Vanessa Williamson on Taxes and Democracy

For all my interviews and more, subscribe on YouTube. . . . TRANSCRIPT: Paul Krugman in Conversation with Vanessa Williamson (recorded 8/12/26) Paul Krugman: This week, I’m talking to Vanessa Williamson, senior fellow at the Brookings Institution and author of a fantastic short history of taxation called The Price of Democracy, which is, I’m pretty sure, an allusion to Oliver Wendell Holmes’ “the price of civilization,” but a very different take. And because I’m so interested these days in tax policy, I thought I could talk to Vanessa to get a sense of a lot of these issues where I am very much an amateur and she’s done the homework. So, hi! Vanessa Williamson: Hi. Thank you so much for having me. Krugman: So, yeah, let’s talk about the title of the book first, because obviously the famous Oliver Wendell Holmes quote, which I’ve seen in slightly different versions, was basically saying, you know, if you want police and roads and public order, then you need to have taxes to pay for it. But you’re making a much broader point there. Why don’t you explain why you say it’s the price of democracy? Williamson: Yeah. So I love the Oliver Wendell Holmes quote, that it’s the price of civilization. But as I was writing this book, which was just going to be a history of taxation in America, it struck me that taxation is really more than the price of civilization—it’s the price of democracy. And that’s because democracy isn’t just being able to vote; it’s people having the power to actually make change to their government. And if the government doesn’t have enough money to act, then, even if you can vote, it’s inconsequential. Historically, this is a very deep story. Taxation and representation really do develop together. This goes back all the way to 1215 with the Magna Carta, when King John had been taxing at a higher level, and the barons demanded that if there were going to be extraordinary taxation, the king had to get the general consent of the realm. Krugman: Right. Williamson: And that was a very early iteration—an attempt to create what eventually became Parliament. So the very origins of representation in our historical tradition are really about taxation, because what you find is that when rulers want to tax, they become dependent on the taxpayers. And it builds a connection between the ruler and the ruled, and it gives the taxpayers power. I think commonly the story you hear in this anti-tax mythology that’s around is you’d imagine the taxpayers use that power to avoid taxation. The opposite is true: when representation develops, taxes go up because, of course, the taxpayers can now have a say in what the government is doing. So taxation and representation developed together historically, and they developed together cross-nationally. The freest countries today are high-tax countries. Krugman: That would be, above all, the sort of Nordic countries that are very high-tax? Williamson: Sure, but it’s true across the board. Even highly developed economies that are authoritarian have lower taxes than you would expect given their level of development. And that’s because authoritarians are simply not very good at raising taxes. They much prefer other forms of revenue, whether that’s a gold mine, the spoils of war, or fees and fines that they can apply to their political opponents. There are just other mechanisms that do not make them dependent on the rank-and-file people of their country. Krugman: Okay. And I want to come back to the high-tax countries in a minute. But one point that you make at several points in the course of the book is that the idea that taxes are okay is very much a challenge to wealthy people saying, “Well, my wealth is mine, and nobody has the right to take some of it.” And there’s a statement of principle that says, “Well, okay, but you too are subject to the laws of the republic and must pay.” Right? That seems to be a pretty big part of the story. Williamson: Yeah. There’s this long-standing tension, and it’s not all wealthy people or all the elites at any time in our history, but there are often some who are very, very wealthy. Fundamentally, they don’t like to see themselves as citizens, right? They like to see themselves as masters. The first group of people who felt this way, of course, were the slave owners who were desperately opposed to taxation. The anti-tax components of our Constitution were all put there as part of a compromise with slavery, right? Krugman: That’s a good point. Williamson: Yeah, the slaveholder class was afraid of mass democracy, even if only of propertied white men. So we get the Three-Fifths Clause. And they were specifically afraid that if every propertied white man could vote, what you would end up with is abolition by taxation—that we would tax slavery out of existence. And so that’s why you see these anti-tax measures in the Constitution. It happens again in the Gilded Age. You see Rockefeller claiming that high graduated taxation is the most fundamental threat posed by democracy. You see efforts to roll back suffrage rights during that period, even in Northern cities. So it’s a very long-standing fight between the mass public and the kind of things democratic governments usually want to do—roads, schools, and things of that sort—and a fraction of the elite who are willing to accept democracy as long as that democracy is too poor to threaten their power. Krugman: Wow. Okay. I’ll come back to the history shortly. One thing that I probably don’t talk about enough when writing about these things, but it’s something I certainly