Building Budgets Bigger: Unpacking Who Pays the Trillion Dollar Plus Tax Bill

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Hubwonk host Joe Selvaggi talks with Kyle Pomerleau, senior fellow on federal tax policy at American Enterprise Institute about the Build Back Better Act now in Congress, to understand how those new taxes will affect individuals, business, and the economy.

Guest:

Kyle Pomerleau is a senior fellow at the American Enterprise Institute (AEI), where he studies federal tax policy. Before joining AEI, Mr. Pomerleau was chief economist and vice president of economic analysis at the Tax Foundation, where he led the macroeconomic and tax modeling team and wrote on various tax policy topics, including corporate taxation, international tax policy, carbon taxation, and tax reform. The author of many studies, Mr. Pomerleau has been published in trade publications and policy journals including Tax Notes and the National Tax Journal. He is frequently quoted in major media outlets such as The New York Times, The Wall Street Journal, and The Washington Post. He has also testified before Congress and state legislators. Mr. Pomerleau has an MPP in economic and social policy from Georgetown University’s McCourt School of Public Policy and a BA in history and political science from the University of Southern Maine.

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Please excuse typos.

Joe Selvaggi:

This is Hubwonk, I’m Joe Selvaggi.

Joe Selvaggi:

Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. On October 28th, the White House and Democratic leadership in Congress announced a framework deal on the Build Back Better Act. The act includes federal spending of upwards of three and a half trillion dollars on broad social, environmental, and economic programs to pay for this massive spending proposal. The echo makes a substantial changes to the nation’s tax laws. There’ll being somewhat constrained by president Biden’s campaign promise to never raise taxes on those earning more than $400,000 a year. And razor thin democratic majority is in Congress. The new tax provisions seek to target large corporations and the ultra high income earners taxing the rich and large corporations may offer a more politically palatable message, but taxpayers deserve to know how its typical $4 trillion annual budget will now afford three and a half trillion of additional spending. I guess today’s senior policy fellow at the American enterprise Institute and tax economist. Kyle Pomerleau. Kyle’s work at AEI focuses on the effects of current tax policy on the economy and works to understand the likely effects the future policy proposals. Kyle will share with us his analysis on what changes are likely to emerge from the build back better act, who is likely to pay more. And what are the possible effects on the economy in the future? When I return, I’ll be joined by AEI senior fellow Kyle Pomerleau.

Joe Selvaggi:

Okay. We’re back. This is hubwonk. I’m Joe Selvaggi and I’m now pleased to be joined by American enterprise Institute, senior fellow and tax economist. Kyle Pomerleau. Welcome to hub Juan Kyle, thanks for having me. Well, it’s great to have you. I really wanted to have you as a guest here on, on how long, because I want you to help. I want you to help our listeners understand what’s going who’s going to pay for this what we’re calling the build back better act. It’s an ambitious piece of legislation. We’re told that there’ll be new taxes, but only on those making more than $400,000 a year, that was president Biden’s promise. And of course we’re, we’re really going to particularly be targeting those a 700 or so billionaires who are fortunate among us help us separate fact from fiction. Let’s start with the ax features that are the most likely to generate the most revenue. In my let’s say amateur reading of, of what I can tell it seems to be that, that the minimum tax on all corporations book profits are, are likely to see the most short-term revenue explain for our listeners. What does that mean? And how does collecting taxes on book revenue, different, different from how we have historically taxed corporations?

Kyle Pomerleau:

The book proposal, the book tax was proposed as part of the build back better is kind of a replacement for the corporate tax rate increase. Previously. They had proposed to raise the corporate income tax to 26 and a half percent. However, a couple senators were uncomfortable with raising rates corporate or individuals. So those were taken off the table entirely. So what was added very recently as recently as last week was this minimum tack on tax on book income. This was originally proposed by President Biden all the way back when he was running for president in November of 2019. And the way that this tax would work is that companies would have to calculate their taxes in two different ways each year, first, the ordinary corporate tax. And then second, this book tax and under this book tax companies would take the income that they report to their shareholders on their financial statement, make some adjustments to make sure there’s no double taxation also make adjustments for losses.

