Episode Transcript
[00:00:00] Speaker A: Welcome back to the Price youe Pay. I'm Roger Shindell. We ask when government and our big business decides who made the decision, benefits, who pays, and whether the evidence holds up. You're watching NOW Media tv. I'm Roger Shindell.
Politicians love to talk about
[00:00:17] Speaker B: taxes.
[00:00:18] Speaker A: They promise to cut them, simplify them, raise them on
[00:00:22] Speaker B: someone else, or use the tax code to
[00:00:25] Speaker A: encourage the things they want us to do.
[00:00:27] Speaker B: But when the tax code changes, who actually benefits? And just as importantly, who ultimately pays the price?
My guest today is John Mitchell, who brings a particularly interesting perspective to that question.
John has seen the American tax system from both sides of the desk as an IRS appeals court officer and through decades of helping and representing taxpayers.
So today we're not going to talk about how to fill out your tax return.
We're going to ask some larger questions. Who really benefits from our tax system? What happens when we dramatically reduce the irs? And has the tax code become a way for government to pick winners and losers? Because every tax break, every deduction, every enforcement decision, and every dollar we borrow has consequences.
And eventually someone has to pay.
John, welcome to the pay the price you pay.
[00:01:29] Speaker C: Oh, my goodness. Roger. Oh, man. Thank you so much for that warm welcome, that big introduction. I am so excited. I'm pleased, I'm overflowing with joy to be here on the show with you today and to be able to bring some good insights and information for the folks out there. Thank you so much for the big invitation
[00:01:47] Speaker B: and we're happy to have you.
So let's go ahead and get right in.
So when we move beyond marginal tax rates and look at deductions, credits, capital gains, business ownership, investment income and tax planning, does the system select differently for different Americans?
[00:02:07] Speaker C: Yeah, I mean, that is, man, we have zoomed way out and talk about the big picture there. Right. I think that, you know, if you wanted to talk about something like a flat tax or like a sales tax, for example, you know, you could talk about how Elon Musk can go to the store and buy an item and he's going to pay the same sales tax that I pay, and I'm going to pay the same sales tax as, you know, somebody on the way on the lower end of the spectrum economically. Right. So that's kind of. And a lot of people on certain part of the political spectrum will talk about, oh, well, that is, that's a regressive tax because, you know, If I spend $1,000 and pay $80 worth of taxes on it as a sales tax, well, that's going to affect me at a certain level, it's not going to affect that. $80 in taxes is not going to affect Elon Musk at all. He's not even going to feel it.
But then again, you know, another person that's way earns way less than I do is going to feel it a lot more.
And so one of the things about the income taxes, they try to kind of dull the sharp edge a little bit, so to speak, and not make it so regressive, kind of, kind of even things out, right? And you know, I have a funny, funny little story about, I had this discussion with a friend of mine many years ago, an attorney, and he told me, John, he says, think about it this way, he says, because I said, well, why should somebody that makes more like if you have a 10% tax and I make $100,000, I pay $10,000 tax, right? If I make a million dollars, I'm going to pay $100,000 tax. So that same 10% amount is going to follow through, right? But my question for him at that time was why is it that the tax rates climb up, right? Like, why should I pay 10% and somebody else should pay 15 and somebody else should pay 20%?
And his answer to me, and I'm not saying this is right or wrong, but just it kind of made sense when he said it to me.
I've been able to kind of, you know, capture that in my mind, understand it a little bit. You know, he's, you know, the guy that makes a million dollars a year is getting a lot, get in a lot more benefit from the government than I am. Because if the government, let's say the fire department is there, right? And it costs a certain amount of money to fund the fire department. He's got a big mansion. So if his big mansion burns, you know, maybe it's going to cost him a lot more money than if my tiny little shack burns. And, you know, and so, so he's getting a greater level of protection economically. You know, even the roads, the freeways, the ports, you know, the more money you have, the more protection, the more benefit you're getting out of the government. And so, you know, that kind of, that kind of, that kind of stuck with me.
[00:05:13] Speaker B: So let me ask you a question. So when we implemented the tax rate, we decided on what you're describing as progressive tax rate, where the more you pay, the more you pay in taxes,
[00:05:24] Speaker C: right?
[00:05:24] Speaker B: The more you make, the more you pay in taxes.
Do we really, today's environment have a progressive tax rate? With all the kinds of deductions and things like carried interest and capital gains.