always taught when teaching a class on the economics of the welfare state, is that the high-tax, generous welfare state countries don’t have highly progressive tax systems. The state of the US debate always seems to be about, “Shall we raise taxes on the wealthy?”, which is an important concern. But places like Denmark or Sweden or, just in general, European welfare states, have high taxes sort of on everybody. Williamson: Yeah. That’s exactly right. I mean, that’s also how we pay for Social Security and Medicare. Big social safety net programs are typically funded by broad-based taxes. Krugman: Right. Williamson: I think it’s really important to remember all the things that taxes do. We really focus on the redistribution part. And it’s so important, absolutely, especially now with the incredible consolidation of wealth in this country. We focus on the straightforward redistribution part of the top rates, that kind of thing, or whether we should have a wealth tax. That’s important, you’re exactly right. But at the same time, we just need a lot of revenue. Traditionally, and in terms of long-term sustainability, that’s something that we fund by taxing everybody. But that’s part of citizenship. One of the things that is part of that anti-tax mythos that you hear all the time—people are under the impression that Americans hate paying taxes. It’s just not true. People are quite proud to pay taxes, and they’re very willing to pay taxes for things they think are valuable—things like Social Security and Medicare. So I think the fact that we’ve shied away from asking people to support their government by paying taxes at a federal level has really weakened the civic rhetoric of this country. I think it’s left us in a terrible position. If we can’t convince people that their government is worth paying for, how can we convince them that democracy is valuable? Krugman: Yeah, indeed. There are several episodes that I actually was ill-informed about. I kind of knew the numbers, but not at all the political history. There was this period, basically under the New Deal and through World War II, when the idea of broad-based taxes—that lots of people pay into social insurance programs, but also a broad-based income tax—really became established. That came as kind of a surprise, that people were willing to accept it, right? Williamson: Yeah. Before World War II, the income tax was what was called a class tax. It was paid only by the very wealthy. And the country relied far more heavily on tariffs. By the way, the tariffs chapter of my book is not what I expected as I was writing it to be—as relevant as it ended up being. But anyway, most people contributed to the federal government through the higher prices that resulted from tariffs, and the income tax was a tax on the very wealthy. Well, World War II comes along. We’ve got to pay for that. We need a ton of money, and they decide to go with an income tax. Now, we’re talking about a time when people didn’t have pocket calculators. A lot of people hadn’t been to high school. And suddenly they’re going to have to fill out a paper form and pay their taxes. And it’s not going to be withheld in the first years. So, there was a lot of fear in the Treasury Department: Could Americans do it? There were these incredible campaigns to let people know about the income tax and to help them pay. There was a song by Irving Berlin called “I Paid My Income Tax Today.” There were Donald Duck cartoons that played before movies. Donald Duck figures out how to fill out his taxes in the cartoon. So it was this huge effort, and in the end, it worked, right? Americans paid their taxes. We paid a much larger fraction of the bill for World War II than we otherwise could have. What’s especially amazing is how positively people felt about those taxes. They were voluntary contributions to the Treasury, made out to Uncle Sam. Polls suggested that 90% of Americans thought it was fair, because they saw it as a worthwhile thing to support the United States. Krugman: I guess the big increases in taxation have always come around wars, right? World War I is really where the income tax comes in, even for the wealthy, and then World War II comes in. But that’s a complete change in attitude. I don’t know if you remember after 9/11, when Tom DeLay, the House Majority Whip, said that “nothing is more important in a time of war than cutting taxes.” Williamson: Yeah. Extraordinary. It was the first time we fought a major war in this country without raising taxes. I think it speaks to the decline of accountability, that we stopped having that connection between the decisions of our policymakers and the costs. Krugman: We used to say that America was kind of special, at least compared with a number of other advanced countries, in the fact that we were so successful in getting people to pay income tax, that there was a lot less cheating. I don’t know if you touched on it in the book—I don’t remember—but is that something that you think is explained by the history or by contingency, or is that something about the American character, at least what we used to be like as a country? Williamson: That’s certainly an open question. But yes, American “tax morale” has always been high. That’s the jargon-y term for willingness to pay taxes. And that’s partly, I think, part of our civic culture. People see taxpaying as patriotic. If you ask Americans, “Is it every American’s civic duty to pay their fair share of taxes?”, you get over 90% of Americans agreeing, sometimes as high as 95%. I actually looked for poll data that showed equivalent levels of consensus. You have to ask things like, “Is Elvis alive?” or “Did we really land on the moon?”