Transcription
David Westin: This is "Wall Street Week." I'm David Westin, bringing you stories of capitalism. The war in Iran has driven up the price of oil. The head of the International Energy Agency explains what's happened and what could come next. Plus, as Americans pay their taxes this week, are the rich paying their fair share? And should we care? And we need more electricity for everything from data centers to defense, which means we have to find a lot more copper to conduct that electricity. The U.S. is pushing hard to get back into a race it had largely moved away from. But we start with the state of the global economy, which was the focus of the annual IMF World Bank meetings in Washington this week. Hank Paulson attended those meetings for many years, first as head of Goldman Sachs and then as Treasury Secretary during the Great Financial Crisis. So, Hank, we have the war in Iran. Give us your preliminary take on what that could mean for the U.S. economy.
-So David, this is preliminary because a lot of it has to do with how long it's going to take. And it's going to affect a lot of things when you look at jet fuel, diesel, gasoline, petrochemicals, you look at the military spending, you look at the deficit, you look at the dollar, and so on. But what we know for sure is right, we know there's going to be inflationary pressures. We know interest rates are going to be higher longer. We know that fertilizer prices, the farmers will be hit and that will impact food prices. We know that the airlines are going to be under pressure. Certain petrochemical companies, military contractors will do better. This is impacting the deficit. So as I look at it, if this war isn't extended, it's not good for the U.S. economy, but we will weather it better than anyone else. I think the biggest, looking at the war, the biggest impact, potential negative impact to the U.S. economy is what it does to the global economy. And this is a real global shock. And if it lasts a while, right? Then there's a danger that turbulence in the markets will spill over into the U.S. And so that would be perhaps the biggest risk.
Westin: If there is indeed a global shock to the economy, you've dealt with that before in the financial crisis. There was a time that you worked hard to bring the globe together on how to respond to it. Right now, the globe seems to be going in all different directions, with the U.S. different from Europe, different from China.
-Yeah, that is, you've put your finger on the real difficulty. So the first thing is there's much more sovereign debt, not just in the U.S., but in Japan, really, all around the world. So you've got more debt. And then you've got a diversity of economic performance, right? At the same time, the U.S. economy is strong, China is weak. There are other strengths and weaknesses. So different macroeconomic policies, different monetary policies around the world. And so it's going to be very important to try to bring it together. That's why I think it is so important that the U.S. be talking with China and other major economies, monitoring what's going along, so they've got some basis to coordinate if and when there is a global crisis.
Westin: You mentioned China. Where is that relationship between the United States and China right now? Because it has been at odds sometimes.
-Well, it's clearly, so here's the way you look at it. You and I have talked before how it is, by far, it's going to really set the geopolitical and geoeconomic landscape for the foreseeable future. But this relationship is fraught, right? That's going to be fraught for the foreseeable future. No doubt about it. But they are a strategic economic competitor. They're the adversary when it comes to military and security. But our economies are deeply linked, which creates a kind of tension, but also a sort of stability. Because each country knows that the other can do things to seriously damage their economy. Neither country can afford a trade war right now. Each knows that if it spins out of control, it reverberates through the global economy. And so there's a... This is what I would call a period of mutually assured economic disruption, right? Which results in a kind of stability. And not from the fact that each side trusts each other, quite the opposite, but because the costs of escalation are so high. And so as I look at this relationship, each side wants stability. And as I look forward to the summit, when our two presidents meet, and they will meet, you know, it, you know, it's scheduled to be mid-May, and if the ceasefire holds, it'll be then. Otherwise, it could be delayed. But they will meet, because the Chinese, it's fascinating, they're saying, "Please, don't go to war with Iran, but please, come on over here, right?" They want to talk. They're going to welcome our president with great pomp and ceremony and symbolism, and they do it so well, and he will like it. But then the focus is, don't expect big breakthroughs. They're going to want to preserve stability, work on implementing existing agreements, right? And then they're going to want to put together some kind of mechanism to monitor trade and sort of set the rules and the responses and monitor trade, hopefully do something on the investment side. I think they will, so there'll be clear rules. But the last point I would make, and this is my biggest point here, is ultimately this competition, and there is competition between US and China, will be decided not by rhetoric, or even by negotiation, but by how each country does domestically dealing with their economic challenges and their political challenges. and of course, in the US, I believe, we have far less economic challenges than China.
Westin: When you took the job as Treasury Secretary, in your book "On the Brink," you talk about debt, about entitlements, borrowing too much money. You were worried about it. It was part of the reason you took the job was to address that. Look at where we were then and where we are now. There is so much less fiscal headroom to deal with any of the disruption you talk about.