Do we have a progressive tax rate or tax system the way it was ultimately designed to
[00:05:41] Speaker C: be? No, no, no. Because the way it was designed, the overall idea is that, you know, again, like I said, if you're talking about if, if you, if you're going to advocate in favor of a progressive tax system, then you're talking about advocating that wealthier people should pay a bigger percentage. Right.
And in the end, they've got more left over in the end, anyway. Right. But with all the loopholes that. That's written in, you know, to the tax code.
Tax code. Last time I checked, the IRC and the regulations were something around 17,000 pages.
And so taxes are complicated. Everybody knows that. And by the way, there are an average of two changes to the tax code or the regulations every three days. So every three days, two changes, three more days, two more changes, three more days, two more change. So, and the problem is that we have today, and I know this is, I think this is what you're getting at.
You know, people at the upper end of the spectrum can afford to pay somebody like me that can figure out loopholes and can figure out ways around, you know, around paying as much taxes. So, you know, we could have that whole discussion about closing up loopholes.
[00:07:02] Speaker B: Okay, so when politicians talk about cutting your taxes, how should the ordinary taxpayer determine whether he or she is actually better off?
[00:07:14] Speaker C: Right. Well, you know, any change that they, that they make to the tax code has winners and losers. Right. I'll just put it that way.
So, you know, a thing that benefits one does not benefit somebody else. Like, like, let's say home mortgage deduction, let's say two people each people. Each person makes $100,000 a year. Right. One of them is a homeowner. So this homeowner is spending a certain amount a month, but he's getting, let's say, a deduction against the property tax as an interest that he pays.
[00:07:48] Speaker B: But let's go back to the actual question. How is a voter supposed to decide whether when a politician tells them that they're cutting their taxes, that that in fact is what's happening?
[00:08:01] Speaker C: Right. Well, you have to take a look at the provisions. You, you know, part of it is we need to have an.
If you're gonna participate in government and you're gonna be a citizen of this great country that comes with it, a responsibility to kind of keep up with current events and keep up with what's going on, part of that is Keeping up with all the changes and lobbying your lawmakers to make changes that are gonna be a little bit more beneficial to you.
[00:08:33] Speaker B: And how does someone who doesn't really pay attention, how can they decide that? I mean, someone who has money can go ahead and hire someone like you to address those issues for them, a tax planning strategy, but someone working on an assembly line isn't going to have that opportunity to get that kind of advice in terms of how they're going to decide to who they're going to vote for.
[00:09:01] Speaker C: Right. And that's, you know, that is a, that's a, that's a big issue. But like I said, I mean, if you're going to be a participant in this great country of ours, you have to kind of have the responsibility to keep track of that stuff as best you can. You know, the IRS spends a lot of money on outreach. They've got stakeholder liaisons, communication liaisons that their entire job is to get out there and get this information out to the public.
[00:09:28] Speaker B: Okay, very good. Thank you.
We're running out of time.
So tax policy is easy to describe as a percentage. The harder question is what happens after the headlines? Who receives the benefit, who doesn't? What changes somewhere else in the system affect different people.
After the break, we're going to look at another popular promise, a smaller IRS and what taxpayers may gain or lose when the agency is reduced.
So any final thoughts, John, before we close? Wrap this section up.
[00:10:06] Speaker C: Final thoughts again. You know, these are discussions that can go on and on because they're kind of circular. Right.
And that's part of the messiness of being a representative republic or democracy. Right. It's kind of, you know, it's kind of a messiness of it, isn't it? Yeah.
[00:10:26] Speaker B: One of the things I would probably say is I would think that with the advent of artificial intelligence, you know, people could use AI to determine what someone is saying about what they're going to do with taxes and be able to ask the question, are tax is going to benefit me or benefit someone else?
So there are opportunities to educate yourself on what the effect of the taxes will be and.
Interesting topic. Not sure we're going to be able to get to that, but I appreciate your comments on this first segment. And we'll be back in a few minutes to talk about our next topic.
[00:11:11] Speaker C: Perfect.
[00:11:12] Speaker A: The decision may be theirs, the price may be yours. We'll be right back. Welcome back to the price you Pay. I'm Roger Shindell. Let's get past the talking points and back to the evidence.