—just really out-there stuff. This is a shared belief. The first time President Trump, in his campaign against Hillary Clinton, talked about not paying taxes being “smart,” this was a huge change of rhetoric. If you recall Mitt Romney saying he’d always paid 13% or 14% in income taxes, this was a huge change in rhetoric, and it didn’t shift American attitudes. Americans did not suddenly come to see cheating on your taxes as acceptable. They see it as wrong. Krugman: One of the points you make along the way is that the public’s attitudes about taxes really haven’t changed that much over the years. I think the line used was that since the 1980s, the policy and the politics of taxes have changed, but Americans’ own attitudes have really not. Do you want to enlarge on that a bit—what you mean by that? Williamson: Yeah. Clearly, we live in a startlingly anti-tax time. One of the two major parties sort of sees taxation as fundamentally bad and sees taxes as something that should always go down, at least for the wealthy. That is a historical oddity. In the mid-20th century, neither political party saw taxation as a particularly major issue. It was important, but it was technical. It wasn’t a major part of either party’s platform. That changes in the period after the civil rights movement, where again you see the rise of the kind of anti-tax rhetoric that is fundamentally a kind of anti-democratic rhetoric, and that grew more and more extreme over the following decades. That’s sort of where we are today. The strange thing about that is, as our politics have become more extreme in so many ways, the politics of taxation have become more extreme, while the underlying views of Americans have been markedly stable. I think that speaks to the decline of the quality of our democracy, right? Because what happened was the politics became untethered from public views. Most Americans say that you have a responsibility to pay your fair share of taxes. Most Americans say that paying taxes is patriotic. If you ask people what their top concerns are about the tax system, their top two concerns for literally decades have been that corporations and the wealthy are not paying their share. The third is the complexity of the tax code. Somewhere below that falls the amount they personally pay. On this issue and on many others, frankly—you see it on things like gun control or the minimum wage, for example—the attitudes of most people are simply not a good predictor of our politics. I think that speaks to a real erosion of our democracy. Krugman: So when you say after the civil rights movement, there are two interpretations. I think there’s some of both in your book, The Price of Democracy. One is people feeling, “My money is going to support the bums on welfare,” because there was a huge expansion in AFDC (”Aid to Families with Dependent Children”), which is the classic rap on welfare, although it’s never really all that much money. But it’s a big expansion in the visible support for nonwhite people. Is it “my tax dollars are going to pay for that,” or how much of it is just the empowerment of conservative politics, to put it mildly, because of the backlash? Williamson: Yeah, I think both are happening at once. At the same time, you see welfare programs that had previously been available almost exclusively to white Americans suddenly become more available to Black Americans. You see, obviously, growing Black political power after the Voting Rights Act. So there’s a racial resentment and a backlash to that, and the origins of the “welfare queen” rhetoric. We’ve all heard the story. So that’s happening. At the same time, you start to see the divide between the very wealthy and the rest of us. The compression of incomes and the economic spectrum that had typified the mid-20th century starts to break down, and you see the decline of union power and the rise of business power. All of these things are pushing in the same direction towards an increasingly radical anti-tax politics on the right. Krugman: There’s a moment—an episode that really looms quite large in The Price of Democracy that I was really kind of unaware of—which is the 1978 change in taxes. This is pre-Reagan, although obviously some of the things that gave rise to Reaganism are very much in the air, but this is under Carter. Why don’t you tell us about what happened in ‘78? I thought that was a really remarkable story. Williamson: Yeah. You have to make a choice about where you are going to say the turning point was. You can claim it was the Reagan era, or you can say all these other things. I settled on 1978 because three things happened that year that I think were really significant, and again showed what the conservative alliance against taxation would look like. A bunch of different forces were brought together. First of all, you see a bill pass that is an enormous rollback on taxes for the wealthy, something that The New York Times at the time described as sort of incomprehensible in terms of our politics. Before that, it had been assumed that Americans liked raising taxes on the rich, and it would be very hard to do a tax cut that just helped the rich. But the new corporate interests found a way to do that, so you see this big rollback in taxes for corporations and the wealthy. At the same time, there’s an attack on the IRS that is the first of what would become a recurring problem for the agency. That is to say, some issue in tax enforcement gets blown up in the conservative