 We're happy to be back. We're happy to be here. This is Community Matters because community does matter. There's Roger Epstein. He's right here. Roger joins us today to talk about community matters more specifically about the dramatic changes in tax policy and fiscal policy that we see happening in Washington. Hi, Roger. Hi, Jay. Pleasure to be with you again. So I know there's so much to talk about and it's going to be so easy for us to talk about things unrelated to that, but let's start with the things that are related to it. You and I have had a number of conversations about the Tax Reform Act of 2017, which we are both suspicious of. And, you know, you're a tax lawyer and you had very deep suspicions of it. And it sort of played out people. It seems to me that people are for the first time realizing how nefarious that statute is and how it did not help the people. It helped 1%, but not the people. And more than that, it's affecting fiscal policy in a terrible way. Can you talk about how it's evolved over the past, what, almost three years? Yeah. Well, that bill is clearly designed to favor the wealthy and reduce their taxes dramatically while giving little pitances to the poorest, perhaps, or the poorest working people, but also taking away from them. So let me give you a couple of examples. Of course, the biggest one was reducing the tax rates for corporations by 42% from 35 to 21%. So that means the profits that corporations make are only taxed at 21%. When I first started in the tax business, the corporate profits were taxed at 70%, as were the highest individual rates, which had actually come down in 1965 from 91%. And of course, the 50s and 60s were the most, not only the best economic times in the history, perhaps, of the world in the United States, but they also were fair. In other words, people were making enough to live on and the wealthy were making enough to be wealthy. And we didn't have any kind of every communism or so where everybody gets the same. There was a huge scale, but it was within range. So for example, the average executive of a big company was making maybe 40 times what the guy on the factory floor was making. Today, it's somewhere between 500 and a thousand times. And so we've gone from that situation, which seemed pretty healthy to where we are today. And I think in the 70s, there was a concept that was a reaction by the big business and the right-wing economists people to the insanity of the 60s and the liberality and all the things that changed, which were necessary, but were very disruptive. And we had some policy thinkers like Milton Friedman, who said, the only thing business is for is to make a profit. And if you do anything else, you're breaching your fiduciary duty. And a guy named Louis Powell, not so famous, but became a Supreme Court justice, wrote a whole program about how big business had to get serious and start taking over. And here's a plan. He created a plan as to how to do it. People like the Koch brothers picked up on that in the early 70s. And they created the Heritage Institute and the Kato Institute. And these became ways to combat the academics of the 60s period, which were all liberal. Now you had these conservative people. And whether you, this is a matter of philosophy. And do you think that it's the business of government to control the worst aspects of business? And thereby give the guy who's not in control, the guy, the worker, the employee, a break and a fair life? Or do you think democracy means business can do whatever it wants? And I think that's fundamental. So then you come along, and you have the Reagan revolution in the 80s, which, which took the rate down from 70% to eventually it got to 35%. I'm trying to think if Reagan put it this 50. Anyway, the rates kept coming down and down. And then you had another situation in with George Bush, the second who changed two things. Richard Nixon, in fact, as a, as a Republican had eliminated the capital gain benefit in the 70s, so that all income was taxed the same. Now Bush comes in the second time and he puts a 20% tax rate maximum on corporate dividends. Okay. Now corporate corporation was paying 35, I think 35% tax and then the dividend was 20%. And you could make some case that that it was fair to give that a break, even though it had never existed in our, in our tax law before. So now if the average person is paying 25, 30, 40%, 37, whatever the maximum was, the guy clipping coupons and getting dividends is paying 20%. On his, on his dividends, when he sells his stock, when he sells his real estate, he's paying 20%. Now how is that fair? And, and doesn't it give you the clear indication that the law favors capital dramatically versus labor? You know, that's a good question. And I think they were just kind of beating down a little bit. I think that a lot of money and a lot of power went into these ideas. And of course, the Republicans picked up other people like what's happening in Kansas. How did the Republicans pick up people who were losing out on this? Because they added things like abortion, which you