Speakeasy with John Harwood

2020 candidate Pete Buttigieg on taxing the rich and the future of American capitalism

Key Points
  • CNBC's John Harwood sat down with 2020 candidate Pete Buttigieg to discuss his approach to economic change.
  • Here's what he has to say about the future of American capitalism, a wealth tax, economic inequality, climate change and more. 
Pete Buttigieg on taxing the rich and the future of American capitalism
Pete Buttigieg on taxing the rich and the future of American capitalism

In the sprawling 2020 Democratic field, Pete Buttigieg may be the unlikeliest serious contender of all.

He's just 37 years old. He's the mayor of South Bend, Indiana, a city of barely more than 100,000 people. If elected, he would become the youngest president in American history, and the first to be openly gay.

Yet Buttigieg has a remarkably broad range of experiences and talents. After graduating from Harvard, he became a Rhodes scholar. He advised major businesses as a McKinsey & Co. management consultant. He won the mayoralty at age 29 and then, while serving, was deployed as a naval intelligence reserve officer to Afghanistan. He speaks seven languages and has performed Gershwin's "Rhapsody in Blue" on piano with the South Bend Symphony.

Even while officially just "exploring" a Democratic nomination bid, Buttigieg has ridden his millennial appeal past more experienced rivals in some polls and in fundraising. The $7 million he raised in the first quarter of 2019 exceeded the totals of Sens. Elizabeth Warren, Amy Klobuchar and Cory Booker.

As he prepares to formally announce on Sunday, Buttigieg sat down on Monday with CNBC Editor at Large John Harwood at a veterans service organization in Las Vegas to discuss his approach to economic change. What follows is a condensed, edited transcript of their conversation.

More from the interview:

On being a gay candidate: 'I'm not running to be president for any one group'
Buttigieg says experience as a mayor gives him an edge in the 2020 race
Buttigieg: Government has been 'in some kind of crisis' since Trump arrived

John Harwood: You have an unusually broad set of peer groups, angles of vision on the American economy as a mayor, as a veteran, as a McKinsey management consultant. What's right about American capitalism?

Pete Buttigieg: Well, American capitalism is one of the most productive forces ever known to man, and there's so much that this country has been able to unlock, especially in the last century, in terms of technology, in terms of prosperity. Now where it goes wrong is when it's only being experienced in certain parts of the country or by certain kinds of people, and I think it goes to show just how important it is for capitalism to work that it be backed by all of the other pieces that business alone can't solve. But when it's working right, there's nothing like it. It's extraordinary.

You think about the changes that have happened, the advancements in health, in communications in every field that had been led by our country. What frightens me is it's no longer obvious that our country will be the most important driver of advancements of humankind in the 21st century. Not unless we do some things differently.

John Harwood: Is that because you think the system is in some way rigged?

Pete Buttigieg: Yeah. It's pretty typical human behavior for people to try to make sure the rules work to their benefit. That's why the U.S. is based on the idea of a robust legal system and constraints on the excesses of anybody, especially concentrated wealth. And yet we're at this moment where concentrated wealth has begun to turn into concentrated power. More than begun. It's well underway. The thing that makes capitalism capitalism is competition. But as you have more and more corporate agglomerations of power, you're going to see less and less competition.

John Harwood: Is that the reason why you think we have expanding income inequality?

Pete Buttigieg: I think it's a vicious cycle. This didn't just happen. The economy is not some creature that just lumbers along on its own. It's an interaction between private sector and public sector. And public sector policies, for basically as long as I've been alive, have been skewed in a direction that's increasing inequality.

And a lot of this is the consequence of what you might call the Reagan consensus. There was a period where even Democrats seemed to operate in this framework that assumes that the only thing you'd ever do with a tax is cut it. That those tax cuts were assumed to pay for themselves. The empirical collapse of that supply side consensus, I think, is one of the defining moments of this period that we're living through.

John Harwood: Why do you ascribe it to the Reagan consensus as opposed to technological change, globalization, movement of capital?

Pete Buttigieg: Well, all of these forces interact. But none of these forces automatically have to make our society more unequal. If anything, globalization was supposed to create more equality among nations.

John Harwood: Well actually it has created more equality in the world. It's taken millions of people out of poverty.

Pete Buttigieg: Sure, it's lifted so many out of poverty. And by the way, there are ways that it can work for us at home, too. But again, we're seeing a concentration of wealth and power that skews things in the opposite direction.

