[FULL TRANSCRIPT BELOW] “When you subsidize something, you hide the cost to consumers. So they purchase more of it than they want to, than they meant to. More people will make it, but there’s less real demand for it … All subsidies and taxes turn prices into lies.”

In this episode, I’m joined by Grover Norquist, founder and president of Americans for Tax Reform. In a time of soaring inflation and economic hardship, we sat down to discuss what Americans can do to legitimately reduce their taxes.

“Consider moving to a state that doesn’t have an income tax or that has a single-rate tax,” says Mr. Norquist. “New York City: city and state personal income tax? About 14 percent-plus. Move to Miami: state and city income tax? Zero.”

How do corporate income taxes, subsidies, and bail-outs impact the economy? And what can the federal government learn from individual states about how to formulate its tax policy?

“Governments shouldn’t fix recessions. They should step out of the way, reduce taxes, reduce regulations, let prices reassert themselves … And as happened in 1921, and earlier ones, short recessions fix themselves quickly if everybody’s allowed to reallocate their resources, their time, switch jobs, and so on. But if the government says, well, here’s how we fix things—that’s how we got into the problem in the first place,” says Mr. Norquist.

FULL TRANSCRIPT

Grover Norquist: Good to be with you.

Mr. Jekielek: Today, we’re going to get Grover Norquist to tell us how we can reduce our taxes legitimately. A lot of people are experiencing financial issues. Various statistics say more people are going into their savings to buy food. People are seriously thinking about how to save and how to cut costs. Tax reduction would be a great place to do that, if it can be done legitimately.

Mr. Norquist: There are three places where you can reduce taxes. One is at the national level, but each of us has a limited ability to affect that. To get lower taxes, you need a Republican House, Senate, and president at the same time, with 60 votes in the Senate, so it’s not easy. But at the state level and the local level, the voice of the individual is larger. It’s easier to get people in your town together to go to town hall and stop a tax increase or reduce taxes or spending. Even at the state level, one person reaching out can make a difference, and some of these votes are close. But the most obvious way to do it is to relocate to another state.

You can have a voice and argue, but then there’s also the option of relocating. When people move from a high-tax state to a lower or zero-income tax state, they not only reduce their own taxes, they’re doing a favor for their neighbors. They can say to the politicians, “You need to treat my neighbors better because you lost me, but you’re also going to lose them. Don’t keep raising taxes and, in fact, start to bring them down.” It is a successful political statement to leave. But now, you also solve your problem by moving from New York City, with a city and state personal income tax of about 14 percent-plus, to Miami, with a state and city income tax of zero. Do you want a 14 percent raise? Just move.

Mr. Jekielek: What are some of the most oppressive places when it comes to taxes, and what are some of the best places? Miami and New York clearly figure in here, but can you give me some other examples?

Mr. Norquist: The reason for that is because New York State spends $230 billion a year. New York actually has a slightly smaller population than Florida. Florida spends 115 billion a year. New York spends twice as much per person at the state level as Florida does, so Florida doesn’t have to have an income tax. It’s not like, “Where do you raise the money?”

They don’t have to raise the money because they don’t spend the money. There’s $130 billion of money Florida doesn’t spend that New York does. Now, the roads actually work better in Florida than New York. The schools work in Florida, they’re as lousy as everywhere else, but not any worse than New York.

The functions of government work, but they have fewer bureaucrats. They don’t pay them as much, they make them work more hours in a week, and they don’t give them ridiculous gold-plated pensions. What you’re paying for in New York is the overpayment of government workers for the work done. It’s not like they’re building more bridges or roads than Florida.

How do you get to be a low-tax state? Stop spending so much. When you look at the problem states, New York is over 10 percent. If you’re looking at New Jersey, the top rate is around 10 percent. Now, Massachusetts is up to nine percent, and they were at five. They’re one of the few blue states getting significantly worse during the Biden years.