-Wow, it's breathtaking, right? So the deficit is $1 trillion. We're on a path to have it be $3 trillion by 2035. $1 trillion is $7,800 for every household, right? And so you look at this, it clearly, we use the word "unsustainable" a lot, but this is on this path. It's on a path to destroy our economic well-being and our national security, which is rooted in our economic strength. The first rule of holes is to stop digging, right? And we're digging big time. So, but the good news is, and there is good news, we're a rich country. And so there's plenty we could do if we begin to act. It's going to take increased revenues, taxes, and dealing with expenses. And I know you can raise the revenues without a big drag on growth if you close preferences and loopholes in the tax code. And you can't deal with a problem unless you deal with entitlements, Social Security and primarily health care. And there, really, you can do that without putting a heavy burden. The last point I would make here is because I've worked with Congress before, and Congress doesn't like to do unpleasant things until there is an immediate crisis.
Westin: Are we any closer to having that emergency break the glass plan today than we were in 2007, when you were worried about it?
-Of course, I'm not there now, but I doubt it. I doubt it. And this is, there's so many things out there to deal with right now. I think, you know, to give credit to policy makers, when you look at wars in Ukraine, in Iran, you look at all the conflict around the world, you look at what's going on with AI, you look what's going on with the environment, there's a lot of stuff going on. But we should not forget the deficit.
Westin: When you were Secretary of Treasury, part of your responsibility, I think, was being steward of the U.S. dollar as a reserve currency, as the dominant currency in the world. As we look at the Iran war, does it pose a threat to the dollar's position?
-Well, what happens is, short term, what the war has shown is the dollar is, there's no other safe haven, right? So the dollar was declining for a lot of reasons that should have been declining, frankly. I didn't like to see it declining, but boy, in a crisis, the dollar strengthened. But I believe, to the extent it adds to our deficit, it poses a risk, a longer term risk. And that's why I really believe the independence of the Fed is so important right now. Because at the same time, because the independence of the Fed really increases the confidence that investors have in our economy, in our financial markets, and so on. And at a time when we're piling on so much debt, I think it's really important that we have that.
Westin: Has confidence in the Fed's independence already been undermined?
-It has... There's issues that are raised, right? But I look at it, I look at, you know, when you have a chairman of the Fed, you want someone who understands the markets, who is a good communicator, has a good understanding of sound economic principles. And I think Kevin Warsh meets those tests, right? And he's been before, he's done it. Now I think his job becomes more difficult, because there's independence of the perception of independence. How this transition between Jay Powell, who's just been a star performer, and got great credibility and integrity, I think how that transition is handled, and how the administration deals with it, is either going to make Kevin's job more difficult, or, you know, somewhat easier. But Kevin won't have an easy job anyway. And, you know, I compliment the Trump administration on selecting him, right?
Westin: Finally, private credit's much in the news these days, about the risk from private credit. I'm not going to ask you how much the risk is, but do we know what the risk is for the banking system, systemic risk?
-We don't know. But I do, we have to go through a credit cycle. And really what's been in the news is the fact that there's a preponderance of it going outside the banking system, into the shadow markets, right? And so people are worried about that risk. And we're not going to know until we go through a credit cycle. But at least my view is that there's some chance it'll actually be better, some chance, because the banks are highly regulated. And what happens when there's a crisis? The regulators push them to sell. Who buys it? Private equity. And private equity and private firms buy it and hold it, right? So it could be better, but we're not going to know until we go through it. We didn't know with the mortgage crisis the extent of it. And it's contagious and it can spread. So we could all depress ourselves talking about all these risks here today. But let's leave with the good news. Right now we're in the United States of America, and we've got the strongest, most resilient economy in the world and the best companies in the world. And it's a beautiful day outside.
Westin: Coming up, the war in Iran has disrupted world energy markets. We hear from the head of the International Energy Agency about how much and for how long.
David Westin: One of the most immediate and profound effects of the war in Iran has been on energy markets, particularly oil prices, which spiked, and this week had been up and down through reports of the possible opening of the Strait of Hormuz. And as IMF Managing Director Kristalina Georgieva said this week, the International Energy Agency is where we turn to get a read on that commodity.
-We need to understand from the data of the International Energy Agency not only what is the size of the disequilibrium between supply and demand, but also what is happening in terms of infrastructure damage, that even if the war is to stop today and the strait to open, would still have long-lasting impact.
Westin: Special contributor Chrystia Freeland talked with IEA Executive Director Fatih Birol about the state of the market.
-Dr. Birol, thank you very, very much for joining us.
-It's a pleasure. Thank you very much.
-So the IMF has downgraded its economic outlook for the global economy based on the war in Iran. What outlook do you have?