The fundamental truth is, it turns out a rising tide does not lift all boats. Not on its own. Especially if some of the boats are sort of tethered to the ocean floor. And that's the kind of pattern that we've been on.

John Harwood: So how do you fix what's wrong without slowing down or harming what's right?

Pete Buttigieg: Well, first of all, we've got to define what success looks like. Is success just the number, the GDP? Or is success that more Americans are prospering? When you have that definition, it tells you that you have to rate these kind of exchanges between distribution and growth a little more evenly.

John Harwood: So there's an efficiency-equity trade off, and you're willing to make it?

Pete Buttigieg: There may be, yeah. I mean, look, it's great to say that it's all win/wins, and to some extent it is. I actually think an economy that's more equitable also tends to grow better. But if there's a win/lose equation, we shouldn't shy away from that. We shouldn't pretend that all of this stuff can be done — that you can make everybody better off while making nobody worse off. The reality is there are some people who are not paying their share. There are some corporations that are not contributing the way that they should. Until we recalibrate that, until we invest in things like education and infrastructure and health, investments that do in fact pay for themselves overall, some people may have to pay more than others. Because some people frankly are getting a bit of a free ride on the productive energy of this country and this economy.

John Harwood: Now, one thing that surprised me that you said in an interview the other day was that first of all, political change comes first. That is the set of issues, Supreme Court, filibuster, electoral college, because that is necessary to achieve policy changes that you need. But when you identified the most important policy change, it was climate, not the economy. Explain why that's the priority.

Pete Buttigieg: Because I think climate is the biggest economic issue of our time, too. What kind of economy are we going to have if cities are becoming less and less inhabitable, if we're experiencing crop failures and heightening natural disasters? The problem with climate is it wrecks our chance at economic security as well as physical security. So, of course, we want to continue building an equitable and a growing economy. It's just that we can't do that if we're totally ignoring the biggest threat our economy has seen since the Great Depression.

One reason you see traditionally conservative sectors like the military and like the business community way ahead of, for example, conservative politicians in this country on the issue of climate, is that the market, too, is beginning to recognize the stakes of failing to act and simply accepting what will eventually will be trillions of dollars in damage. It's not the planet as an abstraction that's going to be harmed. It's people. It's us. It's our economies, it's our societies, it's our communities. That's why this is such an urgent issue.

John Harwood: You think we need to raise a lot more money for the government. What are the things that strike you as the most achievable and desirable?

Pete Buttigieg: I think we certainly need to consider a higher marginal tax rate for top income earners. Maybe it doesn't have to be as high as it was historically, but we should at least admit that when it was higher, the American economy was growing pretty well. We should consider a wealth tax. I think it makes sense. I think one of the things that's appealing about it is it's not very distortionary compared to an income tax, and that's important.

The least distortionary tax probably is the estate tax, because you're dead. We should think about turning to a more equitable use of the estate tax, especially for the biggest and wealthiest estates. I'm interested also — if we could find the right way to implement it and the devil's in the details — in a financial transactions tax. Because you see preposterous levels of wealth sometimes being created around these millisecond differences in financial transactions that nobody can explain to us whether it adds any actual real value to the economy.

John Harwood: Even McKinsey can't explain whether that adds real value?

Pete Buttigieg: Even McKinsey, as far as I know. Look, the downside of any tax is it can disincentivize economic activity. So let's start by taxing by the economic activity whose value is hardest to prove.

John Harwood: Warren's wealth tax would raise something on the order of $2.7 trillion over 10 years. Is that the order of magnitude you're talking about?

Pete Buttigieg: Probably. I mean, look, we had something on the order of a trillion dollars robbed from the Treasury through the Trump tax cuts on the wealthiest. So even just getting us closer to being able to cover the deficit, with the services Americans count on today, is going to take us filling in a gap of that size. If we want to do more — if we want to have better infrastructure, which we absolutely need; if we want to deal with climate change, which is no longer optional; if we want to actually deliver on health care; if we want to continue to grow as the kind of country that can actually lead the world — then you don't get something for nothing.

John Harwood: Can you do everything that you think needs to be done while hitting only the wealthy? Or is there no rational plan for dealing with our fiscal challenges, as well as our economic challenges, that doesn't also hit the middle class?

