 Hey, we're back. We're live. It's a five o'clock block on a given Thursday. We are honored to have Roger Epstein with us, a tax attorney for many years, and we're going to talk about tax and what may happen is likely to happen in the ledge, and for that matter in Congress over the next year. And we're also going to talk about the disparity in income and what's going to happen to that. This is a real mouthful, but a very important discussion on a number of levels. Welcome to the show, Roger. Thanks, Jay. Always great to be here and great to see you. The same. I know you're a tax expert, too, with your NYU degree. Well, I get it all from you, so what can I say? So the first issue, which is, let me just frame it a little. So we have a deficit going in. I don't know if the Council of Revenues in the state has weighed in yet, but the expectations a little while ago were 1.5 billion deficit. That is huge for the state of Hawaii, huge. And of course, it's all COVID and the failure of the economy. And then you have county deficits. Last time I looked, the county deficits were almost a billion themselves, all by themselves, in addition. Now, these governments cannot render services, the services they need to help the community exist without having any money, especially in view of the Constitutional Provision, the state level that says you have to balance the budget. The legend is going to have a terrible time this year balancing the budget. They're going to have to slice and dice, and I don't know what else. And of course, this raises the great possibility of a tax increase either in gross excise or in income tax and at the county level, real property tax. We are really in for it, Roger. So on that one, what do you think is going to happen? Well, let's take a look at the federal level and see what they're doing. Biden has a tax bill that he put out that is aimed dramatically at taxing the wealthy. And he has put the individual tax back to 39.6 percent, which is only a two and a half percent increase. But that's where it was before Trump brought it down. He's also proposed to put the corporate tax to 28 percent instead of 21 percent. And so he's looking at and he's got a number of provisions also that create taxes on people making more than $400,000 a year. And he's got a Social Security tax that kicks in at $400,000. He's got some other provisions that reduce your itemized deductions if your income is over $400,000. And balancing that he's got a number of credits that he's given to working people and child tax credits and small business tax credits. He's also, and this gets in goes back to the wealthy. He's proposed two things, one to bring the threshold for a state tax down from 11.7 to what it was in 2009, 3.5 million. So what that means is if your estate exceeds 3.5 million, you're going to start paying estate taxes at 40 percent, which is pretty high. The way the law reads now, you don't pay anything unless your estate is over 11.7 million. And then if you would have a spouse, you double that. So it was nobody was paying a state tax unless their total estate exceeded 23 million. So now it's going to go back to 3.5 million, which I think is what the state of Hawaii's threshold is. And for husband and wife, that means you're still at a pretty high level of 7 million before you have to pay any tax. And here's these numbers. So you've reduced the estate tax to being very, very nominal. And here's something that's in the Biden plan that really bothered me as a tax lawyer for years, just in the sense of fairness. There's a provision, there's a corresponding provision in the income tax law that says if you pay a state tax, then you get a step up in basis on the asset you pay tax on so you don't have to pay income tax again. So you bought your house for 100,000. And now it's worth 2 million. And you pay a state tax on a 2 million. Then or if it's included in your estate at 2 million, not if you owe any tax, but it just included in your estate at 2 million. Now the basis in your for income tax purposes goes up to 2 million. And your heirs could sell it and have no gain if they sold it at $2 million. And this is this to be the case, even if you didn't pay any estate tax. Exactly. So when we had the tax, the exemption rate at 11.7 million, anybody who was under 23 million owed a zero estate tax, but they got a step up in basis. So they avoided income tax also. It was a real loophole. I don't want to go into all the negatives about the Republicans, but it was really crass thing to do. So one of Biden's things now is whether you pay tax or not, it appears to me his proposal is you're going to pay, you're not going to get a step up in basis. And I would be surprised if they didn't change it. If it does go into effect and make it, if you pay tax on it, you get a step up in basis. So you don't have to pay an estate tax at 40% on the gross and then an income tax on your net gains. That would be pretty darn harsh. But anyway, it gets into what I was driving at as a general concept that Biden's plan and now he's president, and he'll have control of Congress for some period, is to tax the wealthy, reverse the impact from the Trump tax breaks to the wealthy, and give some breaks to the working guy and the small business. Inceptually, that's what's going on. That's consistent with his campaign, his plan. And it's progressive. Look, when I first started with the Internal Revenue Service in 1967, the top tax rate had just come down from 90% to 70%. And that was basically, you were paying 70% of your income was over $1 