[00:11:26] Speaker B: Welcome back to the price YOU pay. Stay connected to this show and every other NOW MEDIA TV favorite live or on demand, anytime you like. Download the free Now Media TV app on Roku or or iOS and non stop bilingual programming in English and Spanish. On the move. Catch the podcast version of WWW.
NOW Media tv. From business and news to lifestyle, culture and beyond, NOW MEDIA TV is streaming round the clock, ready whenever you are.
So welcome back to the price YOU pay. I'm Roger Shindell and I'm here with John Mitchell. Before the break, we looked at who actually benefits when the tax code changes. Now I want to look at the institution engaged, charged with administration and enforcing the code, the irs. And what happens when this capacity is reduced?
So, John, a smaller IRS sounds attractive to many taxpayers, but what actually happens when enforcement, appeals, technology, taxpayer service and capabilities are reduced? I know for myself trying to get a hold of the IRS and getting an answer is a long and arduous process.
Trying to get a hold of them on the phone or a chat is virtually impossible.
So what's your thought on the decreasing size of the IRS and the lack of services that historically had provided?
[00:13:02] Speaker C: Right. Well, that's, that's an interesting, oh my God, that's such an interesting topic. When I, when I worked, by the way, for the IRS, there were over 100,000 employees.
As we sit here today, they're in the low 70s, maybe 72,000 or so. You know, number fluctuates every freaking day, Right. But you know, it's in that low, in the low 70s. And so you think about any organization and you got institutional knowledge, the guy that's been there, you know, I sometimes say Bob, right, Bob that's been in that, you know, in that dusty office for 20, 30 years. Right. But he knows everything. He knows the contents of the supply closet without opening the door and looking inside. Right. And Bob knows all the little secret ways to fix things. And when something goes wrong and the people, everybody else are looking at themselves, looking around, but what do we do? Well, better ask Bob. Right. And so part of the problem with the way that this most recent reduction at the IRS took place was, you know, instead of taking a scalpel and cutting out very particular things, they took a machete and just started chopping things off, Right. And so a lot of people, when I left the irs, a lot of people were taking those deferred resignations and walking out the door. And, you know, people that have 20, 25, 30 years of service and kind of know what they're doing and so one of the things that you lose when you do stuff like that is competence, right?
And you, you said it yourself when, when you tried calling the IRS about some issue or whatever, you can be on the phone for hours with them. Right?
And that's my same experience as well. You call, you wait two hours on the line, somebody answers the phone and they tell you, oh my, you know, my computer's down, my Internet's broken, my, you know, whatever the case may be, you know, I'm about to time out of my shift, I can't handle your problem, hang up and call back, right. I've been told. And so, you know, that can be frustrated. And so a lot of times we want service from the irs. It's in the, it's in the letter, it's in the name of the, of the organization, right. Internal Revenue Service. So we call up as taxpayers, we want that service that we deserve.
And you know, sometimes the staffing problems and be, you know, stuff related, things like that, the lack of resources can really, really affect that and not give us the service that we really need.
[00:15:41] Speaker B: Can you give me an idea or a sense of how the division of labor is at the irs? How much of it is customer service? How much of it is enforcement?
[00:15:53] Speaker C: Yeah, yeah, yeah, I could talk a little bit about that. Sure.
You know, when you talk about customer service, you talk about, let's say the telephone assistors, right? The folks that answer the phones when you call up the 800 number and answer your questions. Right.
When you talk about enforcement, there's two different kind of divisions of that. So you've got your examination function and your collection functions.
So a lot of people don't know this. People say, oh, they talk. Anybody that works at the IRS was an IRS agent. Not quite exactly true. The IRS agent that you might be thinking of when you say that are the examiners, or sometimes they call auditors, but the more proper term as examiners and that they work in the examination function. Their job is to make sure that what's on your tax return is correct. Right. Make sure that your deductions aren't inflated, make sure that all the income has been captured. So that's kind of their, their function, Right.
On the other side of it is collections. When collections gets involved, those are called revenue officers.
And so those folks are really not delving into whether your tax return was correct or not. They have an amount that has shown up on their computer screen that you owe. And their question is, how are you planning on paying this? Right. And then you got Your folks, like, like I was in the independent office of Appeals. My job, I was in examination appeals. And so my job was basically this, right? Let's say you had an audit of your tax return. You feel like the auditor got it wrong. You feel like you weren't heard. You feel like, you know, that the outcome was not what you wanted. You write an appeal, and then that lands on my desk. And my job was listen to your side of it and listen to the IRS side of it and kind of make a decision. Right?