Pete Buttigieg: If we're going to collect revenue from the middle class, then we have to be certain that it is going to be reinvested and returned to the middle class in a way that makes us and the middle class better off. So as a middle class taxpayer, I don't mind paying a certain amount in if it's going to come back to me in the form of health care, if it's going to come back to me in the form of education for my kids, if it's going to come back to me in the form of a better road to get me to my job.

John Harwood: How powerful is a racial consideration when you think about the scale of things that need to be done for the entire country?

Pete Buttigieg: We know that if we target inequality in this country, much of which arose not by accident but by deliberate racist policies, and they can perhaps be reversed with intentional anti-racist policies, that we're benefiting the entire society. We all do better when we all do better, as Senator [Paul] Wellstone said. We need to consider, first of all, that it's the right thing to do. Secondly, that this is not a favor to somebody, this is a restoration of a theft. And third, that if we get it right, you don't have to be somebody who is on the wrong side of a racial inequity to be better off for living in a country that did something about it.

John Harwood: Jamie Dimon recently put out a letter to J.P. Morgan that said, "The social needs of too many citizens have not been met." But he also says that tax cut that was enacted late 2017 was the irreducible minimum of what we needed to turn our economy around. What would you say to him?

Pete Buttigieg: The big problem in this country was not that it was too difficult to be wealthy. It just isn't the big problem in our country right now. It's not what led to the political instability we're seeing. It's not what's leading to diminished life expectancy, or the prospect of my generation is going to be the first in history to be worse off economically than our parents. What we could've done, especially if we were going to create a trillion-dollar deficit, is make the kinds of investments in infrastructure and education and health that would have made this whole country better off.

I also think that, no matter how educated or intelligent some of the people working in these industries are, they can quickly get out of touch with the reality on the ground. If you don't understand just how much anger there is in, for example, my part of the industrial Midwest — where it can be used in a very cynical political way to direct it against immigrants, or trade writ large, or against your fellow American, or even against Democrats, just because folks are mad and it's got to go somewhere — you're going to continue to see these destabilizing political outcomes like what we're living through right now.

John Harwood: Others say that the kinds of things you're talking about would be destructive of capitalism, that it's a war on the wealthy, that it would bring socialism to the United States. How how do you respond to arguments like that?

Pete Buttigieg: The crazy thing about arguments like that is how uncoupled they are from evidence. We don't have to speculate on what happens in a Western society that delivers health care to everybody, or that has more social mobility or that invests at a higher rate in infrastructure or education. We know exactly what happens. What happens is you're better off.

The American dream is slipping away. You're much more likely to experience that if you're a kid in Denmark right now than if you're in America. And while people can think up all kinds of excuses why something that worked in other societies hasn't worked here, the reality is, when we've tried it here in our history, it's also served us pretty well.

John Harwood: When it comes to cultural conservatives, you have said that progressives need to be mindful of the distance they have to travel, be sensitive to that. Do you think progressives also need to be mindful of the distance that some in business have to travel, when they think 'hey, they're coming after me?'

Pete Buttigieg: I think a lot of this is tonal. Look, the one thing I learned in the business community, and even more as a mayor engaging the business community, is that while we'd like to think of businesses as the most numbers-driven kind of discipline in America, in my experience it's one of the most emotional. So what's really important is that people not feel that they're being attacked — or at least they understand that if we're attacking a certain way of doing things, or a certain system, that this is not motivated by just angsty hatred. It's being motivated by serious and legitimate concerns about where we're headed.

John Harwood: We have seen in the last 10 to 15 years astonishing change in terms of cultural attitudes on issues like same sex marriage. Do you have any degree of expectation that we're going to see very fast changes of opinion on economic issues?

Pete Buttigieg: I think there is a tectonic change in economic policy. You can see it by the fact that the Republican Party experienced a hostile takeover on the part of, basically, economic populists. This is not just another four-year cycle. This is not just another election, and I don't just mean because of the character, or personality of the president.

I believe we're living through one of those moments just as when the New Deal consensus gave way to the Reagan consensus. We're living through the end of a 30- or 40-year era that defined American politics and helped to explain how Democrats as well as Republicans behaved in office. We're at the dawn of a new one.

We've got to make sure we have an account of economic change, as well as social, and political structures to handle that change, especially in the new machine age with automation transforming our relationship to the workforce. We've got to have answers that go a lot further than just saying "the current guy's rotten and we ought to throw him out."