-Now the outlook we have is a bit depending on how long this disruption of flow of oil and gas through Hormuz Strait will last. If we assume that it will be over end of May, we will still have significant difficulties, but we may avoid the worst. So it will very much depend on how long the Strait of Hormuz will be closed to trade.
-So let's be optimistic for a moment and let's assume that everything is resolved by the end of May and there is free passage. What would the consequences of that be?
-So what will happen as soon as it is open, if we assume end of May, there are more than 100 tankers loaded with a lot of oil and about 11 LNG tankers loaded with natural gas, that will come to the markets. It will take some time, but they will go to the markets. It will provide an initial comfort. Having said that, to come back to the levels of production before the war will take some time, because several energy facilities in the region have been damaged. We monitor all these facilities, oil fields, gas fields, the refineries, pipelines. More than 80 facilities have been damaged and out of 80, more than one third are severely and very severely damaged. So that will be... We need some time to come back to the level of production before the war has started. The reason I'm saying this is that there is a general belief that the minute we see the strait open, hopefully soon, the next day we come back to the level of production before, which is, in my view, misleading.
-How much time do you think it takes from the minute the strait is open to getting back to the status quo ante?
-So it will gradually improve, but according to our analysis, it can take up to two years to see the big chunk of the production coming back to the before war levels. And some of them may be even longer than two years, especially some LNG terminals. So why I'm saying this is that we should be prepared to read volatile energy markets for some time to come. Hopefully, we see that the strait is open as soon as possible and this time frame is shorter.
-If the war is prolonged, what will the impact be?
-Then this will have serious implications for the global economy. I would be much more conservative and much less optimistic than the economic growth rates you have just presented. And here, the biggest problem will be energy importing, developing, and emerging countries. They are at the forefront, especially those in Asia, but also in the rest of the world, especially those in Africa. And let's not forget that if it continues longer, not only the oil prices will go up, but as a result of the disruption of the fertilizer supply, we may well see the food prices also going up. And this could damage the economies of emerging and developing countries whose currencies are weaker than the others, whose financial muscles are weaker than others.
-Are we seeing a shift in the types of energy being used around the world, maybe particularly in Asia and Africa, the country's hardest hit?
-Currently, we are seeing in Asia, there is a tendency to use more coal instead of natural gas, push the renewables. And I believe we will see that there will be a strong push for nuclear power in the countries to build new nuclear power plants, extend the lifetime of existing nuclear power plants.
-So, so far you've named electric vehicles and nuclear power. Any other winners?
-I meant in terms of the countries. I think Russia is profiting a lot from this. Russian oil revenues from last February to March about doubled because of the price levels and the volumes they are exporting, which I think is a development we should all take note of. Russian economy is linked to oil and also gas export revenues. As a result of this crisis we are experiencing now, the amount of oil Russia exports increased due to the lifting of some sanctions, relaxing some of the sanctions, plus the price of oil went up. And Russia now made an unexpected fortune for the oil and gas export revenues, especially oil export revenues, which I believe has not only some financial significance, but also in geopolitical terms.
-Prior to this war there was an emerging view that the Gulf States were maybe the Switzerland of the 21st century. Friends with everyone in this world of superpower competition and volatile geopolitics. We've now seen that they are also acutely vulnerable. What do you see happening there going forward?
-I think this is a major, major economic and reputational challenge for many Gulf States, for all of them, but some of them are hurt more than the others. For example, I cannot put Saudi Arabia and Iraq in the same basket. Saudi Arabia has more financial capacity than Iraq, and in Iraq, if I can tell you, 90% of the government revenues come from the oil exports. And today oil export revenues declined by two-thirds. And as a result, those oil export revenues are going down. And we will see that this government, this budget, pays about 15 million people's salaries for the pensions, their money will be interrupted. And as a result of that, all of the rather fragile political stability of Iraq can be further destabilized.
-What are the vulnerabilities that you see now ahead of us?
-I never understood, the entire global economy, it is about 110 trillion dollar economy, global economy, can be held hostage to a 50-kilometer strait with a couple of hundred men with guns. This doesn't make sense to me. Another important part of the global economy is that we are using certain critical minerals for our entire economy, for cars, for defense industry, for medicine, medical equipment, many, many parts of the economy. And the big chunk of the mining, but more importantly, refining and processing of these critical minerals is also dominated, concentrated by one single country. And now I believe it is time to look at the alternatives and diversification of the concentration of critical minerals mining, and more importantly, refining and processing.
Westin: Coming up, we may not need it for our pennies any longer, but we sure need a lot more copper for our data centers. Can the U.S. revive its copper industry to meet the demand?