[00:17:49] Speaker B: So most of this is still done manually on the front end, or are they using technology to make the process more efficient?
[00:17:57] Speaker C: All right, well, when you talk. All right, so let's talk about that, right? So if you talk about processing tax returns, right, that is all automated. And a lot of the letters that go out are all automated.
Funny, funny little aside, right? If you look at a letter that you got from the irs, usually up in the right hand, top right hand corner, it'll say notice and it'll say CP 2000 or CP171 or CP whatever. When you see those letters, CP, that is computer paragraph. And that means that that was a letter that was generated by the computers. Right? A human being did not write you that letter.
[00:18:41] Speaker B: Interesting to know that. Okay, so let's move on to another question. So how does you know the average person or the sophisticated investor, how can they afford to get professional representation? That's what your. Your day job is now is working with people on addressing tax issues. How can someone afford to, you know, fight a decision from the IRS
[00:19:10] Speaker C: if you.
Look, I'm sorry to tell you this, but if you have enough money, you can hire a guy like me.
If you don't have enough money, then you're kind of stuck with going the cheaper route. Self help, maybe.
You mentioned something earlier when we were off camera. We're talking about AI, and you got to be careful with AI, but AI might be a good option. The IRS itself has 800 numbers. Anytime they send you a letter, there's a number you can call and ask about the letter. But a lot of people don't know this, but on their website, you go to irs.gov and there's a little search bar at the top. You can type in CP 2000, for example, and it will show you what that letter means and what you should be thinking to do about it, right?
[00:20:00] Speaker B: So one of the things that I've noticed recently is the irs, both internally and externally, have some free services to fill out. Your, your 1040, your personal return.
And I'm assuming that they've embedded AI into that. I know, for example, that TurboTax and tax cut, you know, have AI to answer your questions and walk you through the process.
So one would hope that that kind of service would be expanded and that people would know that they get help doing their, their personal taxes and they shouldn't be that complicated. I mean, for someone in a lower tax bracket, you know, there have been suggestions to just be a postcard because they don't pay that much in taxes. It should be very simple. They don't have a lot of, you know, they're going to get standard deduction, they're not going to have, you know, itemized deductions, et cetera. So I know you've been out of the IRS for a while, but is that something that, that you would think is moving forward to make the process more efficient for taxpayers who can't afford, you know, to hire someone like you?
[00:21:13] Speaker C: I was in a focus group actually, when I was with the service, and one of the things that we used to do is we would look at tax systems from other, you know, from other countries.
Australia is doing some interesting stuff with their income tax system where actually you don't fill out a tax return per se. Not like, not like we know it.
You get a bill in the mail and you get a chance to either say that that bill is correct or not correct. But they send you in Australia, they'll send you just a piece of paper that says you made this much this month, deduction, etc. Etc. Here's your balance. If you don't agree, you can fill out more forms to change it. But if you agree, you sign it, send them a check. Right. And so there are tax systems around the world that are a lot simpler for the end user than ours is. I'll tell you that. I know this Australia, by the way. Australia talking about them. They've got an app on your phone. You can actually download an app and do your whole thing through your, through your, your phone.
[00:22:27] Speaker B: Uhhuh. So there are ways
[00:22:29] Speaker C: that
[00:22:29] Speaker B: we can address that.
[00:22:31] Speaker C: Yeah.
[00:22:31] Speaker B: So reducing agency can lower cost or bureaucracy. It can also change who gets answers, who gets audited,
[00:22:40] Speaker C: who
[00:22:40] Speaker B: can resolve a problem, who can help afford. Afford to navigate the system.
Next, we're going to examine whether the tax code itself has become a tool for deciding which industries, investments and behaviors receive and advantage, especially having the IRS pick winners and losers. So when we come back after our break, that's what we're going to talk about.
[00:23:05] Speaker A: The decision may Be theirs, the price may be yours. We'll be right back. Welcome back to the Price youe Pay. I'm Roger Shindell. Let's get past the talking points and back to the evidence.
[00:23:16] Speaker B: Welcome back to the Price youe Pay. We've talked about who benefits from the tax system and what taxpayers may lose when the IRS capacity is reduced. Now, I want to look at the tax code as a policy tool, not simply a way to raise revenue, but a way government encourages certain investments, industries and behaviors.