know they didn't care about. Trump has flip-flopped on that and have many other Republicans have. But it brings along a lot of people and not just the 1% who are really benefiting from this Republican, this Republican idea, these concepts that business shouldn't be bothered, that the best thing for us is to have free business. Even Adam Smith, who created the wealth of nations and the idea of capitalism, was very clear that government has to provide against the excesses of capitalism. And Reagan came in in 1980 and in landslide victories, he said government is not the answer, it's the problem. And this is what people picked up on. And so then the big business people who were basically 1% of the country had to find a way to bring in other people and they used abortion and the excesses of liberalism. I mean, people are right. The things that happened in the 60 have given us a lot of divorce, a lot of drugs, a lot of promiscuity and pornography. And so you can see why some people would be in favor of setting up laws against it. The problem is you cannot set up laws against that without shooting yourself in the foot and your kids. And you've got to have other practices that aren't government control. But as far as business goes, the one way that you have is the two ways you can regulate business. So it doesn't do terrible things. Jeffrey Skilling, who was with Enron, there's a story when he was in Harvard, he was asked whether or not if his company was selling a product that killed people, he would stop selling it. And he said, no. He said, as CEO, I'm supposed to make a profit. The government wants to kill it. That's their job. So you can see that you can't have it both ways. We have a problem now though. Where would you say that the Tax Reform Act of 2017 has taken us? To me, a lot of talk today, including by Thomas Friedman, isn't he the son of Milton Friedman? I mean, there were really different kettle of fish there between father and son. But he wrote an article recently about how democracy is dead and dying. And a lot of other people have said that. And so the question I put to you is, okay, democracy is under attack. We have to make up our minds where we're going. The country has to get together, which is not likely in a time of divisiveness that Trump has exacerbated. Aren't we sort of past it already? Aren't we so divisive that we can't come back? Haven't we reshaped our government to be something other than democracy? It really sounds like the corporate interests have the field now, and the people, as much as they want to get out in the street, don't have the power to change it. You know, that's a possibility, but I'm not going there. First of all, the other part, besides regulation, there's also taxation. And if big business, for instance, is going to pollute the streams, don't they have to pay to fix that? And here's the big question. Do you think that taxes should be used against the people who benefit the most by making the most money to create some pot of funds so that we can have universal health care, for instance? I'm just saying, if you believe that, and I believe that more people in the country want to have a bigger balance. Okay, so what Trump has done just to go through with the 2017 act, so he reduces the corporate income tax. To pay for some of this, that act provided that if you're an employee and you're getting a free parking space, now you have to pay tax on that. It's not just a fringe benefit. You've got to treat that as income. You don't even have the cash, but you've got to treat it as income as if you got it. Also, you have a movie, your company makes you move from Akron, Ohio to San Francisco. It used to be you could deduct the cost, no more. Another good example of how it's twisted in favor of the rich, this thing is incredible to me. When I started the estate tax, which the Republicans return the death tax to make it sound like we're really taxing people when they die. This is so you don't have an aristocracy of the rich, where they make a lot of money and just give it to their kids, and their kids didn't do anything, but they get to live off that. And so we had a huge estate tax. And the floor before you pay tax when I first started was either $30,000 or $60,000. In other words, if you had more than $60,000 of assets, you paid some tax when you died. When Trump came in, it was five and a half million. Today, it's 11 and a half for each person. So that means you've got to have $25 million before you pay any estate tax. Doesn't that prove my point? Yes, it proves. No, not. Well, you said, can we undo it? No, I know. Right now today, haven't we passed a tipping point? Because the very same people who have this huge 11 plus million dollar exemption are the ones who really know very well how to lobby. And the people in the legislature and the Congress are, you know, they're open for lobbying and they take money. And there may I say corrupt and Mitch McConnell is corrupt. Look at all the things. I think my favorite thing is the post office. So the House of Representatives says, here, here's $25 