The $79 Trillion Price of Inequality (with Carter Price)

Episode Summary

Executive Summary: The episode argues that decades of rising inequality have suppressed middle-class incomes, weakened growth, and worsened federal deficits. Guest Carter Price explains RAND’s updated estimate that if 1975 inequality levels had held, the bottom 90% would have earned about $79 trillion more by 2024. The discussion also previews a new open-source fiscal model designed to better capture distributional effects, tax-code complexity, and long-term policy outcomes.

Main Topics: Rising inequality since 1975 (Priority: 5/5): The hosts and Carter Price review updated research showing that income growth stopped being broadly shared after the 1970s, with gains increasingly concentrated at the top. Counterfactual cost to the bottom 90% (Priority: 5/5): They discuss RAND’s estimate of how much more income typical Americans would have received if inequality had remained at 1975 levels, emphasizing the scale of lost earnings. New macroeconomic and fiscal modeling tools (Priority: 5/5): Price describes a new RAND model built with modern data science methods to analyze taxes, spending, debt, and distributional effects more holistically than traditional models. Debt, deficits, and inequality (Priority: 4/5): The conversation links rising inequality to higher deficits and debt, arguing that lower middle-class incomes reduce tax receipts and increase reliance on safety-net spending. Tax-code complexity and industry-specific treatment (Priority: 4/5): Price explains how the new tax tool maps the 7,000-page tax code, identifies special provisions by industry, and can show how changes affect behavior and effective tax rates. Long-term policy evaluation (Priority: 3/5): The episode highlights the weakness of 10-year budget windows and argues for evaluating investments like retirement savings and preschool over longer horizons. Economic growth and demand (Priority: 4/5): The hosts argue that more equal economies grow faster because broader income distribution supports stronger consumer demand, innovation, and resilience.

Key Arguments: Rising inequality is not just a fairness issue; it has materially reduced the incomes of most Americans and weakened the broader economy. If inequality had stayed at 1975 levels, the bottom 90% would have earned vastly more over the last 50 years, showing the scale of the policy failure. The research measures outcomes, not causes, but it clearly shows that income gains have been concentrated at the top while wages for the middle and bottom stagnated. GDP alone is an incomplete measure of economic health because it can rise even when gains go almost entirely to a small elite. Modern fiscal modeling should be open-source, transparent, and able to connect tax provisions, spending flows, and real-world behavior. Traditional budget models often rely on simplifying assumptions and short time horizons that can distort policy conclusions. A more equal economy would likely generate higher tax revenue, lower safety-net costs, and smaller deficits. Broad-based income growth supports stronger consumer demand, which in turn encourages innovation and more resilient economic growth. Concentrating consumption among a small share of households makes the economy more vulnerable to shocks affecting high earners. Long-term public investments can look costly in a 10-year window but produce large fiscal and social returns over 20 to 30 years.

Data Points: Income gain if inequality had stayed constant: $79 trillion - Estimated additional income earned by the bottom 90% from 1975 to 2024 if 1975 inequality levels had persisted. Annual income gain in 2024: $4 trillion - Estimated extra income the bottom 90% would have earned in 2024 alone under constant inequality. Earlier estimate through 2018: About $50 trillion total; about $2.5 trillion per year - RAND’s prior study with Catherine Edwards covering 1975 to 2018. Share of Americans referenced in distribution estimate: Bottom 90% - Primary group said to have lost income to the top under rising inequality. Top income concentration: Top 2%, especially top 0.1% - Price notes the gains are concentrated beyond the top 1%, with the top 0.1% capturing much of the increase. National debt level: Roughly 100% of GDP - Current debt level discussed as comparable to the post-World War II period. Postwar debt reduction: Below 30% of GDP in 28 years - The U.S. reduced debt from postwar highs through growth, spending restraint, and tax collection. Federal deficit target discussed: Below 3% of GDP - Suggested benchmark for stabilizing debt over time. Tax code size: 7,000 pages and 1,900 sections - Used to illustrate the complexity the new tax tool is designed to map. Tax forms: 58 individual forms; 94 corporate forms - Examples of the filing complexity the model connects to tax-code provisions. Federal spending coverage: About 98% - USAspending.gov data used to trace where federal spending goes. Employer retirement access: About 50% of American workers lack access to a 401(k) - Used in discussion of the Retirement Security for Americans Act and related retirement accounts. Budget window: 10 years - Critiqued as too short to capture returns from long-term investments like preschool or retirement savings. Corporate tax rate change: From about 45% to about 20% - Hosts cite this as part of the broader shift that accompanied rising inequality. Effective tax rate on rich people: From about 50% to about 20% - Used to argue that tax cuts for high earners contributed to deficits.

Pivotal Quotes: "The rising inequality and growing political instability that we see today are the direct result of decades of bad economic theory." — Nick Hanauer: Opening framing of the episode’s thesis about inequality and policy failure. "Had inequality remained constant, the bottom 90% of Americans would have earned $79 trillion more than they actually did." — Carter Price: Core finding from RAND’s updated counterfactual analysis. "GDP doesn't capture. You can have the same amount of GDP if all the money is going to one person or a handful of people, or it's more evenly distributed." — Carter Price: Explanation for why the new model aims to go beyond GDP-only analysis.

Implications: The episode argues that inequality is a macroeconomic problem, not just a social one. For policymakers, it supports higher wages, fairer taxes, and longer-term budgeting; for listeners, it reframes middle-class income growth as essential to growth, stability, and fiscal health.