So, John, Congress increasingly uses the tax code not simply to raise revenue, but to encourage particular investments, industries and behaviors. What does legitimate tax when does legitimate tax policy become a government choosing who receives an advantage and why, or is that a good idea?
[00:24:02] Speaker C: You know, I think that that has been the case for ever since taxes became a thing, right. Like some things that the government wants to discourage are taxed more heavily. And things that they want to encourage are taxed, they get tax benefits. Right.
And so you can use that as a policy tool, for example, and say, well, we need to develop heavy industry, right. And that's going to be a good thing for our country. We want to bring manufacturing back to the good old U.S. of A. Right. Well, the way you can do that is to, you know, make those plants and those big machines tax free, right. So that, so, so if, if I'm a, if I'm a millionaire or God help us, a billionaire, right. I'm looking for ways to deploy my money in ways that's going to make me the more the most amount of money back, right. I'm going to invest that the way that's going to give me me a better benefit, Right. And so if I know that a certain industry is tax advantaged, well, that, then I'm acting in my own self interest and I'm going to go, go, you know, put money into that. Right.
And so, you know, if that is, that's a good thing or not a good thing. I mean, look at our federal budget. The amount of income taxes that the government takes in is barely just enough to cover the interest on our national debt. So in a sense it doesn't really matter. Right.
[00:25:29] Speaker B: Yeah.
Well, that gets into a whole other topic about what tax rates should be and how all that changed in the 1970s and the 1980s. But I don't,
[00:25:40] Speaker C: at
[00:25:41] Speaker B: this point, I don't want to go off topic on that.
[00:25:43] Speaker C: Yeah. Unless
[00:25:44] Speaker B: you have some comments.
[00:25:45] Speaker C: That's a whole other program. Well, look, I mean, I, I could, I could encapsulate it, right. Make it really simple for everybody out there for what he's talking about. Right. Roger's referring to, you know, back in the 70s, you know, when this country was really Prosperous, you know, 67, 50, 60s, 70s tax rates, the marginal tax rate was like up to 90%. Right. Marginal, not the blended tax rate, which is a whole nother thing.
[00:26:11] Speaker B: Well, just let me interrupt on that for a moment and then I'll get back to that. So from 1947 to 1964, the marginal tax rate on today's income of 2 million, $2.5 million was 90%.
And during that time, the average inflation rate was at 2%, the average growth in GDP was a little over 4%, and the average annual real wage growth was 2.3%. All those sound like pretty good numbers for an economy.
Yet in 1980, the tax rate was cut. It had come down a bit to 70%, but then it was cut to 35%. And that's the time when our deficit began to balloon.
So with that as context, continue with your thought.
[00:27:03] Speaker C: Right, right. Well, see, that's the thing, right? So the amount of money that the government takes in through income taxes barely pays the interest on the debt. In a sense, it doesn't even matter.
Now, you could, you could talk about reconfiguring things or whatever, but that's where we stand now. And I 100% agree with the, the way you've explained that, and I agree with what, you know, understand what the implication of that, of that is. Right.
So, but that's a policy decision, and, you know, that gets into our politicians, bought and paid for and, you know, and what do we do about all that? Right. So that's a whole other thing.
But, yeah, taxes, in a way, today what we see are tax policy being implemented not in a way that's best for the country as a whole, it's being implemented in a way that benefits the top, you know, top 1 percenters, so to speak. Right. And that is a thing that.
Man, oh, man, you know, I'm kind of sad about that. That could, you know, that can strangle the economy in a sense.
[00:28:17] Speaker B: Well, it feels like tax policy is being used as to give candy out in the short term to voters so they'll vote. Right. So that comes into my next question. So can you provide any examples of provisions that look like a tax cut broadly, but deliver very different benefits depending upon, you know, you know, the person's income, assets, or business ownership?
[00:28:45] Speaker C: Yeah, you know, the one big beautiful bill, OB3, we call it, in the tax business, and I believe you me, I'm a public speaker and I have been hired to and given a chance to go and speak about the one big beautiful bill in front of tax professionals several times now.
And things are not always like they seem, right? Like the, the administration tells you, and this is the headline that comes out on the news, right? No tax on tips, right? Hey, wouldn't. So you think that the guy down there serving you a sandwich at Denny's, you leave him a tip, he's not paying taxes on that. Well, that is actually a lie, right? That's not the way that works.