million. So now we're going from 37 to 39.6. It's still minus fuel. It's still 30% lower than it was 50 years ago. And of course, in those days, the community of Americans was much more egalitarian in terms of economics. You could buy a house for one and a half times your salary when you were still in your 20s. Instead of getting out of school now and $35,000 in average house is 800, even a starter house, you can't get in for under $500,000. So it's 10 or 15 times your starting salary. So things have changed dramatically. And I think in the long run, we're going to have to charge the wealthy more. I just read that 657 people in the United States have more have double the wealth of half of the population. In other words, 657 people have more wealth than 115 double the wealth of 115 million. So let me go back for a minute, Roger, to look at the fiscal aspect of this. In the case of the state of Hawaii, we have a constitutional provision that says you can't have to balance the budget. It doesn't always work exactly that way, but that's the guideline anyway. In the Fed, you don't have that constitutional vision. You can spend and you can print money. And all you got to do is watch out for the possibility of inflation, but you can just spend as much money as you want. And we have spent a lot of money. We, first of all, that Kakamemi Tax Reform Act of January 2017 followed immediately by a statement by Paul Ryan. You and I discussed this. Oh, gee. Now that we gave away all this money by this quote, tax reform, which favored the wealthy, we found we don't have enough to pay Social Security and Medicare to the less wealthy. It was so Kakamemi. And then, okay, then you have COVID, as well as various other military expenditures in the life. Then you have COVID, which costs already trillions beyond any expectation, beyond any planning, beyond any budget. We just scooped up money wherever we could find it and spent it right out there. And that doesn't sound like we can pay it back so easily. I mean, in the end, in the end, do you agree with me? In the end, you have to pay it back. You can't keep on building a trillion upon trillion dollar deficit and keep the country sustainable. Am I right about that? Perhaps not, you have a dollar. My biggest worry, not a worry, but I mean, nothing I can do about it. But I'm concerned that we're going to the world, the world economic system is going to stop using the US dollar as its trading commodity. And then the dollar is going to really sink. And it, you know, how strong is a dollar used to be, you know, Fort Knox, we had this gold. And then back in the 70s, we used it all up and we went off the gold standard. And so what's keeping the world on the dollar and China's pushing, they're pushing back and forth. I guess they don't want the renminbi to go too expensive, but they don't want to use the US dollar. They want to use a basket of currency. So I think we're in for a while. Let me add, let me add, let me add that what happened yesterday isn't helping. What happened yesterday has got to lead to a loss of confidence in America by every country on earth. You know, to the extent that the dollar held up, it was, it was like a legacy thing. It was like, you know, momentum, even though Trump was doing all this damage, people would see the US as, you know, as a world leader, even though that's kind of historic right now. And yesterday was, was really the end of that game. I don't think we have that momentum anymore. I think the world looks at us as, as an object of pity. And that's been said in the foreign press. So, you know, what goes on now is that if we, I totally agree, if we lose the reserve currency, the stock market's going to go immediately down the hill by enormous percentages. It may, it may do that anyway, you know. And so the problem is that, you know, the government still has to exist. Taxpayers still, you know, you have to have an economy. You have to provide these services. And, you know, the government owes us a lot of money in terms of social security, Medicare, Medicaid, all that. And so what happens, you know, if we just sort of run out of gas here, what's, you know, what's the ghost of Christmas future? At some point, if we don't make some steps to repay this and to get balanced on our fiscal policy, some bad stuff is going to happen. Can you paint a picture of that? Well, I think the United States, federally, I mean, we just increased the debt, $6 trillion, $2 trillion for the tax bill, the Trump tax cut, $2 billion for the first go-round of the COVID, and another $2 billion for the second go-round on COVID. $6 trillion. It's impossible to even comprehend. The difference between a million and a billion if you had $1,000 bill stacked up as a million, it'd be one foot high. If it was a billion, it'd be as high as a hundred-story building. And if it was a trillion, it'd be as high as a thousand hundred-story buildings, a thousand-dollar bills. I mean, it's incomprehensible. So what are we saying? I personally believe that Hawaii needs to look through itself. And Hawaii needs to say, no matter what happens to the United States, we're going to be self-sufficient. By the way, my question is, what's the ghost of Christmas future? If we can't pay those trillions back, if we just let them sit out there, maybe increase the national debt and deficit, what happens? What's the natural progression of that? It isn't a good story. What effect would it have, for example, on inflation? What would it have on social security? What effect would it have on the national economy? It