Kyle Pomerleau:

If companies had lost money in previous years, then multiply that by 15%, then subtract out a few credits credit for foreign taxes, paid research and development, credit green energy credits, and knowing those two tax liabilities, the company has to pay the greater of the two. So if the corporate tax is greater than the book tax, they pay the ordinary tax and go on their way. But if the company’s book tax is greater than the ordinary tax, they have to pay the diff that difference in that book tax liability is then tacked on top of the ordinary tax liability. As in the purpose of this is to target the very largest multinational corporations in the United States that from year to year, at least on their financial statements are projecting to pay low effective tax rate.

Joe Selvaggi:

And this addresses, I think, a popular, I won’t call it a rhetorical myth, but this popular chorus among some in and public political leadership that there are lots of billion dollar corporations paying zero tax. This is essentially to address what’s perceived to be a large companies getting away with no taxes in a given year. Is that roughly where this is coming from? Yeah. This

Kyle Pomerleau:

Is more perception than fact definitely. The underlying driver of this is what tax people call book tax differences, but book income is calculated in a certain way to provide information to shareholders. How will the company’s doing what investments the company’s making what, it’s, what it will look like potentially a few years from now, that’s what book income is supposed to. If the information book income is supposed to provide it, taxable income is meant to fairly levy taxes on corporations and the way that these are calculator entirely different. So you can have in many years book income that shows pop positive profits, but in some years, taxable income, that’s very, very low. It causes this Mitt mismatch where you can have a low, effective tax rates on your book income. Now the mismatching go the other way too, in that some years book income can be very, very low, but taxable income can be very, very high. And it shows the opposite that these companies are paying very high, effective tax rates, some 80 or 90% of their profits. And those numbers don’t make very much sense either. So I usually caution people from looking at those effective tax rates on booking com because they don’t really tell us very much about what the effect of tax burden on a company is. You really have to look over a number of years. You really have to study what provisions the companies are using or taking advantage of in the, in the federal tax code.

Joe Selvaggi:

Again, I want to address a myth about this, no tax billionaire corporation. I think the myth is that they get away with paying no tax by having very clever tax attorneys and accountants. Instead from what I know taxes corporations make profits and have two choices. They can distribute those to their shareholders, or they can reinvest it in the firm if they do, the shareholders are happy to see that money essentially make the company they own bigger that would be a case of a large growth corporation. And if a company is more stable it may prefer to distribute those profits so effectively. It’s not that the company isn’t paying taxes on money distributed, but rather money retained and further invested in growth. Is that right?

Kyle Pomerleau:

Yeah. Another, another piece of this too, is that I think part of this conversation that bugs economists is that at the end of the day, corporations really don’t pay tax, right? Corporations are legal entities, they’re just collections of individual workers and shareholders that get together to produce a good or a service that other people then purchase. Ultimately, any money up corporation is liable to pay in taxes. That goes to the FA it goes to the federal government is going to be taken out of individuals pockets, whether those are the shareholders. So those are the owners of the, the corporation or the workers of those th those corporations. You can’t really escape that, that it’s going to be people that bear the burden of these taxes, not legal entities.

Joe Selvaggi:

Yes, of course. And of course and again, to preserve margins corporations also can raise prices to to pay for taxes. So again corporations don’t pay taxes consumers, workers, and shareholders do that’s important. What would be a case of a firm that is going to likely be swept up or effected by a tax like this? I mentioned growth, but if you have names in mind that our listeners would know, yeah,

Kyle Pomerleau:

I don’t want to speak to any specifics because I don’t really know the details of many of these companies, but then the proposal is meant to target companies like Amazon apple. These are very large corporations that are growing. And the reason why these companies may have low effective tax rates, Amazon for example, is that if you’re a company that makes a lot of investment, you’re growing, you’re going to be taking lots of deductions for those investments. And under the corporate income tax current law, a lot of the deductions you can take are very large upfront deductions for those new investments. This was passed in 2017, it’s called 100% bonus depreciation, lets companies deduct the full cost of many investments upfront. And if you that compared to book income, for example, you’re not allowed to make deductions that large. So there creates a mismatch. So when there’s a company, a large company like Amazon that’s growing quickly or making investments that can drive down effective tax rates quite a bit. So I think those are the, those are the companies that these were, these, this provision is meant to go after

Joe Selvaggi:

After these myths. And I wanted to help see if we can throw one more way and say, okay, if, if it’s the shareholders of these growth companies, these billion dollar growth companies that will be affected, is it billionaires who own billion dollar companies, or are there ordinary people who might be affected by this, this tax

Kyle Pomerleau:

By and large high-income households own more stock than low income household? So if you look across the entire distribution of the population and you look at all the equity that people may own, a lot of it is concentrated in the high-income households. So it is true to say that when you do raise the corporate income tax rate, you are disproportionately impacting high-income households that said taxing very large companies is not the same as targeting very high income households because although most of the equities are owned by high income or high net worth households. That’s not, that’s not a law. There are people across the income scale and wealth distribution that own equities. So attacks on corporation can also impact to retiree that earned that lives off $30,000 of dividends from corporate stock. So it, it re it, it really depends. An entity level tax is not, is not going to be as well targeted as just raising tax rates on high-income households.

Joe Selvaggi:

Now, a tax expert, like you make a living on explaining to a layman like me, the complexity of taxes, but I, I haven’t met too many tax experts who wouldn’t prefer a more simple tax policy just does this tax provision one that looks at book rather than a traditional profits. Does this simplify the tax code or does it move us what I would say in the wrong direction towards a far more complex, a system of calculation? Yeah.

Kyle Pomerleau:

It’ll depend on who you talk to, but I think regardless of whether it’s an economist or a lawyer or an accountant, I don’t know if there are very many people that like this idea of a book tax or your book minimum tax increases complexity, because one, you’re now calculating two taxes instead of one two, it increases the number of credits that companies will have to track. Three and this is a little bit more outside of complexity, but it is a downside book. Income is not determined by Congress. Book income is determined by rules put forth by FASBI w which is a nonprofit organization that dictates accounting accounting standards. So when you raise some of your revenue from taxing book income, you’re in essence outsourcing some of the revenue collections from Congress into a non-elected nonprofit, nonprofit body. So that’s not necessarily increased in complexity, but it is a concern that part of the tax code is no longer controlled by, by Congress. So I, I think that overall, this is that taxing book income is a step away from a simpler tax code. And we all want to make sure that we are limiting the amount of deductions and credits that companies can take that are distortive, that are reducing the amount of taxes they should pay, but I would always prefer to just go directly at them, scale them back repeal them outright as a way to increase the tax burden on corporations, not to enact a parallel tax that runs alongside the ordinary corporate tax.

Joe Selvaggi:

So a more simple plan that affects everyone equally rather than a complex plan that is, is difficult to follow and, and, and has businesses making decisions based on tax implications rather than business implications.

Kyle Pomerleau:

Yeah. And then that’s another really good point too, that we know that corporations adjust their taxable income in FA in the face of taxation. Individuals will try to take as many deductions or companies will try to take as many deductions and credits as they can. Companies also use some accounting maneuvers to shift profits from the United States to overseas to reduce their tax liability. That taxing book income is going to translate that behavior right over to book income. So there’s also a concern that taxing book income is going to reduce the quality of financial statements that we’re not going to really get a good, perfect sense of how well these companies are, are doing because to some extent, the profits that they’re reporting to their shareholders are somewhat dictated by the fact that they’re taxed on them have heard of it.