media and makes the IRS into a whipping boy for anti-tax interests. In this case, what had happened was the IRS was obligated by law to figure out how to remove the tax-exempt status for segregation academies—the whites-only schools that opened in the South as white families fled integrated schooling. Those schools were segregated; they discriminated on the basis of race and therefore did not qualify for a tax exemption. The court so determined. So now the IRS has to figure out what is a segregation academy and how to go about removing their tax exemption. This was really hard to do because lots of schools opened in that period, and lots of schools were segregated. There was also a move to church schooling and evangelicalism in the same period, so the IRS was trying to sort through this. After several efforts to remove the tax exemption from the most obvious segregation academies, they issued a new set of rules. It became a trigger on the far right about how the IRS is coming for our tax exemptions, leading to congressional hearings and all sorts of fodder. This is widely agreed to have been a key precursor to the development of the Moral Majority, because conservatives had been trying to get evangelicals on board with the conservative movement for ages, but evangelicals didn’t want to participate in politics. This issue brought them into politics in a new way. There’s an amazing quote suggesting that even abortion couldn’t get evangelicals into politics, but coming for their school’s tax exemption did. So that happens at the same time. The third thing that happens in that same year is Proposition 13, the property tax cap in California. Property tax caps have a long and sordid history in America. They were invented in the Redeemer era that followed radical Reconstruction, as white supremacists came back to power. One of the ways they disenfranchised poor whites and Black Americans was by putting in place constitutional tax caps so that even if they managed to lose an election—if more poor Black or white people managed to vote—they still wouldn’t have the power to raise taxes on the rich. Now suddenly that same idea, which had been prevalent across the South a hundred years earlier, becomes a force in California. It’s very much part of the civil rights era backlash. They put in place a stringent property tax cap that applies largely to this day, which undermined public education funding in the state for decades to come. Krugman: Yeah. I lived in California in the mid-’90s and was always struck by Prop 13. We had newly purchased a house there, and we were probably paying five times the taxes of some people a little ways down the road. It was a remarkable thing for people who stayed in their houses—basically older white people who already owned their houses got a tremendous tax advantage from that. It was really something. So how did those 1978 tax cuts come about? Williamson: There’s a really fascinating movement on the right that leads into this moment, and it’s a series of corporate breaks. What leads into it, fascinatingly, is that in the Kennedy era, they were also trying to cut taxes. The economy was booming, and people’s taxes went up automatically—not rates, but brackets. Krugman: Right, bracket creep. Williamson: Bracket creep. So they had more money than they needed. When Kennedy wanted to assemble business interests to cut taxes for businesses, he couldn’t find any groups to act as the grassroots mobilizers of this. Over the coming decades—and exactly at the time that union power was in decline—they started to actually develop these business interests. There were moves to make what now sounds like completely standard rhetoric, but at the time was very strange: this new rhetoric about the possibility that these taxes were stifling innovation and entrepreneurship. That’s where they came in with these corporate tax breaks, to basically put in massively upward redistributive tax breaks. What they did was build grassroots organizations for business that today seem run-of-the-mill, but at the time were completely novel. For example, lobbyists in Washington would bring in local business leaders from all the districts for “fly-ins” so representatives would hear from their own constituents on these business issues. That was a real development in terms of lobbying prowess, and it paid off tremendously. Krugman: And so, in ‘78—and actually until Newt Gingrich comes along—you still had Democrats controlling the House of Representatives. This was not a Trump-era Congress, and it was a Democratic president. The public didn’t support tax breaks for the rich. I think public opinion would have been pretty populist in that sense. So what moved the votes? Why was Congress doing this? How did that influence work? Williamson: At the end of the day, the fact is that mass public opinion isn’t what causes politics to happen. Politics is not a public opinion poll; it’s the mobilization of organized interests through a party system. So you shouldn’t expect things that most people believe to automatically become law. That’s just not how it’s done; you have to have organized interests. It’s a collective action problem, fundamentally. That’s the underlying thing. But as the economy divides and as you have this concentration of wealth at the top, it’s self-reinforcing. As the rich get richer, they have more power, because money is power, and they start to invest very heavily in having greater political power. There was a lot of concern about the Nader era and all the regulatory things that were happening in the early ‘70s, which