sounds to me like it's a hole in the boat that gets bigger and bigger, and the boat ultimately sinks. And I don't know what sinking looks like. What does sinking look like? Well, in Venezuela, where the value of their currency went down a thousand percent, went that lost a thousand percent every year, something astronomical like that, what it means is you can't buy things. And you have to choose either to hurt the debt or hurt the debt or hurt the creditor one way or the other. And our country is run by big business, and then that's going to be willing to take too many hits, I don't think. And it's incredible that so many people voted for Trump who don't understand that he's killing them. And I don't know. We've lost a sense of what's important, and that's why I think we have to get back to Hawaii, which has a chance to become a model for the world. And are we ever going to be as rich as we were, Jay? I don't think so. You know, when I grew up at a time where you could go to college for $100 a semester and you could get out and buy a house, like I said, for one and a half times your annual salary, and it was easy to get a job. And those times are not with us anymore. And I don't think there'll be again, but we still have to, what's important then? If we're not going to be the wealthiest people in the world, and we can't have all the toys, and we're not going to be able to buy everything, I think we have to think what kind of society do we want? And I don't think you can do it on a national level, particularly because we're so divided. And so I'm looking back and saying, we're a small community in Hawaii, there's a million people here, and everybody has some belief in the word aloha. And so what does that mean? And what do you do? And I give you some tax examples of we're still convinced that because the world sees us, or the nation sees us as a negative for business, that we got to do something to end over backwards to let business make advantage of us. Walmart sends out all of its cash, I'm told, every day. It doesn't even deposit it in a local bank. The real estate investment trust pays zero income tax in the state of Hawaii. And they own billion, 18, 20 billion dollars worth of property that's earning over a billion dollars of income. They pay all their income tax, their shareholders pay out of the state because they all live out of state. And are we just serfs? Are we just slaves to hotels and the travel industry? I just feel like it doesn't make sense to have so much wealth of environment and beauty and spirit and be such a nice place. And the average guy here has two or three jobs just to pay the rent. So I think we've got to forget about the feds. I mean, we can't control it. Things are going to happen all across the country, but we can control our own destiny here to some extent. I know I tried to get the real estate investment trust to pay tax a couple of years back and EGAY, it was passed unanimously by the legislature, EGAY vetoed it because he was afraid that they wouldn't spend any more money here. Well, they don't even do anything. All they do is buy assets. Anybody can own the assets and then they pay at least one tax. They're paying zero tax. So we've got to change the mentality that people are doing us a favor to come here as tourists or to come here and invest in our real estate. And we have to serve them and not have a decent way to live. It's just not right. So are there things we can do about it? Yes, but you can't have the same mentality that got us here. And I don't think you want to break anybody's back and do things overnight. You've got to find reasonable ways to transition into paying the people that get the most benefit out of our practically have to pay more. We've had graduated taxes because it's fair. If I'm making $60,000 a year and you're making a million and we each pay 15% tax, my hell and me, I'm barely making it. You paid $150,000 in tax, but you still have $850,000. Would you have got you were in some other country where you don't have laws, where you don't have the same freedoms, where you don't have your hotel on a beautiful beach that's the beaches are all owned by the public. Why aren't the hotels paying a livable wage? Why aren't the hotels paying taxes that reflect what the benefit that they're getting here? And the problem is you can't have it both ways. You either have to have a fair wage for the community or a huge value in your capital assets. And that's what's happened. We've moved from what you and I knew when we got out of college, anybody could make a living and get an education or go to work and make a decent living. But today you can't do it because the capital is just too much. It's too valuable. And if you want to get more specific, a hotel that was worth $100 million when I moved here is now worth a billion or $700 million. So the value has gone up seven times. Well, why? Because you capitalize the profits. The profits are reduced if you paid a higher salary. So in other words, if you paid more salary, the value of the hotel would come down. And if the value of the hotel comes down, the owner is going to be really unhappy. But you know what? The value went up from $100 million to $700 million. So how do you get back if you don't reduce the value of real estate in particular and stocks and bonds? You just can't have it both ways. And that's what we've seen. And we've had this 50-year stretch of everybody convinced that capital is a godsend. And there's nothing we can do without it. And I don't think that's true. And I think that in our