Westin: This is a story of revival, revival of U.S. production of a mineral that's been around forever, but that has taken on new importance, requiring the United States to return to its past. The demand for electricity is exploding in the U.S. and around the world. And where there is electricity, there has to be copper. That's why global demand is expected to grow over 40% in the next 15 years. Our colleague Michael McKee went to Arizona to see how some companies are trying to rebuild production of the key mineral some of us may have taken for granted.
-An hour east of Phoenix, Arizona. Might be a little too big.
-We kind of reconditioned and repurposed a lot of old mining equipment.
-More than a mile beneath the desert surface.
-You get more comfortable once you're standing on the ground and you'll forget that you're so far below the ground.
-The mining giant Rio Tinto thinks it's found one of the largest undeveloped copper deposits in the world. We had a chance to tour the facility back in late March. The Resolution Copper Mine sits on an ore deposit that may produce as much as 40 billion pounds of the metal over 40 years.
-This is brand new.
-It's enough to meet roughly a quarter of projected U.S. demand. It lies almost 7,000 feet under the surface, just over a mile, equivalent to four and a half Empire State buildings. We went down into the mine with Resolution Copper's president, Vicky Peacey.
-The deposit is incredible. It's two billion tons at one and a half percent copper. It's the second largest undeveloped copper deposit in the world. That's 25% of the U.S. demand for copper. And the grade is very high, one and a half percent. Most of the copper that's mined in the U.S. today from a handful of mines that are very old, over 100 years, are less than half a percent of copper. So this is quite a rich deposit and it will be operated for decades.
-It's hard to overstate how dire the copper shortage is in this era of AI. Copper use is soaring, particularly for data centers and defense. By 2040, demand is expected to rise over 40%.
-We haven't seen a response on supply increasing by 50% year on year. Ultimately, if you want economic growth, if you want data center buildouts, if you want defense buildups, you know, you need copper.
-Aurian De La Noue is executive director of Energy Transition and Critical Minerals at S&P.
-I think one of the interesting snippets is, you know, data centers and hyperscalers are planning to spend about 700 billion dollars in CAPEX this year. So when you're looking at the top 30 mining companies in the world, like their entire CAPEX for this year is going to be about 100 billion tons. So on the demand side, you get 600 billion tons of CAPEX in data centers. And on the supply side, you get just 100 billion tons in CAPEX and mines. So there's a disconnect here between supply and demand.
-In the past, in the heyday of copper mining in the U.S., you'd find really great quality copper that was easy to mine, easy to process and easy to refine.
-Rosemary Katz is a copper analyst for Bloomberg New Energy Finance.
-Now the material is deeper and the economics means you have to remove more waste and hence you need more energy and time to process it. And those are the things that have been curtailing the number of new finds and investments into these these discoveries.
-Chile has always dominated global copper production. But in recent decades, the U.S. has lost ground to China, Peru, and the Congo, dropping from second globally.
-Our ability to bring on new supply is critical and our ability to keep the smelters we do have full is really a national security issue.
-The U.S. has more than 275 million metric tons in reserves and resources comparable to Canada and Australia combined. Yet only three mines have come into production since 2002. Regulation and legal challenges have meant, on average, a new U.S. mine takes nearly 29 years to go from discovery to production. That's six years slower than the global average.
-So it's really important that because this takes time, we need to start now. And again, every day that we delay Resolution Copper is another day that we continue to depend on foreign sources of copper. We have the resources here. And I think the United States can really take control of their own destiny as far as copper production and close that chronic deficit that has existed for decades.
-It's taken more than a dozen years for Resolution to do much more than drill a mineshaft.
-This is a good timing for you to be here.
-In late March, the very day we filmed there, the project finally got the go ahead.
-This is a region where there is double digit unemployment and the jobs are meaningful. The economic development is meaningful. A billion dollars a year into Arizona's economy. It's a really big deal.
-The competition is not only over who has copper in the ground. It is over who can process it, move it and turn it into usable metal fastest. China dominates that process, importing about 60% of global copper ore and concentrate and producing more than 45% of the world's refined copper, about 14 million metric tons in 2025 compared to 850,000 in the U.S.
-So the copper smelters, they've gone from 16 operating ones back in the 1980s to now just two operating assets in 2026. Some of them have closed because of environmental issues. Some of them have closed because of difficult economic situations. So now we're down to two processing facilities and actually the U.S. exports concentrate to other countries like Canada, South Korea, Mexico to get that mining product processed. So about 57% of the refined copper is imported from other countries for the U.S.'s domestic use. So there's a clear reliance on imports. Demand is growing by about 40% for the U.S. between now and 2040. And that demand is going to be driven by data centers. It's going to be driven by energy transmission and distribution. It's going to be driven by clean technologies. And so some of those aspects become almost a national security issue.