really helped to bring business power to bear— Krugman: The Nader era meaning when business really started to say it needs to stand up and throw its weight around? Williamson: Yeah, exactly. You saw what I would deem a great deal of progress on things like environmental protection and the regulation of consumer goods. These were some of the successes of that era, including clean air and clean water in the early 1970s. For a lot of more conservative-leaning business leaders, these were seen as encroachments on their capacity to be profitable, and so that helped convince them to devote themselves to politics. As they succeeded, of course, they became wealthier. This is exactly the same thing that happens with the tax code. As the top rates are rolled back, you see more and more loopholes for corporations to avoid paying taxes. As the IRS becomes underfunded so that they aren’t in a place to actually enforce the tax code for wealthy people, all of those things are reinforcing, because a substantial portion of the inequality that we’ve seen over recent decades can be attributed to the decline of top rates. So it’s a really negative, reinforcing cycle. Krugman: When I started, loosely speaking, doing the math, I was actually shocked—particularly if we’re talking about the very, very top—how much the change is actually driven by cuts in tax rates. As economists, we like to talk about technology, competition, and all of that, but actually taxes are a very large part of the story. Williamson: It’s really the ‘70s where this starts to happen. It is all, in a sense, mechanical. The money that you didn’t have to pay in taxes, now you have, and it will accumulate more over time. It also has pre-distribution effects. When, for example, a CEO had $0.90 out of every additional dollar they were going to get paid going to the government—which was true in the mid-20th century—the board of directors didn’t have a great incentive to raise their pay unless they really had done something to deserve it. There’s research on this, as you well know, but as tax rates go down, it becomes easier—cheaper, basically—to overpay executives. So it feeds in both ways: afterwards, you have these ballooning paychecks and they get to keep more of that money, but it also gives an incentive to balloon paychecks in the first place when those very high salaries are undertaxed. Krugman: Yeah. This is a long-standing thing. The committees that decide on the CEO’s pay have always been basically appointed by the CEO. But why did that translate into 30 times the average worker’s salary in the ‘60s and 300 times now? Part of the answer, you’re saying, is that it wasn’t worth pissing off people that much—sorry to use the technical term—when the CEO didn’t really get to keep the money anyway. Now that he can, they do it. Williamson: Exactly. Krugman: You get this first wave of big, top-end tax cuts under Reagan, but fairly quickly, we get people agitating about the budget deficit. This is also when the budget deficit becomes significant for the first time since World War II, and there’s a feeling we need to cut back—the beginnings of austerity. Why isn’t there more of a backlash against these tax cuts? Why didn’t that happen? Williamson: I think there are two things going on. First, there’s just the very effective lobbying techniques that business uses. They’re very powerful. There’s all kinds of political science research to suggest that legislators are more responsive to donors than to constituents, and more responsive to organized interests. They misperceive their own constituents again and again. It’s more true on the right, but it’s true on the Democratic side as well. Legislators misperceive their constituents as more conservative than they are. Some of that’s about who they talk to, and some of it’s about the media environment they live in. There’s this persistent problem in the background. Thinking back to that capital gains cut in 1978, there’s just this new playbook that becomes part of our politics. It’s hard for us to even imagine now that this was ever new, but I think that it really does speak to the moment we live in. Now, you’re asking about why it is that there hasn’t been a backlash. One important aspect of that is that for many, many years—and we are now testing the limits of this—these tax cuts were not “paid for.” Krugman: Right, right. Williamson: We paid for enormous wars with debt, and we paid for enormous tax cuts at the top with debt, so there was not a tradeoff that the American people would see right away. If you look at the George W. Bush era, this was a very conscious strategy. In principle, you could have taken the surpluses of that era and used them to shore up Social Security or do any of a number of other things. If you look at memos within the Bush administration, it was very clearly stated that in going to the voters to cut taxes in this very regressive way, they had to say there were no tradeoffs at all. Fiscally, barring the costs of debt and interest, there were no immediate consequences. So there’s a real decline in the signals that would have informed Americans more about the choices that were being made in their names. Right now, the most recent Trump tax cut is an exception to that rule. Where the big tax cuts going back to Reagan were off the books, this time they’ve done quite a lot of retrenchment of major social safety net programs. They delayed that, but it is coming now as we speak, and I think it’s a question of whether that will be more evident to people. One reason they were willing to take that step in the most