Joe Selvaggi:

Again, political leaders assert that our taxes are corporations are undertaxed. I guess what they mean by that is relative to the rest of the world. How do the U S tax rates compare with let’s say our largest

Kyle Pomerleau:

Competitors, this is a complex issue of actually you can’t really look at just one statistic and some of the statistics are outright misleading. Now, if you look at statutory tax rates, just how much companies pay on each additional dollar of profits. The United States is about average, maybe a little bit above average. You look at the federal rate of 21% plus state and local rates. That’s about 25.8%. The OACD average is around 25%. So we’re right around average that now, if you look at effective tax rates, however, the story changes a little bit. We actually place a slightly higher tax burden on investment in the United States than other countries do. So if you look at how much say, if a company wants to invest in a new machine, how much is that machine going to have to pay in taxes over the life of that asset?

Kyle Pomerleau:

That that tax is a little bit higher in the United States than the average of the OECD. Then the third piece is sometimes the administration, for example, likes to compare corporate tax collections as a percent of GDP in the United States to corporate tax collections as a percent of GDP in other countries. And that statistic generally shows where at the bottom of the list where you, we, we are collecting the least amount of revenue as a percent of GDP, my caution against using that statistic because the size of each corporate sector in each country is different in the United States. For example, we have a huge sector of non-corporate businesses are what are called pass through businesses. These are S corporations, partnerships, LLCs. These are businesses that pay taxes through the individual income tax. And we in the vast majority of businesses in the United States are passed through businesses.

Kyle Pomerleau:

Only about 5% of businesses are corporations. In contrast, other countries, their corporate sectors are huge. They have much higher individual income tax and much lower corporate tax rates. So most of their activity is in the corporate form over in other countries. So you can’t really directly compare collections as a percent of GDP without making adjustments for the size of the pass-through sector. And I, in a recent piece, I did that. And once you do that, you find that the United States a little bit above average in terms of its burden on corporations. So make a long answer short here, it’s, it’s complicated, but we’re, we’re probably above right around average or a little bit above average under current.

Joe Selvaggi:

And the, and the situation you described really is a function of the fact that most wise business owners don’t want to be taxed twice. And so therefore they’ll create the corporate entity that gets taxed once, once you, the corporation makes the profits and then distributes the profits, and then the, the, the owner gets taxed twice. When you say as the income. So that’s the reason we have such a small corporate sector.

Kyle Pomerleau:

Yeah. Yes. Com companies when, when individuals are looking at which business legal form of organization to take, they’re going to look at the all-in tax burden, whether it’s passed through business or a corporation. And I think you’re right. All things considered the tax burden on corporations slightly higher than it is under a pat passed through form, especially after the tax cuts and jobs act. And I think that that tilts the scale towards that. And that is one of the reasons why our, yeah, our corporate sector is, is smaller at the end of the day.

Joe Selvaggi:

So I want to shift our focus to another provision. I think this is fairly recent and almost mind-blowing to imagine this, this I’ve heard it called the Zillow taxes notion that we would tax unrealized gains in addition to realized gains and you know, for our listeners, I think everyone knows what a realized gain is. You sell something, you make a profit and your profits realized unrealized as an asset. That’s appreciated notionally, but not actually now you’ve not sold it. So it’s only worth what someone will pay for it in the future. How is it? Or, you know, w w what are the, the details of this, this, this tax, and how will it be implemented?

Kyle Pomerleau:

I don’t even, so this was actually a last week, big debate over this mark to market proposal. And I think, well, we’ll see it’s all already rumblings that this is going to be dropped. I think a lot of some lawmakers are uncomfortable with it, but though the way that the proposal was going to work is that for taxpayers with $1 billion in net worth, or $100 million in earnings on average over three years would be pushed into this mark to market regime. And that instead of being taxed on capital gains, when you sell your asset, these taxpayers would be taxed on capital gains each year as the asset appreciates in value. So you’d be switching from the realization to the mark to market system. And so th th in the reason that they wanted to go about this, or why they wanted to go about this is that they feel that for very, very high income and high net worth households, the value of deferral, the ability to defer your capital gains is very large.