Washington state is getting bad. Others have said, “We can’t be getting crazier. We need to hold it down,” even California and New York. They’re in a bad place now, but they haven’t been getting worse in the last couple of years, because they see too many of their high-income people leaving. California has about a 13.5 percent tax rate. Minnesota—you'd think they would be sensible people in Minnesota, but evidently not. The tax rate is about 10 percent in Minnesota.

The 10 percent-plus club is California, Minnesota, New Jersey, New York, and now, Massachusetts. Illinois only has a five percent income tax. They tax everything else. But the income tax is not outrageous because it’s a single-rate tax. They’re scared to raise it, because they would have to raise it on everybody.

Mr. Jekielek: What about on the other side? We have Florida’s at zero, with Miami being at zero. There are also city taxes. Where are the other places that are like that?

Mr. Norquist: Seven states are at zero; Alaska, Nevada, Tennessee, South Dakota, Florida, Texas, and Wyoming.

Mr. Jekielek: Americans for Tax Reform is saying the reform primarily has to be at the state and local levels. You’re not seeing it happening at the federal level?

Mr. Norquist: We did get some reform during the two years when Trump had a Republican House and Senate. Then the corporate income tax was at 35 percent, which by the way was the highest in the world. Communist China only steals 25 percent of what a company makes. The United States was taking 35 percent. Then we wonder why we aren’t competitive. Europe is in the 20s. We took ours down to 21, which is good for corporations.

Our individual rates remain too high at the national level as well. The states can be the friend of competent, limited government, because good states discipline bad states. Truly stupid ideas can really only be passed at the national level.

You could never have done Obamacare at the state level because it would’ve been too obvious. Massachusetts passed the equivalent of Obamacare when Dukakis was running for president. They said, “See, we did national healthcare at the state level.” After Dukakis lost, they repealed it because they knew it was destructive and wouldn’t work, and it was just for show.

But they then proceeded with Obamacare to put in what Massachusetts had done at the national level. People said , “I don’t know, the economy seems to have slowed down. How did that happen? What was it? We don’t know, it could be anything, global warming probably.”

At the state level though, bad government shows up quickly when compared to your neighbors. Vermont passed single-payer healthcare. Then they repealed it because it was too destructive, didn’t work, and was non-competitive with the rest of the world. Bernie Sanders from Vermont watched it fail at the state level, and wants to oppose it nationally.

All ideas should first be tested at the state level before they’re allowed to get to Washington. If somebody says, “I got a great idea,” just say, “Experiment on Rhode Island, and let us know how it turned out.” There are 12 states right now where the governor and the legislature say, “We are on the road to zero. We are going to zero.”

Look at Iowa. First, they went to a flat rate tax from an 8.6 percent top rate down to 3.99 percent. It’s taken them three to four years to get that done. They have announced, “Then we’re going to go to zero.” When revenue comes in above spending limits, you permanently drop the income tax rate.

When revenue comes in above what you were going to spend, instead of giving it to the teachers union, you say, “We may give some to the teachers union, but the rest is going to all the people of the state to lower tax rates. North Carolina has been doing this for 12 years. They’re on track to go to zero. Kentucky has voted to go to zero.

Our friends in West Virginia have voted to go down to zero. Iowa has announced they’re part way there, and they'll come back and vote to go the rest of the way. Next door in Nebraska they said, “We’re going to do what Iowa is doing, except we’re not going to 3.99 and then zero. We’re going to 3.90 just under those spendthrifts in Iowa, that’s what we’re doing.”

Mr. Jekielek: This is a good example of it being implemented.

Mr. Norquist: In Arizona, they’ve gone to two-and-a-half, and then they’re going to zero. North Dakota, which had been leading the band, decided, “We’re quickly going to two-and-a-half on our way to zero.” Arkansas has announced that they are going to zero. North Dakota has announced they are going to zero, and they have started the process by cutting taxes.

Mississippi voted 100 to 14 in their House to phase down to zero. They had a problem in the Senate, so they just went part way, but the governor wants to go to zero, and the house wants to go to zero. We'll see if the Senate follows along. I think Mississippi will be at zero within the next 15 years. We’re looking at 12 states that in the next 15 years will be at zero, so add the 15 new ones to the seven.