billion to keep it going in the time of COVID and the time of the election. And McConnell sits on it. It's not going to pass. And even if it did pass, Trump would veto it. So what kind of thing and what kind of legislation is that? There is no representation of the people. It's gone. It's already gone. Our democracy is already damaged, perhaps beyond repair. Perhaps, but Trump is not going to be in office after November, my prediction. And if he's here for another four years, the United States going to go on for a long time. There's a lot of capable people here. There's a lot of heartfelt people here. You know, we've had more people out in the streets since and protesting. I'm not even talking about Black Lives Matter. You don't forget when Trump came in, there were months and months of people protesting in the streets. And Black Lives Matter is a huge thing, which of course would be better if Martin Luther King were here to keep it peaceful protest because that's meaningful. When you go out and burn things down, then you're given Trump all this ammunition, which you see he's using it. Let's say Trump is out. Let's say he's out in November and come January, we get a chance to start all over again. Now, if somehow, which is not impossible, the Democrats take the House and the Senate, I mean, they can do whatever they want. The taxes are not cast in concrete. The regulations that he undid, all this ruining, you know, the Sierra Club, every one of their newsletters is, can you believe what they're doing now? I mean, they have, it's incredible to me. I don't believe most, I think 75% of the people in the United States or more would like to take care of our environment, would like to take care of our national parks and and not, you know, go to a national park next to an oil well. So to me, the potential is there. And what I've always hoped is that Trump is the last gas of male authoritarianism. Roger, it's not just Trump. It's those people in Kansas. You know, the people that support him is based. Okay, okay. So I think what you have to have plenty of authority, even if he loses. You know, there's a lot of middle ground that people aren't hitting on those people in Kansas, love their family. They love their community. They've been taught, they've been given a lot of lies. There's a lot of common ground for all of us in this country to agree that it's would be, it would be good. If everyone had a good life, if everyone had food, clothing and shelter, and if they could find a way to do it, that made sense. Maybe we come to more agreement. I'm not saying you're going to get 100% from everybody anytime, but they don't have to go along with the greediest, bigoted crooks in the world. This is out and out greed that's gone from, all right, let me finish with the estate tax. It doubled. Okay, there's a provision in the income tax that says because you have to pay a state tax, remember, you had to pay a state tax on everything over $60,000 four years, 50 years ago. Now you don't pay on anything over $22 million for a family. Okay, there's a provision in the income tax law that says because you're paying a state tax, if you bought this a long time ago and it appreciated, there's a lot of profit in it, you shouldn't have to pay an income tax also. So just for example, you bought a rental house and you've owned it for 20, 30 years, whatever you've paid, you've depreciated, has no tax basis to you. It's worth a million dollars today. Okay, it's your only real asset. You've got that house and or maybe you've got $20 million of other assets. Okay, when you die, even though there's no chance you'll pay an estate tax unless you got $22 million of total assets, you get to step the basis of that up to a million dollars. So it's value at the date of death. In other words, when you die, you didn't pay any estate tax because you didn't have $22 million. And you're not going to pay any income tax because your house goes up to a million dollars, you sell it for a million, you have zero gain. Now, if you wanted to get rid of the estate tax and or said it's so high that it only applies to a small number of people and you were looking for ways to pay for that, wouldn't you eliminate the step up and basis on those assets? Of course you wouldn't. It's actually subject to tax. It's only fair. In fact, I think there was some discussion back in the day of the 2017 tax reform act, but it didn't go anywhere. So the stepped up basis is still there. He said he was looking for ways to pay for this and any tax person in their right mind would know that this was set up only because you're paying a double tax. He calls it the death tax. Let's make it so it doesn't apply to anybody, but the income tax also doesn't apply to anybody. So on real estate gains and stock gains. So now you have capital gain tax that's 20% compared to a much higher income tax. Dividends are taxed at 20%. And if you hold on to your assets long enough, you never have to pay any tax on them. So what I'm saying is, and this is why we're in trouble, because the relative value of capital has gotten