The way it actually works is no tax on tips with all kind of caveats, right? First of all, it's no federal income tax. They still have to report their tips to their employer and they still have to pay Social Security tax on that, Medicare tax on that. So first of all, the tax we're talking about is just federal income tax, right?
Secondly, it's up to $25,000, which sounds like a lot, but, you know, that's. How many weeks are there in a year? 52. And I want to be doing math live on the show here. But, but it's, you know, you reach that pretty quickly, right? If you're a good server.
And, and, and plus there's all kind. There's an income limit. So if your income's over a certain amount, that starts to phase out all kind of caveats behind it. So that's one. No. No tax on overtime. Oh, my goodness. All you manufacturing folks out there are going to understand this, right? Let's say you have a job and you make, I'm using, just for, just for easy numbers, right? Let's say you make $20 an hour down at the factory, right? But you work over 40 hours during the week, and so you work 44 hours this week, right? So you're getting four hours of overtime, right? So you're not making $20 an hour for that overtime. You get a bump in it, right? So, so you. Now you're at $30 an hour when they say no tax on overtime. First of all, they're not talking about all of the money that you made on overtime. They're talking about that little half, you know, that little half overtime got. What do they call it? The kicker, right? So you're making $30 an hour. You're still paying tax on 20. You don't pay taxes on the 10, right? And that also has limitations and stuff. And so they sell you one thing on the news, but the reality, when the rubber meets the Road when you're sitting down at 2 in the morning before the deadline to grind out that 1040 form and get it in on time so that you don't get penalized for not doing that on time.
Now, you know, that's when the reality comes about.
[00:31:44] Speaker B: Right.
So speak to me a bit about carried interest. Explain that to the people and why carried interest gets a vastly different tax level than ordinary income.
[00:32:05] Speaker C: Right. So when you talk about carried interest, you're talking about special provisions, and forgive me, you know, I don't specialize in this. Right. But I can give you the overview. Right. So you're talking about special provisions that would tax the income that carried interest at capital gains rates.
Because the idea behind it is when you're getting that money, you're getting money back on capital that was invested and it's, you know, kind of a return. So who, who gets
[00:32:39] Speaker B: carried interest? I mean, my understanding is carried interest is, for example, you know, a private equity firm that's getting money from investments that they've made. So it's the uber wealthy
[00:32:51] Speaker C: that
[00:32:52] Speaker B: have lots of money that have been invested and that is being taxed at less than the, the ordinary income rate.
And I'm trying to understand the logic behind that. I mean, you, you mentioned the logic, but the reality is why should we treat that kind of income differently than ordinary income?
[00:33:14] Speaker C: Well, you want the real logic or, you know, the real logic? And you know, some people's going to get mad at me for saying this, but,
[00:33:24] Speaker B: well, that's what we want.
[00:33:25] Speaker C: Okay? So the real story behind the story is the really rich people can afford to hire lobbyists and the lobbyists go and spread money around Congress and get tax pool provisions put into place that benefit the people that sent them there. Right, that's, that's, that's the real story behind the story right now. You know, you want me to talk about, you know, investments and why, why something should be taxed differently. I mean, my personal political opinion, I, I don't think it should. Right. You know, income is income, but that, but that's me, and nobody has elected me to Congress.
[00:34:03] Speaker B: Yeah, well, you know, people make the argument that, that investment income is after tax income, so it shouldn't be taxed twice. But that's not, that's not really the case.
So anyways, this is where the central question becomes unavoidable.
Every deduction, credit, preference or incentive may have a policy rationale, but also changes how the burden is distributed.
And our final segment, if time permits, we're going to look at the hidden cost of tax cuts, whether complexity itself favors people with more resources and what John would change first to get us there.
So thank you, John, and we'll be back in a moment with our last segment.
[00:34:49] Speaker A: The decision may be theirs, the price may be yours. We'll be right back. Welcome back to the Price youe Pay. I'm Roger Shindell. Let's get past the talking points and back to the evidence.
[00:35:00] Speaker B: Welcome back to the PRICE YOU Pay. Stay connected to the show and every NOW Media TV favorite live or on demand, anytime you like. Download the free Now Media TV app on Roku or iOS and unlock non stop bilingual programming in English and Spanish on the move.