New Hampshire will be at zero within two years. They’ve already passed the law to phase that in. They didn’t tax wages in New Hampshire, but they tax dividends and interest. That’s being phased down to zero. We'll have 22 states at zero in the next 15 years. Surprisingly, Idaho hasn’t joined the march to zero yet. Missouri hasn’t, but they should, and they will. These are solid red states with a taxpayer structure that people want to go down lower. They just haven’t joined the march yet, plus there is Indiana and Ohio.

Mr. Jekielek: The Trump era tax cuts have been criticized lately as empowering the rich, like basically funneling money to the rich. Some people say they’re not paying their share. When you look back at the balance of it, how do you view the effectiveness of those tax cuts, which I believe you were a proponent of?

Mr. Norquist: With the Trump Republican tax cuts, the corporate rate drop was very helpful. It’s why the economy is still doing okay even with all the damage Biden’s doing with inflation, because we’re taxing the corporate income at 21 percent instead of 35 percent. We have full expensing, although that fades after a few years. It’s very good for economic growth.

Because of those tax cuts, trillions of dollars flowed back into the United States that had been stored overseas and were going to be invested overseas. We also said we wouldn’t punish you for bringing money back. Under Obama, if you brought the money back, the government would have a 35 percent tax on the money you brought back from France. They said, “Go invest in France, don’t invest here. It’s better for you.”

That was U.S. policy under Obama and under previous presidents as well. The politicians like the corporate rate. Why do they like the corporate rate? They like the corporate tax rate because they think somebody else pays it. They think, “I don’t pay that. People don’t pay that. The companies pay that.”

Actually, if you raise taxes on a grocery store, the people who buy celery pay for that. That’s who pays for it. About 70 percent of the corporate income tax is paid by workers with lower wages and about 30 percent by people who can pay higher prices. It’s a tax on people that’s hidden, and that’s why the politicians like it.

Mr. Jekielek: The executive wages are growing substantially, maybe disproportionately to the value. This is what people have argued. How do you react to that?

Mr. Norquist: What used to happen back in the 80s was people would be paid a couple of hundred thousand dollars a year, which was a lot of money in those days. Then the company would lose money and people would say, “Why is he making $200,000 if the company’s losing money?” They turned around and said, “You should only be paid when the company’s successful.”

They changed most of the pay for managers to being more dependent on the value of the stock. They said, “We'll pay you in stock. Now, if you run the company into the ground, you get nothing. If you do poorly, the stock is not worth very much. But if we do phenomenally well, you will too.”

With those CEOs who are very successful, their stock market goes up, their employees get paid more, the company’s more valuable, all of their investors are doing better, and so are they. The incentive structure for management makes the company successful and wealthy. They hire more people and get bigger. If the money’s just in cash, it’s not as exciting. But if they’re paid in stock, I’m glad to hear that the CEO’s are making money, because it means the whole company’s making money

Mr. Jekielek: Negative interest rates set by the Fed have created the situation where a lot of money was made just by manipulating money, as opposed to making it by creating real value. How do you react to that type of an argument?

Mr. Norquist: We do want to get out of the financial maneuvering of being able to appear to create wealth. Sometimes those are signals that there’s something wrong with the way you’re organizing stuff, and you want to change the way you organize it. But I think the key thing is to keep tax rates low.

You tax income one time, not again, and again, and again. If you earn a dollar, you have to pay income taxes. If you put it in a bank, the interest you get is taxed. If you put it in the stock market, there’s a tax on the company that you’re investing in, the corporate income tax.

When you sell that stock, you pay capital gains tax. You’re telling somebody, “If you take a dollar and go out and buy liquor, you’re fine, we don’t need to see you again. But if you take a dollar and invest it in Microsoft, we come back and take a piece, and then take a piece, and then take a piece. If you’re stupid enough to die, we'll take half.”

We want the government to say, “We'll take one bite of the apple, then leave you alone, and won’t keep coming back chasing you.” We want people to invest and save and don’t want to discourage that.