Kyle Pomerleau:

And a lot of tax payers may be able to borrow money to finance their consumption instead of realizing their capital gains and totally avoid taxation on this income. So that’s the argument for why they wanted to go to go about this. We didn’t really get a good sense of how much this tax would raise. I think some people suggested it would be somewhere between 200 to $300 billion over a decade. That number seems to make sense to me, it would only be affecting about 700 people in the United States. So even, even though in theory, it could impact the, the appreciation of someone’s house. It would only be impacting the appreciation of say, Jeff Bezos, his house, or Elon Musk’s house.

Joe Selvaggi:

But again, I don’t wanna get too deep into this because as you say, it’s, it’s, it may not happen after all. But isn’t this just carrying, bringing forward in revenue that you will ultimately collect when that, that asset is sold in the future. I mean it’s not as if it falls off the register forever, ultimately everything gets sold or disappears. How, how, how do you account for the fact that you’re essentially drawing future taxes forward to

Kyle Pomerleau:

It’s in Texas? Yeah, that’s a really good question. So there are two, two pieces to this. So one of them has to do with the treatment of capital gains when the owner of those assets passes away. So under current law, if you hold onto an asset and it appreciates over your lifetime, you pass away and then pass that asset onto your heir, that assets basis is stepped up to market value at the point of your death. So what that means is that all of the appreciation through your life is not subject to tax. So it gets a big exemption. And this is one of the concerns I think Democrats are trying to address is that fair, very, very wealthy strategy you’d want to use is to just not sell your assets, because you don’t want to realize your capital gains. And then eventually you pass those assets onto your air and all of that tax that could have been collected.

Kyle Pomerleau:

If you sold the asset would go away, it would be exempt from taxation. The second piece is that to the federal government, there’s an aspect of time value of money, but you are right that if an asset appreciates over time and I sell in the future, I’m still getting taxed, but to the federal government, they’d rather have that revenue each and every year, rather than delaying it several years. And to them, the value is not all that different because interest rates on debt are not that high and the government can borrow at below 2% effectively, but there is a slight difference in timing in that the government, from the government’s perspective, they’d rather collect the revenue now than later from the taxpayer’s perspective, they rather pay the tax later than pay it. Now,

Joe Selvaggi:

Fair enough, fair enough. But that, that asset is not sitting up in the ground it’s, it’s appreciating and giving people jobs and creating new opportunities.

Kyle Pomerleau:

Yeah, that’s an, that’s another piece too, is that a lot of these assets are are, are capital assets, their claims on ownership to productive corporations that produce goods and services, and that if you are own a share and Exxon mobile, for example, the dividends you get are net of any corporate tax that’s being paid. Or if you own a, a stock, an apple stock, and it’s appreciating its appreciation is partially based on the corporate taxes that apple has to pay. So there is still tax being paid every single year. It’s just the entity level tax not the additional individual income tax.

Joe Selvaggi:

So the appreciation is as you say, after tax appreciation. So that’s an important, important detail part. I want to, I don’t want to dwell on that feature. Are there any traditional income taxes you said much is off, off the off the board. We at the outset some members in Congress didn’t want additional raising of taxes on corporate store income. What’s still in there.

Kyle Pomerleau:

So there, there are a few pieces that are more traditional individual income tax increases or kind of conventional income tax increases. So there is a they’ve build back better proposal has a new Sur tax on adjusted, gross income for households. So under this provision taxpayers with $10 million in adjusted gross income would face a 5% Sur tax on income over that threshold, an 8% Sur tax on income over $25 million. So very, very high income households would face this additional tax on all of their sources of income wages, business, income, capital gains, dividends, interests. They would all face this additional tax. This tax, I think in a way, is a replacement to the mark to market proposal. This, this surtax is supposed to raise about 200 to $250 billion in target, roughly the same, the same household tussles that have very, very high income that might be earning some of their income from capital gains independence.