Catch the podcast version at www.nowmedia.tv.
from business and news to lifestyle, culture and beyond, Now Media TV is streaming round the clock. Ready whenever you are.
Welcome back to the Price youe Pay. I'm Roger Shindell.
We have been asking the same question from several angles. When tax policy changes, who really benefits and ultimately who pays?
I want to close by looking at three issues that sit underneath almost every tax debate. Whether a tax cut can ever truly be free, whether complexity itself creates the advantage, and what more workable system might look like.
So, John, if government cuts taxes without an equivalent reduction in spending, the difference must ultimately come from economic growth, another source of revenue or borrowing. So when we're promised the tax cut, what should we ask about how it will be paid for?
[00:36:30] Speaker C: Right. That is an excellent point.
I really love it because you've really encapsulated how if you're going to cut taxes, you know, what are you going to offset that with? Right. You either reduce spending. You know, a lot of states have state constitutional amendments that say that their state budget has to be balanced. Even, even other countries have balanced budget legislation in place so that you can't really continuously spend more than you make. Right. But the US has not seen fit to do that. And so anytime you see a tax cut, ask yourself as you just general public out there, if you're involved, if you care about things and if you're trying to write your congressmen or senators or whatever, be thinking about that, okay, we're going to cut out tax on overtime, let's say, if you believe the headlines, right, we're going to cut out tax on tips. We're going to cut out this, that right? What, you know what, what are we going to have to give up to do that? Like I know if, if I want, if I wanted to, let's say, take every Friday off right from my job Maybe I'm going to make less money at the, right, at the end of the month. So what am I going to cut out of my budget to compensate for that? Or am I going to just, you know, whip out the credit cards and start running up debt? Right. We as individuals know that that is not a solid sustainable plan. Right.
Government, you know, some amount of deficit can be okay. Right. That's why you, because the growth will take care of it. If you've got a 3 or 4%, you know, GDP, your exp. Your economy's expanded. That's the same thing as, let's say my, I have a business and I go out and buy a machine on credit. Right. Well, I know that machine's going to produce more income for me and that's going to be more than enough to pay off the, you know, the payment on the, on the machine. Right. So that's going to be, in that case, a good, smart business decision.
If you look at.
Sorry,
[00:38:45] Speaker B: let me stop you there because let me get a soapbox for a moment. So if I'm a manufacturer and I go out and buy a machine, I get to depreciate that machine?
[00:38:56] Speaker C: Yes.
[00:38:57] Speaker B: So the depreciation, the expense is going to equal what I spent on the machine. So basically it's a net zero in terms of my, ultimately my investment in that machine.
And with today's tax code, most every depreciation can be immediate. You don't have to wait 30 years like you had to in the past.
So the tax code incentivizes investment by letting you write off the machine as soon as you buy it.
[00:39:28] Speaker C: Right.
[00:39:30] Speaker B: So
[00:39:32] Speaker C: that's true, but on a cash flow basis, you still have to come up with the money somehow to buy the machine. Right. It's not, it's not a free machine. You don't tell them to send the bill to the IRS.
[00:39:44] Speaker B: Well, that's why in the, in the 80s, we had all these tax shelters. I used to work for a company as a turnaround consultant and they had the company which delivered oil and lubricants to construction sites. They had a second company that owned the trucks that delivered the oil and whatnot. So the individual who was raising the capital to buy the trucks was depreciating them, expensing it back to the oil delivery service.
So from a cash flow basis, it was a wash. Right,
[00:40:23] Speaker C: Right. I
[00:40:23] Speaker B: mean, those are the kind of games that get played with the tax code for the people that are going to afford to do that, which is the top 1% of the economy.
And the other 99% are paying for that opportunity.
[00:40:39] Speaker C: Yes.
[00:40:40] Speaker B: So let's go ahead and move on to if the government borrows to finance today's tax deduction the way I just described, who ultimately pays the bill?
[00:40:52] Speaker C: Well, ultimately, of course, the taxpayers, and the taxpayers great, great grandchildren eventually end up paying for that. I mean, you know, I just saw that our national debt was over $40 trillion and we're adding, I forget even how much, one to two trillion dollars a year. No, it's a trillion dollars a year in interest now. And we added, I think, 2 trillion in the, in the last year, last 12 months.