Mr. Jekielek: This is one of the reasons why a lot of people didn’t know they couldn’t just save their money, for example, because there’s no return on their savings.

Mr. Norquist: That’s why the stock market is important, and why 401(k)s and IRAs have changed the world. Back in 1960, only about 10 percent of Americans were in the stock market. Today, many people’s pension is a 401(k), is an individual retirement account, and is a defined contribution pension. What’s defined is how much you put in. Between 50 and 60 percent of Americans now own shares of stock directly, not indirectly through life insurance, but directly.

They can monitor their account. Every month, they get a little statement saying what their 401(k) or individual retirement account is worth. You saw during President Trump’s presidency a tremendous increase in the value of your life savings. Under Biden, your life savings have gone down. You are poorer. The richest American is poorer, and middle-income Americans are poorer in their life savings because the stock market has gone down.

Mr. Jekielek: I had David Stockman on the show recently, and he sees a bubble now despite everything you just said. He doesn’t believe that the place to put money at the moment is in extremely safe things. This is more talking investment and less taxes, but I’m curious how you would view that.

Mr. Norquist: It is clear that the Biden administration is moving much of the country’s savings, which they tax, into malinvestments and political investments. They say, “Let’s invest in electronic trucks.” Really? Are we sure there’s a market for that? No, we’re so sure there’s not a market for it, that we’re massively subsidizing it in order to get anybody to pay for it.

The government is creating an entire collection of industries largely in the make-believe energy zone where they subsidize you to use solar rather than natural gas or coal or nuclear. Whenever the government tries to fool you about what the price of something is, claiming, “It’s subsidized. It’s less expensive,” no, it’s not less expensive.

Mr. Jekielek: You’re paying for it a different way.

Mr. Norquist: You’re paying for it in taxes or your neighbors are paying for it in taxes. It gives the wrong signal to investors, saying, “There’s a lot of demand for this,” but only as long as Congress keeps writing checks.

Mr. Jekielek: Please define the make-believe energy sector. What does that mean?

Mr. Norquist: That is any part of the economy that only exists because it’s subsidized by government taxes, and by taking money from people it subsidizes. That’s not a real market, that’s a subsidized market. It understates the true cost, but overstates the value. The government throws money at universities, and two-thirds of the cost of going to a university is actually for the research professors do, not for the teaching.

A lot of money gets sent to universities, and only a fraction of that is actually spent on teaching, and only a fraction of that is spent on teaching anything that helps you make a living. French art historians are interesting, but a good way to study that is probably on your own time. It’s not going to get you a job, and it won’t get you a raise.

Why are you borrowing money to do that? You wouldn’t borrow money to take an art appreciation course just because it’s fun. It’s good to spend money on learning things, but some of it’s just for fun. Some of it is actually an education for life to help you pay the bills.

What are the things that prices have gone sky-high on? Many things, given Biden. Even more than the 5 or 8 percent inflation, you’re looking at healthcare and hospitals. Hospitals are wildly subsidized by the government. The pharmaceuticals which the hospitals like to point to as if that was the problem, have been growing lower than inflation. Those prices are fairly competitive compared to hospitals and health insurance, because they are subsidized by the government.

So much money flows in where people can get rich from malinvesting, or investing in the wrong areas. The same thing is true when you have make-believe energy, which are certain kinds of energy that don’t exist in the real world. They only exist in captivity from being subsidized.

Solar energy works at certain points because it’s subsidized. Because it’s intermittent they pass laws requiring other people to provide the base load energy. Then they’re allowed to come in and sell it even when nobody wants their service.

Mr. Jekielek: What about individual people? What can the individual person do? Where should they look?

Mr. Norquist: Take advantage of the tax-free savings in individual retirement accounts, 401(k)s. There’s some limits on what percentage of your income you can put in, and how much you can put in a year, if you can afford to hit those limits. Save as much as you can long-term, because the buildup tends not to be taxed. They are each different.