recent Trump tax cuts—to also make it the most regressive budget legislation in history by simultaneously cutting taxes at the top and cutting benefits for poor people—is another indication that popularity is no longer a concern. Frankly, you want popularity to be a concern for politicians in a democracy. The budget legislation is a good indication that doing things that are popular in order to get re-elected by a majority of the voters is not the primary political strategy of the Republican Party anymore. Krugman: Just for listeners—the tradeoffs we’re talking about now are that the “One Big Beautiful Bill” includes big tax cuts very much for people at the top, offset only partially by really savage cuts to means-tested, poverty-oriented programs like food stamps and Medicaid. I guess the question is: Is this a kind of cynical calculation that most Americans won’t care about that, or just a calculation that it doesn’t matter what Americans think? Williamson: There are the immediate effects that will happen for the people who are affected, but this will have a huge impact on the economy. Medicaid supports health access for poor people and supports hospitals in rural areas. The ramifications are likely to be enormous and widely felt beyond the technical beneficiaries, for sure. Krugman: Same with food stamps, of course. The extent to which the places that voted most strongly for our current government are exactly the places where you are going to lose a critical mass of purchasing power and a critical mass of patients who can afford to pay their bills at hospitals. People are not going to lose hospitals anywhere close to where they live in New York City, but they very much could in West Virginia. Williamson: Yeah. Krugman: To just come back a bit: We’ve been in this tax-cutting mode since the late 1970s, but there was one range of substantial tax increases during the ‘80s, which was the increase in FICA, the increase in payroll payments. This kind of gets at your thesis. You have an extended section in the book about how we came to pay for Social Security and then later Medicare with payroll taxes. That’s a story I think people should know, because it comes up now a lot as we talk about what we can do between Social Security funding and general healthcare reform. How did that happen? Because this is a regressive tax. It’s $170,000 or thereabouts, just the maximum. It’s a flat tax up to that level and nothing above. Williamson: And it’s a tax on wages, not wealth, so it’s not taxing the income from wealth. The Social Security tax is a regressive tax that hits most people pretty hard. In fact, it’s the biggest federal tax for most households. Krugman: So why did FDR make this choice? Williamson: Well, he’s coming into office in the throes of the Great Depression, and they’re doing a whole bunch of emergency rescue measures to try and stabilize the economy. What he does not want is his pension plan to be seen as a temporary measure; he wants it to last forever. He wants this to be something that cannot be retrenched, and he wants to distinguish it from these other emergency measures. There was a lot of debate within the administration about this. Plenty of people within the FDR administration said, “No, this is not the way to fund this. We need to fund it differently.” FDR was not always a policy wonk, frankly. But on this point he was extremely adamant, both because he wanted to distinguish Social Security from emergency anti-poverty measures and because he was always thinking about the politics of how you tell a story about policy. He knew that he could tell people they were making a contribution, here was what they were going to get someday, and here was how it was going to work. He knew that he could tell the American people to contribute to a fund like this, and he was right. He famously said that the payroll tax contributions were not economics, but politics—to make sure that no politician can ever eliminate his Social Security program. To a substantial degree, that political logic was proven correct. The program not only survived, but grew after the Depression. It’s funny—business interests at the time tried to mobilize against it. They were really trying to mobilize against his “attack the rich” rhetoric. In the following elections, they tried to go after him on Social Security because it was a $1 tax coming out of people’s paychecks. Business interests put propaganda on people’s pay stub envelopes saying, “If you re-elect Roosevelt, you are condemned to this tax increase, and who knows whether you’ll ever get benefits?” A union organizer famously said, “Why didn’t they put propaganda in your pay stubs last time? There were no pay stubs!” It was FDR who was getting us out of the Depression. That was how FDR saw the fight. He was a political maneuverer, unparalleled perhaps in our history, and that was 100% the playbook they used for Medicare. They knew full well what to do to make a program that would survive. Krugman: Now, it’s interesting. I don’t know if people realize this, but it’s only Medicare Part A, the hospital insurance part, that is payroll, and the rest comes out of general revenue. But in some ways, the aura of this separately funded program extends to the whole thing, even though a lot of it is not paid for by that bit on your pay stub. Williamson: The downside, in terms of the price of democracy, is that people don’t necessarily think of these as government programs. People know about their Social Security taxes, and they don’t think it’s going into a bank account for themselves. Sometimes