrative data files that you and TPC use and both the pros and the cons of using those sorts of files?
00:23:13
Speaker
So the main administrative data file we use is called the IRS public use file and this has 150,000 or so individual income tax returns with some adjustments to protect confidentiality of the data and obviously there's no individually identifiable information.
00:23:31
Speaker
We use that file to basically we've got a giant TurboTax thing running that calculates tax liability for every return and then we can change things. Suppose you increase the child credit or you change the brackets or something else, we can calculate those changes and it gives us a representation of how it affects overall revenues, how it affects distribution of tax burdens, people at different income levels and so on.
00:23:56
Speaker
We also pull in a lot of information from other sources like surveys because there's a lot of information that affects your tax filing that you don't report on your income tax return. For example, health insurance, you report that to... That goes to the Social Security Administration. It doesn't actually... It's not on your income tax return, but that's useful.
00:24:13
Speaker
for determining the value of that big tax break, that it's tax free. We have an estate tax model, which is a challenge because we don't actually have estate tax returns, but there's information from the Federal Reserve about people's wealth levels and we can...
00:24:29
Speaker
make an estimate of what your taxable estate would be and then if we figure out the probability they would die that gives us an idea of what state tax liability is. Probably people would be unhappy to know that we're probabilistically killing off everyone in the United States to make these estimates but for most people listening the probability is very, very low.
00:24:49
Speaker
The bigger challenge is business taxation. There's no corporate tax return file. And the reason is that it would be impossible to make an Apple tax return look like any company other than Apple and so on. But we're trying to figure out ways to model corporations and other businesses using information people file with the SEC and put on their annual reports and so on. It's a much bigger undertaking.
00:25:17
Speaker
Yeah, I mean, it's great data. They're great models. We've talked about a lot. I'll put all of this on the show notes so people can check out all the TPC products and blogs and podcasts and calculators.
Episode Wrap-Up and Reminders
00:25:28
Speaker
So, Len, thanks so much for coming on the show. This has been really interesting. You're welcome. The one thing I didn't mention was state taxes. And we're in the process of trying to build in state tax calculators.
00:25:40
Speaker
Okay. Well, thanks to everyone for tuning into this week's episode. Again, don't forget about the Urban Institute's new podcast, Critical Value. It's on all the major podcast providers. Also don't forget about my February 13th data visualization workshop here at the Urban Institute.
00:25:56
Speaker
And please let me know if you have comments or questions. There's lots of information about taxes, about the government, about the economy at the Urban Institute website, and of course at the Tax Policy website, all of which I'll link to on the show notes. So until next time, this has been the Policy Vis podcast. Thanks so much for listening.