There’s front-ended 401(k)s as well as back-ended ones. Tax-free savings are very helpful and a way to accumulate. The other one is just make sure you have a lawyer dealing with questions on writing your will. There are different ways to organize how you leave your money to children that are more or less easily taxed.

The other piece is to consider moving to a state that doesn’t have an income tax or that has a single rate tax and is on the way to zero. Move to a state that’s not spending too much money. A low-tax state that’s spending too much money, Alabama, may end up being a high-tax state in years to come if they don’t fix that. When you move to another state, there’s not just lower or no income tax, but lower property taxes and lower sales taxes. Focus on those as well.

Look at the fact that 16 states now have passed education savings accounts. If you want to homeschool, or go to a charter school, parochial school, or to a public school you’re not assigned to, in Florida, for instance, they will give you an $8,000 check per child, because that money follows your child.

It doesn’t go to a building that then says, “You can come into the building if you want.” Maybe it’s not doing a very good job educating children. That $8,000 can go to you for homeschooling, charter school, or parochial school. Younger people are starting their lives and deciding to have children.

If you have four children, that’s $32,000 a year towards how you want to educate them in Florida. There’s similar numbers for Iowa, and similar numbers for Arizona. At first, states were saying, “We'll give you half of the money that the state spends to take anywhere you want. The other half stays in the public school.”

Over time, you’re going to walk out of the door with all of the money the state spends, because why shouldn’t you have control of all of the money that’s set aside for your child’s education? Why would some of it go to a school nobody wants to go to anymore? The amount of resources per child that parents control is going to go up and the amount that goes into buildings rather than children is going to go down.

Mr. Jekielek: You’re actually providing a service for the social good by moving. Look at a state like California that experienced a great reduction in population because of its policies.

Mr. Norquist: I’m going to agree. Hawaii has been emptying of people. Sometimes people say, “It’s just the weather.” There are a couple of liberal economists who say, “They’re not leaving high taxes, to go to low-tax states that are better managed. They like the weather.” Actually, people are leaving Hawaii at the same rate they leave California. California, by the way, has got some of the best weather in the world. What are you talking about?

Mr. Jekielek: It’s not obvious to me at all that they’re actually changing their policies. If anything, some of the policies that I’ve heard about are actually quite astounding, especially in the medical realm.

Mr. Norquist: In California, Governor Newsom stopped an effort to raise the top rate again. Cuomo in New York stopped an effort to raise the top income tax rate. The beginning of wisdom is that when you’re digging yourself into a hole, stop digging. They’ve stopped going crazier on taxes, temporarily anyway. The more people leave California and leave New York and leave New Jersey, the more likely it is that the rates in those states will begin to come down.

Mr. Jekielek: There’s a lot of subsidies in hidden places to promote various types of policies, which the market wouldn’t. In some cases that makes sense, but we’ve just overdone it dramatically. Is that your sense?

Mr. Norquist: All subsidies and taxes turn prices into lies. The whole point of prices is to say, “When the price of steel goes up, I'll start a new steel factory because there’s money in steel.” Then more people invest in steel and the prices come down a bit. Or people say, “We could use aluminum here.”

The price tells you how much people want steel. With a very high price, more people will make steel. When the price of gold goes up, more people look for gold. When the price of being a lawyer goes up, more people go to law school. You want those signals.

If the price of something goes up, people say, “I could buy something else. I don’t have to buy a hamburger. I could buy something different, another kind of meat.” When you subsidize something, you hide the cost to consumers, so they purchase more of it than they meant to. More people will make it, but there’s less real demand for it. You have that with some of the make-believe energy stuff. That energy is not actually producing more energy than it consumes during production.

When you heavily tax people working on Saturdays, people stop working on Saturdays. They say, “It doesn’t really pay to work on Saturdays. The government takes so much of my money. Why would I invest? If they’re going to tax my investments, I'll just consume. I won’t invest.” With taxing investment or work, you get less return.

Mr. Jekielek: But that’s indeed the whole purpose of subsidy, isn’t it?

Mr. Norquist: Yes.