-When you talk about critical minerals and what we produce here in the United States, I think the mining industry gets forgotten about a little bit. I don't know if it's really underappreciated. I think it's just... it's just not really known to the general public. We take a lot of that stuff for granted that when you flip a light switch, the power just comes on.
-Nathan Foster is the managing director of Rio Tinto Kennecott, one of only two facilities in the United States that is home to the entire copper supply chain.
-From here, it goes through a crusher, it goes on about a five mile conveyor belt to a concentrator. What a copper concentrator does is it takes that blasted rock, crushes it, pulverizes it, and then we actually float copper, believe it or not. And so the concentrator makes about a 25% pure copper concentrate. From there, it's shipped to the north of us to our smelter and refining where it goes from a 25% copper concentrate through a series of refining furnaces.
-Fired by natural gas. They refine the ore into what are called cathodes, 99.9% pure copper.
-It's an absolutely fascinating, highly technical business. Kennecott, about 20% of all of this nation's refined cathode comes from our operation.
-Other companies are working on different ways to fill the copper gap.
-These are printed circuit boards.
-One promising strategy, recycling scrap into domestic supply.
-You can see copper traces.
-The German copper company Aurubis opened a recycling smelter in Augusta, Georgia, last year and is already expanding it.
-The U.S. produces around two million metric tons of copper-containing scrap annually, and it's very fragmented. It's across across the country and most of it is still landfilled and exported. Most of it is exported actually to China. So that's why also the local recycling companies and the scrap dealers, they welcome us coming here because they don't have to export it to other countries. They can keep it in the country. And so it comes from mostly medium and large recycling companies. There's different types of recycling material. There's, on one hand, there's the basic copper scrap. Then there's copper cables. But then there's also more complex recycling materials like circuit boards which contain copper, but also other metals like gold, silver, nickel, tin and so on, which are also attractive.
-And how much can you produce?
-Well, we just finished phase one here in Richmond site. There we consume 90,000 tons of recycling material and we produce 35,000 tons of blister copper. Now in summer we will finish phase two, which adds, which is doubling the capacity. So when phase two is finished, we will have an output capacity of around 70,000 tons of blister copper.
-We are aiming for about 180,000 tons of input material here for this facility. And we're also planning to produce 100, roughly 180,000 tons of product. So we're very close to zero waste, converting everything into other materials.
-David Schultheis is Aurubis Richmond's president.
-Back there at the end, you can see a higher grade copper material. You can see the tippish reddish color that comes with copper. For a layman looking at these materials, sometimes difficult to understand, is there even metal inside? I can guarantee you there is plenty of metal inside. This is really the material that we're looking for. And that's where the complexity is. Our main value contribution is to melt down the materials that we have, build the phases, separate the materials and bring the variety of metals back into the industrial life cycle.
-Scrap is just a portion of the story. So it's quite marginal, quite incremental. It won't close that gap that the U.S. needs to close. It needs to close about a million tons of refined copper. And scrap is just incremental gains.
-Usually markets are the key. The copper supply gap has prices for the metal near all time highs, and that has more mines, smelters and recycling plants on the drawing board. National security may drive regulatory relief, but for now, time remains the biggest obstacle. Copper may not get the attention of rare earths, but for the coming American economy, it's perhaps even more important.
-When you look at these hyperscale data centers that are really around AI, they can consume as much as 50,000 tons of copper in one facility. 50,000 tons, right? So put that in perspective of Kennecott, all the metal that we mine in a year would supply only four data centers. And so when you start looking around the fundamentals of that demand that's coming with AI and data centers, you can't build them without copper.
-So why is it important for investors to pay attention to all of this?
-Copper is the metal of electrification. It is what really fuels the economy. You've probably used copper maybe a dozen times so far. You know, by the time that you wake up, it is critically important. And the fact that it is needed so much in our daily lives, it's something everybody should be paying attention to.
Westin: Up next, it's tax time in the U.S. and the government sure needs the money. Can it get more by taxing the rich and should it?
Westin: This is a story about what we pay for civilized society. That's how Oliver Wendell Holmes described taxes, something we all pretty much recognize we need, but that none of us enjoys paying. And so we end up in an endless back and forth about whether we're paying enough, whether we're paying too much and whether everyone is paying their fair share.
-A subject that's very close to my heart and close to your wallets, that old jalopy of our tax system.
-Some say my tax plan is too big. Others say it's too small.
-Send me these tax reforms and I will sign them right away.
-In this act, we have officially made the Trump tax cuts permanent.
Westin: The debate's been raging since the time of the Gilded Age over 100 years ago when a constitutional amendment was needed to have any U.S. federal income tax at all.