community, we could come together with some great ideas of how to give people a house to live in and make sure that there is what Ronald Reagan used to call a safety net for those who needed it. We could kind of change what you're talking about, Roger, would require legislation. Oh, of course. Someone would require legislation. I mean, you've got to raise the taxes on the wealthy. And there's some things here that we've had for years. I hate to say it because it's been around forever. We don't tax retirement pay. It's a real sacred cow. And maybe it should be grandfathered in for some period or phased in a certain way. But is that what we want? A bunch of retired people to come here and not pay any taxes while our children move out because they can't get a job. You know, and I also think that by the same token, I want to tax these wealthy or, I mean, I want it to be not for a guy making $50,000 in retirement pay, but if somebody's making a million dollars and they're getting $200,000 in retirement pay, why isn't that tax? I mean, there has to be a balance somewhere. We've got to remember that you do things across the board. You have problems. You see in Biden's bill, he's focused on taxing the wealthy. And so I think we have to think the same things. I think we have to tax the people who are coming here and bidding up the real estate that nobody's using. We ought to have real estate taxes that reflect the fact that you're just holding it as an investment and it's not either in the long term rental market or you're using it personally. We could increase the TAT. New York's is about double what ours is. And so we have to look for money to be paid by the people who can afford it. Why? Because they're getting the most benefit. So that's fair. And it's not communism. It's socialism. Well, I don't know whether it's socialism or not. Is it social? Is Medicaid and Medicare and Social Security socialism? We want to have a community with a lot of people laying around in the streets, you know, and not having homes. So to me, the idea is what kind of society do you want? Well, you and I, what kind of society we want to have. But you know, from where we think and where we aspire to get there is a long, long way. I mean, Hawaii is progressive in certain ways, but in other ways, in the fundamental system here, it's not progressive. And a very small number of people largely composed with offshore owners owned all the land. And big companies, we have big companies that are very successful here, but they're owned from elsewhere. And the mom and pops are gone away or going away. They're not around. There are not great prospects. COVID must have killed a lot of them. You bet absolutely. And so, you know, what we have is a pretty, pretty fragmented situation. You know, with the homeless and people don't make any money at all, even in the best of times, have to have three jobs. And at the same time, we have people who never work at all because they're living off coupons. So, you know, I think it's a real problem in terms of the land. And of course, as I mentioned before the show, there's a whole constituency of capital concentrations that would oppose any change in that arrangement. They want to hold on to all the land that are willing to let go. They're not willing to change this. And so, you know, for me, I would change the tax structure to make capital gain confiscatory or very nearly. I would change the, you talked about the estate tax. I would make it really tough. And I would not allow a lot of money to pass from generations to generations. In other words, I would work on that disparity we've been talking about, both state and federal. I would make this country and this state a, you know, egalitarian, where you don't have this huge increasing 99 to 1 type disparity. But looking at Hawaii by itself, by itself, and looking next year, my concern is that all these decisions in the legislature and by the governor and the story of the REIT veto is a very interesting one. It seems to me that, you know, you have political pressures that are very strong on the legislature and the governor from those who own the most money, the most assets. And that means this situation will perpetuate itself. And the little guy, he doesn't have a representative. He doesn't have an organization that goes forward and tries to moderate the disparity. And I, you know, I think what's going to happen, you can correct me. I'm happy to have you correct me is that we're going to have a tax increase. It's going to be regressive. Again, it's going to be around the gross excise tax. It's going to affect a little guy more than a big guy. The REIT thing will not change. Foreign ownership of land and business here will remain the same. And we'll keep sinking deeper into that hole. And what I'm saying is that somebody has to come forward, maybe an elected official, maybe a nonprofit, maybe some activist organization, and say, Roger is right. We've got to look at this thing differently. Because we here in Hawaii, maybe we appreciate, you know, our situation, our distance from the mainland more. Maybe we can control our destiny, perhaps more than other states. We'll be affected by what happens in the federal government and in the mainland, but we have a certain control here. We can have a great Mahaley of 2021. Somebody's got to say that. Nobody has said that. Nobody has said that since the great Mahaley of 1848. We have some people, we have some people who there's an aloha, Aina group that's looking at a number of different possibilities. I have a paper