Mr. Jekielek: It’s to change behavior, correct?

Mr. Norquist: It’s a bad thing on purpose. The politicians lie to the American people about what they’re doing and why. They say, “We’re helping people with the subsidy.”

Mr. Jekielek: Or we need to transition to renewable energy, so we’re going to subsidize renewable energy so that there’s more development in that space, and hopefully, more R&D. That’s the philosophy.

Mr. Norquist: When you put in mandates and when you outlaw other things like fracking, you change all the incentives. You’re no longer doing what the people want, you’re doing what the bureaucrat wants.

Mr. Jekielek: Some people would say it’s always been like this, and that the bureaucrat knows best.

Mr. Norquist: Most people came to the United States because there were kings and aristocrats and warlords who said they knew how to run your life. God appointed them, or their good breeding appointed them, or the fact that they had more guns than you appointed them to make these decisions for you. People came to the United States and said, “I'd like to make my own decisions.”

We’ve got a bureaucracy which acts like the French aristocracy. They think they’re smarter and better than other people, and that they should be making the decisions. They should force people to live by the decisions they make, while they fly around in corporate and individual jets.

The rest of us should be eating bugs because it’s good for the environment. Evidently, that’s the new thing they’re getting us ready for. I’m not ready for that. But there’s a pushback in the United States against this self-appointed aristocracy.

Mr. Jekielek: What should the role of experts and bureaucrats be in the system?

Mr. Norquist: Any study that some expert says proves X should only be taken seriously if the entire experiment and study is online and transparent to everyone. They have studies which are peer reviewed, which means your friends lie and say you did a good job so that you'll say that their study was fine five years from now. Then they say, “But you can’t look at the study. We’re the experts. We will tell you the study says to do X.”

No regulation or law should ever flow from a secret study with secret evidence and secret facts. If it’s a real study, put it online so anybody can look at it and say, “That’s true. That makes sense.” You don’t have to be an expert, but there are thousands and thousands of experts who have no financial interest in somebody’s study who could look at it and say, “Well, there are three mistakes there.”

They may be big mistakes, they may be little mistakes, but how do you learn if somebody puts up something saying, “Everybody has to do X because my study says so, but I won’t show you the study”? A lot of very bad regulations are made with very bad information. How would you know it’s bad information unless it was transparent and available? If it’s real science everybody should be able to look at.

Mr. Jekielek: I’m going to endorse that statement.

Mr. Norquist: Good.

Mr. Jekielek: I don’t usually do that in these interviews, but having come from that background, I wholeheartedly have to agree. Now, let’s think about the future. There have been significant amounts of money spent, and we’ve got this inflation situation. Around taxes, what would your advice be to the current federal administration?

Mr. Norquist: You should take the corporate rate down to at least 15 percent, and we should take the individual rate back down to 27 percent, where it was when Reagan left office, and move towards a single rate tax. Let the growth of the economy bring in more revenue rather than trying to keep raising taxes, which slows the economy.

Mr. Jekielek: Let’s say David Stockman is right and this whole stock market is in a massive bubble and that there’s going to be a reduction in value or a correction, does all that still hold true?

Mr. Norquist: Yes, absolutely. If it turns out that because of government policy, there’s a bunch of malinvestment and it collapses, the last thing you want is the government managing how you rearrange things. No, stay away. In 1921, we had a recession. The government stayed out of it, and it got fixed in 18 months. Then in 1929, there was a recession, which the government decided to fix, and it lasted for more than 10 years as a depression.

Governments shouldn’t fix recessions. They should step out of the way, reduce taxes, reduce regulations, and let prices reassert themselves. As happened in 1921 and with earlier ones, short recessions fix themselves quickly if everybody’s allowed to reallocate their resources and time, and switch jobs. But if the government says, “Here’s how we fix things,” actually, that’s how we got into the problem in the first place.

Mr. Jekielek: Grover Norquist, it’s such a pleasure to have you on the show.

Mr. Norquist: Thank you.

This interview has been edited for clarity and brevity.