-The introduction of the income tax in this country and its sort of history, which I've been interested in of recent, you can kind of trace its roots back to concerns about inequality in the first Gilded Age, you know, concerns that there was wealth that was being concentrated in these American oligarchs.
Westin: Natasha Sarin is a law professor at Yale, where she co-founded the Budget Lab.
-It was exactly in response to the needs of the fisc to finance itself and concerns about inequality and its rapid growth in society.
Westin: From the outset, the federal income tax was designed to do two things. Make sure the government had the money it needed and address extreme inequality in income and wealth. Flash forward to today and the federal government certainly does not collect nearly the amount that it seeks to spend each year. The Congressional Budget Office now projects federal deficits growing from 1.9 trillion dollars this fiscal year to 3.1 trillion in 2036.
-We have a terrible fiscal situation.
Westin: Steven Rattner is chairman and CEO of Willett Advisors, which invests the personal and philanthropic funds of Bloomberg founder and majority shareholder Michael Bloomberg.
-The only way we're really going to solve it is partly by raising revenue. We're not going to cut spending. There's no political appetite to do it. I don't even think it would be economically or socially wise. So, yeah, taxes have to go up. The second part of it is the question of who should pay the taxes and is the current system fair? And what you see going on, including in this California referendum that they're they're trying to get through, is a deep perception, which I share in this country, that the tax system is not fair, that the wealthy are simply not paying their share. One simple example is capital gains taxes. The current capital gains tax rate is 23.8%, as I'm sure you well know. From the late 60s till the late 90s, the capital gains rate was somewhere between 28 and 35%. And so it's lower now than it was then. I'm not sure what the argument for that is, given that government is being asked to do more and more. The problem that the California referendum is pointed at, which is a tough one to solve, is the problem of unrealized capital gains, that you have people like Elon Musk, Mark Zuckerberg, Jeff Bezos, pick your near trillionaire.
Westin: Charging less in taxes for income off of capital gains, as opposed to income off of labor, is based, at least in part, on the idea that it's not fair to tax income twice.
-Income that accrues to sort of owners of stakes in corporations, let's say, is taxed at two levels. It's taxed when the corporate tax rate is coming in and taxing the corporate revenues that have accumulated to a company. And it's taxed when those dollars are paid out, for example, in the form of dividends to shareholders.
Westin: But it's one thing to say we shouldn't be taxed twice on our income. It's another to say we should never be taxed on some gains at all.
-There has been a dramatic uptick in the share of that type of capital income that's really never taxed by the tax system at all because it's held by individuals and then passed down to their heirs, such that when it is passed down, any tax liability that accumulated in your lifetime is actually erased from the perspective of the tax system. And that potential for erasure, if you look at the top 1% of distribution, about 40% of their wealth. So a very significant amount of what Elon Musk or Jeff Bezos has in terms of what makes them have these staggering amounts, hundreds of billions of dollars, trillions of dollars in wealth, is exactly in those unrealized assets.
Westin: That way around ever paying taxes on gains on investments is called stepped up basis, where the value of an asset is deemed to be what it's worth when inherited, even if it's gained enormously in value while being held by the one passing it down to the heirs. Which means that trillions of dollars' worth of assets may forever be outside the reach of Uncle Sam. And what's more, the wealthy owner of the investment can enjoy the benefits without selling and paying taxes by simply borrowing against the asset and pledging it as collateral.
-If we take people at the top, what they have the capacity to do that regular people, frankly, don't have the capacity to do is say, instead of consuming based on my wages or something, I'm going to have a loan from a bank, let's say, and as collateral for that loan, I will hand them my stake in my business. And then they'll hand me some money, and I will consume out of what I have borrowed from the bank. The fisc never hits, the tax system never hits this activity in any way. So essentially, I am being able to consume out of pre-tax income and that advantages me relative to someone who is not being able to get access to those same loans to be able to finance their consumption.
Westin: There's no real doubt that the current tax system can benefit the very wealthy. But some say this is the wrong focus. It's not whether some people end up with much, much more than others. What matters is how they got there. Do you think that the most wealthy in the American society pay their fair share of taxes?
-I think that anytime you're thinking about whether anybody's paying a fair share or redistributing anything in accordance with fairness, it's a mistake to think that we would know the answer to that question by looking at the end output, by looking at the total result at the end of how it was distributed.
Westin: Jessica Flanigan is professor of leadership studies at the University of Richmond.
-And if they're investing it or how they're using it, whether it's a fair outcome for them to be taxed or not. And so when people say, "Oh, this person's not paying their fair share," I think a lot of times they think that there's some end state of fairness where we'll know, "Oh, this is the correct distribution."
Westin: What's more, Professor Flanigan takes issue with the idea of changing the tax system to deter the investments the very wealthy are making.