That is not ultimately sustainable. And it's kind of hard to wrap your head around because you think, well, the government prints money, right? So theoretically, as long as you can keep up with the printing presses, and even that is an antiquated way of saying it, right?
Nowadays, money is just numbers on a spreadsheet. So long as you can keep, you know, typing in bigger and bigger numbers, then you're fine, supposedly. Right? The problem that we are forgetting is though, that for our currency to be, to be credible for people like, like if, if I offered to pay you some, some debt today, I said, hey, how about it? How about if I, if I pay you in a Nigerian dollars, would you, would you want to accept those? No, because the value plummets constantly.
They're worthless, right? And we have become accustomed to our country having the great honor and privilege of being the world reserve currency. And so we think our currency is bulletproof and invincible, and it's not.
[00:42:32] Speaker B: Well, when you talk about printing money, another way to talk about that is inflation,
[00:42:37] Speaker C: right?
[00:42:38] Speaker B: And countries that have done that, it's uber inflation.
We can go back to what we saw in the 70s where we had 18% inflate, 18% interest rates and 12% inflation rates, and incomes don't keep up with that. The other thing that you're talking about is when we go out and borrow money to finance the debt, who buys that?
People like China, people like the Arab states, not our friends, but potentially our enemies. And if they decide not to continue to buy that debt, we're in a tough shape.
So there are a whole lot of reasons why we don't want to be printing money and have a $40 trillion debt. But everybody is going to have to feel some pain to pay that debt down. And anybody out there who's trying to buy a house, trying to buy a car, if you don't think this affects you, that's how your interest rate is set. Because of the debt that's out there. And the more debt we have, the more interest we have to pay to sell that debt.
So the IRS comes back with all these tax cuts that benefit individuals that have the ability to lobby for tax breaks, and the rest of us end up paying for it.
So, John, last question. What would you eliminate, what would you preserve, and what would you strengthen our current IRS system?
[00:44:13] Speaker C: You know, one of the things that I would, you know, if I were proclaimed okay for a short period of time, your king of, you're king of the United States, right?
Input the laws, whatever you want, do whatever you want. I think that my main, my main thing is I would start at the top and say, okay, what is it we're after and how can we simplify things and how can we get rid of a bunch of these loopholes? I understand that when you do that, you're taking away the opportunity to, to kind of fine tune things and give, you know, give out these benefits, right? But that's been abused and we, and we need to get back to basics on that. I would make a simpler irs, a simpler tax structure, like I said, you know, following the footsteps of other countries that have done, you know, like, like Australia, you know, you can file through an app on your phone, in five minutes, you're done, and you file directly with the government and it doesn't cost you anything, right? So all of that is a good place to start.
Simplify the tax code and, you know, and make sure that the rates are what they need to be.
And maybe if you want to really give a good kicker to it, let's say we make the first. How about the first hundred thousand? I'm just throwing numbers out, right? How about the first hundred thousand you make in a year is tax free?
How about that?
That way everybody at the lower end, lower end, and I say lower middle class and lower doesn't even pay income tax. How about your income tax starts at 100,000 plus, or maybe 200,000 plus, whatever, whatever number you want to put on it, right? I'm under 100,000. I don't pay taxes. Right?
[00:46:04] Speaker B: Something to think about. So, coming to our time, before we go, a final thought.
Taxes are easy to turn into political slogans. Cut taxes, raise taxes, abolish the irs, tax the rich. But today's conversation reminds us that the real tax system is much more complicated and the consequences are rarely captured by a slogan. A tax cut for one person may mean a reduced program, additional borrowing, or different tax for someone else. A weaker IRS means less enforcement, but it can also mean less help for taxpayers trying to resolve a problem.
Ultimately, the question is not simply whether taxes go up or down. It's who benefits and who pays. During today's conversation, we heard opinions and you also heard statements presented as facts. It's an important difference between the two.
In our effort to get beyond talking points and provide you with the best information we can, we're asking John to provide sources and references supporting the factual claims we discussed today. We'll review the sources and post them on our website, www.d4df.com, so you can determine them for yourself and report back on what we found at the beginning of our next episode. Because you don't have to take my word for it or John's, you should be able to look at the evidence and decide for yourself if this show resonates with you. Please support our efforts at Volunteers for Democracy's Future www.v4df.
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You can also find episodes at NowMedia TV. I'm Roger Shindell. Thank you for watching the price you pay. I'll see you next time.