there’s worry about that, but people know that it’s going into a general fund and paying out today. They have that much of a sense about it, even if they don’t always have a full sense of the totals. The flip side of putting this aura around these particular programs is: Does it implicitly denigrate other programs? I think there’s a case to be made for that. Over here are Social Security and Medicare—the contributor-funded, worthy programs—and over there are other welfare programs that are somehow seen as not as deserving or worthwhile. That’s a real risk of the approach. Krugman: Yeah, okay. I’m always a little surprised looking at the record of the Obama years to see how much, particularly at high income levels, he did manage to raise taxes. CBO numbers say that the effective tax rate on the top 1% under Obama rose to pretty close to where it was pre-Reagan. But it was not going to be enough if we really want to have the kind of society that a reasonable, center-left person wants. So what are the prospects? Are we still living in this era of tax phobia? I think I’m dreading your answer here. Williamson: Well, I think one thing that’s happened is that the mask really came off on this. For many decades, being anti-tax was a kind of polite fiction, a rhetoric you could use to attack the idea that a democratically elected government could do good for people. Rather than directly attacking democracy, conservatives attacked taxation. This is a replication of precisely the rhetoric that followed the Reconstruction period. The Redeemers, the white supremacists, came back to power through violence and intimidation, and organized themselves as taxpayers using rhetoric that looks very familiar to anyone who knows about Reagan’s “welfare queen”—that Reconstruction governments were full of corrupt, untrustworthy chiselers, and the poor, burdened, implicitly white taxpayers were rising up against that. It’s very similar to the rhetoric you see in the aftermath of the second Reconstruction, the civil rights movement in our own time. To some degree, the dog-whistle aspect of anti-tax rhetoric has fallen by the wayside as the Republican Party has moved to an explicitly anti-democratic stance, like failing to accept election results. So the tax rhetoric is falling by the wayside, and the stakes are a lot clearer now. The problem, to my mind, is what we have not seen. You’ve seen some real movement on the center-to-left side on all kinds of things—rhetorical progress—but what remains missing is a willingness on the part of center-to-left politicians at a national level to tell people that their government is worth paying for. At a state level they have to do this, but nationally, the unanswered disparagement of government—which has been a consistent part of our politics for my entire lifetime—paved the way for things like DOGE and the massive destruction we’ve seen in the last two years. To some degree, I think that destruction has made the value of government more evident. It has brought things like the role of the CDC, or the fact that we had people watching our nuclear silos, to the forefront of our minds. But what I have not seen is politicians on the center-to-left talk seriously about the idea that the United States government is worth being paid for by all of us. And you see that with the plans by Senator Booker or Van Hollen. Once you’re proposing very large tax cuts for middle-class and upper-middle-class people to the tune of hundreds of billions of dollars, we will not have those measures in place to do the rebuilding that is so absolutely essential. Krugman: Even someone like Mayor Mamdani in New York City saying we’re going to tax the lavish pied-à-terres held by non-residents who have $100 million apartments—which is fine—shows he’s still kind of afraid to do a Willie Sutton and go where the money is. Williamson: Yeah. To me, it’s hard because people want you to say it has to be one or the other. They want you to say either you want progressive rates at the very top—and I think there’s no way around that as an approach to reducing wealth inequality in this country. I’ll tell you a story: Tom Paine, the guy who wrote Common Sense and famously said that the United States did not need a king, wrote The Rights of Man a few years later in defense of the French Revolution. In it, he includes a tax plan because he was worried about extreme wealth corrupting elections. It was a tax plan applied to income from wealth, and the top rate proposed by Thomas Paine in 1791 was 100%. He imagined that there should be a limit to wealth—explicitly saying “any level that you would possibly need to support a family, any amount that you could conceivably earn through your own effort.” But he thought a level of consolidation like the wealth of the lords and earls in rural England endangered a republic. So there’s a very long tradition in American politics of very progressive tax plans, and that’s an important part of thinking about the future. At the same time, we need to think about revenue that will be available in perpetuity, and come back to that old idea that this is our government and that’s why we pay for it. Krugman: Okay. So how long till we get a value-added tax in America? Williamson: I’m right there with you, yeah. I think it’s about seven economists behind the banner. Krugman: Okay. Well, this was great. The historical perspective is more and more important; you can’t understand where we are without looking back, and then looking forward with a little bit of trepidation, but maybe a bit of hope. Thanks for speaking with me today.