-If you care about the well-being of everybody in the society, but especially the worst off, isn't how the pie is distributed, but how much pie there is, how big the pie is. And so in some cases, if you're very progressive in your tax system, the highly regulated economy, we see that that's going to shrink the size of the pie. And that's going to mean that there's less up for distribution for everybody in the society. And everybody's missing out on the benefits from economic growth. And so I think we should be wary about increasing the progressivity of taxation for that reason, because you really don't want to mess with economic growth. That money is already doing work for the public good by being invested in the market. And so taking that money out and putting it into the government, I think would be, in a lot of cases, a much less efficient allocation of resources, because let's just think about what the government is spending money on. A very inefficient health care system, a basic income for older people. So we fixate on these people as if taxing them will solve all of our economic problems. It wouldn't. There's just not enough.
Westin: But are there specific things that could be done to change the current tax system to raise more revenue and reduce some of the national deficit and debt and not take away the incentives for hard work and innovation?
-There's both revenue and there's the perception of fairness here. There are 3 or 4 things that I would do if I could wave my magic wand. I would raise the capital gains rate, maybe not all the way to the 37% of ordinary income, because there have been studies that suggest if you raise it too much, you actually lose revenue, because people don't sell things, because they don't want to pay the taxes. I would eliminate the step-up in basis at death, whereby people can pass this stuff on and pay their state taxes, but not pay any capital gains taxes on what was made. I would make interest used to borrow against stock like that not deductible. I would eliminate the carried interest special tax loopholes. Again, not huge amounts of revenue, but there's such a perception that the rich get away with stuff out there. And some accuracy to that perception.
-I have a set of proposals with my co-author Kim Clausing that don't engage with some of the more novel tools like wealth taxes or the mark-to-market taxation of capital gains, but instead say, if you do the more sort of traditional ideas that have been in this space, things like eliminating the preference for capital income that is passed to heirs by getting rid of step-up basis and doing realization at death, and increasing capital gains rates slightly, you are able to raise something like $400 billion over the course of the next decade. And I think there is deep logic to that. In some sense, I think the idea that we should be thinking about tax tools that allow us to tax... People often say, or I often say, that we should have a tax system that taxes Paris Hilton, not Conrad Hilton. You know, so thinking about tools for like inheritance taxes that can be relatively simply administered and levied to be able to do better about encouraging, not just the taxation of capital income at the top, but also the transfer during one's lifetime of capital to its most productive use.
Westin: Whatever the better system might be for taxation, it comes back to that basic question of what we pay for a civilized society and what makes it civilized. Is it that people are roughly equal? Or is the real challenge making sure that the least fortunate have enough? As a society, would we be better off with less inequality? All of the things being equal, recognizing all things are never equal. But is that a cost for our society in having extreme inequality?
-That's a great question. There's a philosopher that I love who recently died, Harry Frankfurt. And he talks about something called the doctrine of sufficiency. And when he's talking about the doctrine of sufficiency, he says it's very easy to point to a distribution and to say, "Oh look, that distribution is very unequal," and to think that there's a kind of problem there. But most people, when they're looking at inequality, they think there's a moral problem there. The real thing that they're tracking is that some people don't have enough. And if we focused on making sure that everyone who doesn't have enough has enough, then the sufficientarians and the egalitarians will walk that path together for a long time.
Westin: Next, the special challenges in getting copper out of the ground in the U.S. There is stiff competition around the world to meet increasing demand for copper for a range of uses, from data centers to defense tech. Mining and processing is hard enough, but our colleague Michael McKee found that even getting access to the land where copper is found can be a challenge.
-Now, there's tribal land right next to you. And I understand that's essentially off limits?
-So, we're on private land surrounded by Tonto National Forest. And the closest Native American community is the San Carlos Apache Tribe, roughly 30 miles away to the east. And then the Gila River Indian Community is about the same distance to the west. But they argue that there's a sacred spot just beyond here?
-Well, so the campground is a place where some members of the San Carlos Apache Tribe have been holding ceremonies. And you know, the thing about this place, the Magma mine was in operation for many decades. And it coexisted with all the other uses that are happening in this area, whether they're recreation, cultural practices, off-highway vehicle use, exploration, ranching, all of those uses are existing in the same space. And really, that's what we're aiming to do, is to continue coexisting with all those uses, so everybody can continue to enjoy, whether it's climbing, or use of the campground for whatever purposes they intend, as we mine in parallel.
-Now, the legal process has been long and frustrating. What is it that you've been trying to accomplish?