that I've written that talks about all kinds of things we could do here, not just the tax aspects, but a lot of changes we could make in concepts about housing. We could do more volunteerism. We could start looking at what jobs make sense for a population like ours, whatever we do, we're getting older. And don't we need more healthcare workers? Don't we need more people to help you stay at home and age? Maybe the university ought to just allow, give people a pass, give them a scholarship to study those kinds of disciplines. And the problem with everything is it's all about money. Even to get elected, you've got to have money. I know so many legislative people who just, they know they've got to have the money and they don't have it. And so if somebody's given them $10,000, $15,000, it's a big deal. If they don't listen to them, they're not going to get it the next two years. And so what kind of crazy system is that? So we have to, we have to have our own pay for elections. Here's an idea. We could have Hawaiian money. They have money in certain, it's not illegal to have money that the state promotes. And what would that be like? All right, you want to fix a pothole, you pay in Hawaiian currency, the state pays in, and they allow that currency to pay your own taxes. And so then it becomes something, it's more like a loan to the government in a sense. You know, they're putting out, they're not paying you in advance and you pay them later on when you pay your taxes or you don't pay your taxes. But that's another off the wall kind of idea. But we need to brainstorm this stuff because it's changing, the world's changing. And we have another asset that very few other states have, which is Asia. And I think we got to look to them. The Chinese have a terrible dictatorship. But as far as their business community goes, they're just like us. I taught at a law school there. I've been doing business there for years. We offer them an enormous amount of things. And there's lots of ways to partner with them. And I think we ought to read out to that the lieutenant governor's position is supposed to be one that looks to Asia and how we can connect with them. I think there's just enormous opportunities there. And there have been times since in the 50 years I've been here that we were much more attached to Asia than the mainland United States than the continent. Well, Roger, I mean, you know, that's aspirational. There's some great ideas. You and I have talked about some remarkably creative ideas to help deal with the disparity, to help deal with the fiscal crisis. But the reality is that in Hawaii, the number of COVID cases today was more than any other day in the past. We have a serious problem. I don't know when the vaccine is going to actually begin to have an effect on it. Not clear whether the vaccine is going to be able to beat the variant. And we're going to have to work on just basic reopening. So I have to ask you this one question. What's going to happen? What's going to happen this year in the legislature? How are they going to balance the budget with a prospective deficit of almost 1.5 billion and rising? Well, obviously, they're going to have to raise taxes. And they're going to have to think how they're going to be able to do that because the guy in the street cannot pay it. So they're going to have to look to the wealthy. They're going to have to look to the foreigners who come here to invest and buy up our real estate. They're going to have to look to the big businesses and the hotels. And they're going to have to not be afraid of the future because right now we need help desperately, like you say. And I also think there's lots of opportunity for people in agriculture. We need to stop thinking about one-shot housing developments that when they're over, you lost the land and you're not getting any more income from it. If you were farming, you could get income every year. It's this short-sighted mentality of what's the stock price today that we've got to get over. And we've got to use our common sense to think about what kind of society do we want and how do we get there? And are we satisfied with this incredible greed? And even the poor people want to be beady. They just can't do it because they don't have the money. It's not either or. It's a bad mentality all the way around. I want to be like Donald Trump rich, even if he's not rich. He's going to be a lot less rich when he's finished. Roger, we're out of time. I want to say though that you're opening issues here that we really have to discuss going forward. This is an ongoing thing and we should commit to continue this conversation. We should commit to expand this conversation. We should, Jay. And maybe, I mean, I'm happy to talk with you. Maybe we bring in another person. Maybe we get down to more details. I told you about that housing plan I had to make permanent affordable housing. But you have to change your mentality. Are you in a house for shelter or are you in it for an investment? You can't have it both ways. And as the United States changes and is no longer the dominant player in the world, we're part of it. And we have to learn to live with it. And maybe it goes back to home. This is home. Okay, Roger. We're out of time. Thank you very much. Let's circle back. There's so much more to talk about. Aloha. Stay well. Happy New Year. Okay, Jay. I appreciate your efforts in all this. Think Tech's a great asset and let's use it for the benefit of the community even more. Thank you, Roger. I appreciate your thought and your contribution. Aloha.