Joe Selvaggi:

And we hear Massachusetts had been contemplating a change in our constitution that would allow for, we have a mandate of a flat tax, but we’re considering changing our tax code to allow for a certain tax on income on very high earners. We’ve established that it’s, it’s rare that someone makes this kind of money often and more often than not a $10 million income is, is going to be reflected by someone who’s, who’s built a business retained a lot of the earnings and has a liquidity event that puts them over, let’s say the $10 million threshold, but just once is there is this money purely over the 10 million or would it, you know, go back to dollar one? And who, who do you think is likely to pay these kinds of taxes? Yeah.

Kyle Pomerleau:

Oh, this is a, a, a marginal tax rate. So it’s over the threshold. Yeah. I think it would be an entirely different animal if they were thinking of, of, of taxing infer marginal dollars below that. So th this type of this type of tax it’s broad, so it’s going to hit wage-earners. So those that earn very, very high wages for one reason or another. This could, this could hit business owners. Those that earn those past the earned profits from those pass through businesses, we were talking about this Sur tax would apply to them. It would also hit some returns to corporations as well, because it’s going to apply to capital gains and dividends those those forms of income or the returns to those investments. So it’s a, it’s a broad tax. It’s gonna hit all that income now to the extent that, that those higher taxes are going to discourage productive activities, whether it’s working, saving, and investment, that could have additional effects on the economy than just the direct effects on those that are paying the tax. If you’re a business owner and you’re facing a higher tax rate that may increase your cost of capital or your cost of investing in new and new projects, and that could have an impact on the productivity of your firm, that could have an impact on the amount you can pay your workers and the amount that you can hire. Of course,

Joe Selvaggi:

Now let’s take this step back. Let’s change our focus. We estimate, although that’s even that is not certain this bill or this act will be will cost roughly three and a half trillion dollars. That’s a lot of zeros. Have you been able to estimate given all the provisions of the revenue that we’ve described here, how much money will this bring in?

Kyle Pomerleau:

Yeah. Good, good question. So, right. So right now, there’s still a lot in flux on the spending side, they’re still negotiating the 3.5 is that top line number that Biden really wanted recent news as stated that it could be as low as 1.5 or 1.7, 5 trillion, 1.7, $5 trillion over that period. So anywhere in between now on the revenue side, again, unclear because we don’t know exactly what provisions are going to be in there, but if we add up all the provisions that are currently in build back better, this is probably a tax increase between one and a half to 1.7, $5 trillion over a decade. And, you know, to give a sense, that’s the same size as the the, the tax cuts and jobs act that was passed in late of 2017 in terms of its its scale early, some dollar value. Now, the taxpayers and impacts are totally different. This 1.75 trillion is coming primarily or almost exclusively from very high income households. The TCGA was a broader tax cut. So it’s not a perfect comparison, but just to give you a sense of scale, we’re talking about roughly the same dollar figure there. So

Joe Selvaggi:

With the earlier act reduced taxes, this replaces and if we use the low end range of the estimate of the, the spending here, it will roughly will not be free as some assert, but will pay for itself. If, if the revenue estimates and the spending of Smith’s on the low end add up, it will pay for itself.

Kyle Pomerleau:

It will be, it will be financed in so far as taxes will cover spending. I don’t know many people that call that as being costless, because taxpayers will be having will, will need to pay for that. And any spending that isn’t directly financed by increased taxes is going to increase the federal debt, which means that there is a future liability that taxpayers will need to cover.

Joe Selvaggi:

Indeed. the government I’d like to point this out, it seems trivial, but the government doesn’t have its own money. It only has our money so that if this tax revenue does not meet the expenditures, it’s either, you know, we, we call for additional taxes now or additional taxes in the future. That’s the only choices we have.

Kyle Pomerleau:

It’s important politically. We don’t know how comfortable any given lawmaker is with borrowing. We know that some may be comfortable, but, you know, if, if they come up short, that may mean that spending has to come down a little bit in order for them to get the votes that they need to pass them.