-Well, I think that what's important for a project of this scale is that everybody has their say. It... You know, what we started with is a decade-long co-design with local communities. There're 6 local communities on our doorstep. There're 11 Native American tribes that have historical or ancestral ties to this area. And over that time, they rolled up their sleeves, they sat at the table with us, and we proposed an initial mine plan. And their collective voice forced major changes to that plan. So the plan that we have today really looks nothing like the plan that we started off with, but it means that we've incorporated their wants, and needs, and wishes into this plan, and everybody really had a say in directing it before the federal agencies were able to, you know, finalize an EIS. finalize an EIS. That doesn't mean that everybody, as you can imagine, when you're trying to funnel many voices into one outcome, inevitably some people will not fit in that funnel. And that's okay. That's what the judicial process is for. But we've gone through that extensively. We've won at every step. And it seems like we're really coming to the tail end of that, which is exciting, because this is a region where there is double digit unemployment, as high as 80% in some locations. And the jobs are meaningful. The economic development is meaningful. A billion dollars a year into Arizona's economy is a really big deal.
-Explain the court case that you just theoretically have wrapped up.
-So the court case revolves around the final environmental impact statement, largely, and the plaintiffs are arguing that it should be redone. And so those claims have been heard at the federal district court level shortly after the FEIS was published. The federal district court judge issued his 115-page opinion in August of 2025. Immediately afterwards, the plaintiffs sought an injunction or administrative stay to put the land exchange on pause, until the 9th Circuit, a 3-judge panel, heard those claims. They heard those claims on January 7th. And then they just issued their ruling on Friday. And so, you know, we're very pleased about that. You know, the United States government has spent an awful lot of time making sure that this EIS complies with the law, is responsive to stakeholder input, collectively, local communities and tribes, you know, stand to benefit from this. So I think it is really time for us to move on, and we're excited to start putting pen to paper and make those plans.
-Well, what's the land swap?
-So the land swap is, it's a congressional mandate that was part of a bipartisan package of bills that was championed by the late Senator McCain and Kirkpatrick, who is a Democrat in this region, as well as Representative Paul Gosar. And it was passed and signed into law by President Obama in 2014. And it directs the United States to transfer 2,400 acres above and adjacent to the existing Magma mine to enable the development of the future Resolution deposit in exchange for over 5,400 acres of lands across Arizona, which would be part of national forests and national conservation areas.
-What's your timetable? I realize you haven't started yet because you were waiting for the court decision, but once you actually get started, how fast can you ramp up in terms of production?
-Yeah, well, so we would like to mobilize drill rigs as soon as we possibly can, and secure those, so we can start collecting additional data from the surface. That's something we could do relatively quickly. The other thing that we're doing, is we are transforming the shafts from sinking mode to get them ready for development mode. And then we'll be ready to start tunneling out to and through the deposit so we can continue to collect data and get out to the ore body. Deposits like Resolution Copper are not common. It's like a needle in a haystack to find something like this. But it's also the co-products that can be produced from a mine, like Resolution Copper.
-You mentioned earlier, it's like a needle in a haystack to find this. How did they find the deposit here, given that there was a mine here for decades already?
-Well, Mike, that's exactly how they found it. When the Magma miners were mining underground, down around 5,200 feet below surface, they did exploration from that level. And what they got back was they thought they touched a separate deposit, very large, higher... you know, lower grade than what they were mining in Magma. They were mining about 5% copper with very, very narrow small veins. And they touched what's basically a large... It's called a copper porphyry system. And unfortunately at that time, Magma sold and they decided to close. So they weren't able to continue doing that exploration. But once Rio Tinto earned into the project and completed that in 2004, we extended some of those drill holes in the same location and made the discovery. But really it was the geologists from the Magma Copper in the mid to late 90s that really made the discovery. And that's how it came to be.
-So this could be something of a transformative project?
-I think so. I mean in any other developing country this would be a nation building type of project. And so for eastern, this sort of, sometimes I call it a forgotten part of eastern Arizona, it is a nation building project. It would be the largest private investment in eastern Arizona ever. And I hope it's transformative. I hope what it really does is, you know, at the end of the day, 3,700 jobs. We are going to work hard to make sure the majority of those jobs go to people in this local area. We want people to stay and raise their families where they have social networks. We want their kids to work here as well. And hopefully we can uplift the whole area, but do so in a way that is responsible and that society demands of us. Neither the San Carlos Apache tribe nor the Apache Stronghold responded to requests for comment.
-Their point of view, to me, because like I said, I live in a community, you know, I see my friends, you know, sometimes they struggle for jobs, you know, and to me mining pays great. You know, mining is a big thing.
-What's their objection?
-I believe some certain individuals and families feel that the area is sacred to them. And there's nothing wrong with them feeling like that.
Westin: That does it for us here at "Wall Street Week." I'm David Westin. See you next week for more stories of capitalism.