Joe Selvaggi:

Now, we’re, we’re in the last couple of years now with the pandemic the federal government spent quite a bit of money, roughly $6 trillion, extra trying to sort of ensure that the economy doesn’t suffer any more damage than it already had. That’s an addition to it. You know, what historically has been about a $4 trillion federal budget. We owe a lot of money at this point. You’re a tax expert. If we were trying to be responsible about paying for what we spend if you’re king for a day, I like to ask our experts these kinds of questions. What types of taxes do you think would both raise revenue? But also not distort economies. And in other words, it’s not discouraged investment growth jobs, all the things we like at AEI and, and that pioneer, what would you recommend?

Kyle Pomerleau:

Th this is a really broad question. Of course my, my, my initial reaction here is that it’s not, it, it’s not going to just be from tax revenue. I think eventually lawmakers are going to have to do something to balance things. And it’s probably going to be a combination of reduced spending and increased taxes. Now, if I had a seat at the table, or I could just decide I think that if I were to raise additional revenue, it would be probably be from one broadening the income tax base. So there’s currently a lot of income that isn’t taxed under the individual income tax. For example, one of the biggest sources of that is compensation. I, or you may receive from your employer in the form of health insurance premiums paying for those health insurance premiums. That’s a form of income that is being, that people are earning that is kind of like wages should be taxed like wages. But that’s just one example, another tax or a couple of the taxes that I would consider are additional sources of revenue. I think the United States should consider a value added tax to be a federal level roughly a sales tax. These are very broad based taxes they’re used through most of the world. And they are relative to other taxes, very little distortion on the economy. And a tax of 5% could raise quite a lot of revenue for the federal government to close some of this gap.

Joe Selvaggi:

Hm. So value added tax. I’ve, I’ve heard that proposed. In fact, I’ll, I’ll share a little secret. A very progressive economist I met at the Kennedy school, talked about the power of value out of taxes, enormous revenue potential, but right now Democrats see it as a progressive tax. So they don’t like it. Republicans see it as a enormous revenue opportunity for tax. But when he said, if Democrats realized it was an enormous opportunity for taxes and Republicans realized it was regressive, they might actually meet in the center of that and agree on it. What do you imagine the probability of a value-added tax ever come seeing the light of day?

Kyle Pomerleau:

Yeah, I, I w today very low chance, but I think at some point something has to give I at that in the future, the federal government is going to face some tough choices. Some of those choices in the absence of revenue may include cutting social security benefits, or Medicare benefits. And I think politically, you know, if you’re going to choose, are we going to raise a broad base tax modestly or place a significant, potentially significant burden on current recipients of retirement benefits? I think that they, they would probably lean more on the value added tax and drastically cutting benefits. I know that’s probably a sad thing for proponents of limited government to hear. But there are only so many things that or there’s only so many things that are possible politically.

Joe Selvaggi:

And I think that, you know, smaller reforms are more likely than very large ones. And you know, in the future, I think an additional source of revenue like of that could be part of a smaller, more modest for form to balance the bucket, getting closer to balancing the budget on relief. Neither of us is intending to run for office. Anytime soon, I proposed raising taxes on healthcare plans. I presume also on maybe the mortgage deduction that’s yeah, that, that would be another one that I, you could at least start by capping the value and only impacting high-income households. I’m actually somewhat surprised that lawmakers this time around, didn’t try to limit itemized deductions for very high income household. In fact, lawmakers are thinking about expanding itemized deductions for high-income households, by eliminating the state and local tax deduction, cap of $10,000 that was passed as part of the tax cuts and jobs act.

Joe Selvaggi:

Right. That’s amazing to me that Democrats proposed something like that, which would be sort of a naked giveaway to, you know, higher earners in high tax states. If you’re getting a tax subsidy to pay state taxes, it seems impossible, but that’s how it is. Okay, well, we’re almost out of time. I appreciate this very deep conversation. I hope our our listeners stuck with us. There’s a lot to learn about this this new act and you’ve been very, very informative, a great guest, and I really appreciate your time will thank you very much for having me.

Joe Selvaggi:

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