so much greater than the value of labor. You can't earn enough to buy a house. You can't have enough additional income to get into the stock market. So we've skewed it. It wasn't like that when you and I were kids and the system was identical. We haven't changed the system. It's still, you know, capital. But the disparity, the disparity is huge. Disparity is huge. And this is the reason. And when you exacerbate it by not only is capital worth so much more than labor, but you tax it lower than you tax somebody's income. And not only that, if you earn your income, you've got to pay your own retirement called social security tax. You pay that yourself. The guy who gets a dividend, you don't have to pay any tax. Now they made it some years ago. Oh, he'll pay 3%. But you're paying 20%, 25%. So you pay your income tax, you pay your employment tax, and you're competing with a guy who's just sitting there clipping coupons. Why does he deserve more? I don't get it. Talk about Trump's idea, which actually is more than an idea. It's been embodied in a proclamation of deferring the payroll tax. What does that mean to social security? It means the end of social security. How can you pay for social security if you don't have enough tax money to pay for? They've been talked about social security going broke for years. And here's the other thing, Jay. So if we don't pay the tax and it gets deferred, who knows how long that's going to last? Are you going to get that money back? We're talking billions and billions of dollars. And so it's a short-term break that I think, like a lot of misdirection from Trump and the Republicans, is going to be the death knell of social security. Or it has it. And I've read other commentators saying exactly that. Now, keep in mind, the other thing that happened during this period from the middle 70s to now was we ended pension plans. We don't have pension plans. When I went to work for the government, you were going to get 30% of your salary for the rest of your life when you retired if you stayed there 30 years or something. And all companies worked with it. Now, the automobile industry in the 80s struggled like crazy. They had huge pension issues. They couldn't fund their plans properly. So somehow everybody said, oh, well then let's go to instead of the fine benefit, I get 30% of the fine contribution. Oh, I'll put in $100 at that. Now we have 401k plans where the company, if they're nice, they'll match your retirement that you put in for yourself. And when you retire, there's very little discussion that I hear, of course, with Trump doing all the crazy things, you don't hear much of anything. But we've got a huge population that's about to retire with no meaningful pensions. Well, for that matter, we've got a huge population that can't last two weeks. They have no money, no savings. A pension is years off. So when you think about these ideologies, and if you think about it, you think about people who are reasonable and they're not part of the 1%, yet they're conservative business people. And what do they say? Did they say, okay, this is acceptable. This is just the way it is. What you said we can't change. We can't do anything. In the United States, we have no way to let people earn a living that they can live on. In Hawaii, people have two, three, four jobs and they can't live on it. We already put women to work 35 years ago. And now we've played that card and we still don't have enough money. So let me go to another point, which we should cover in our remaining time. And that is, so in COVID, we spent three trillion already, three plus. And there was an effort to put another three trillion in, but that got stalled. And then, of course, Trump made his proclamation, which got stalled because it's largely ultraviries. He doesn't have the authority to do those things. I don't think that's happening. It's the money's not coming out of that. So we have two things going on. One is people are starving. And that's got to lead to a damage to the social framework. But number, and the governmental framework. And number two is that we have no way to repay all the money we've spent. Trillions of dollars of deficit. I mean, it was bad enough before where we put in hundreds of billions into the military for reasons that escaped me at the time. And he snaps his fingers and spends money. I don't know how it's possible that the president can spend money without that House of Representatives behind him. I didn't think that was possible. And yet, he's spending like no Republican ever spent. And McConnell is letting him do it, going along with him. So anyway, my point is, and I would like to discuss it with you, is what do we do about this huge, huge deficit? Do we never have to pay it back? Is it free money? We just keep on printing money until, I don't know, what will happen? But what happens at some point, Jay, what happens at some point is you have ultrainflation. And the other thing that's coming is the U.S. dollars no longer going to be the only currency to close transactions in. And so it looks like we have put ourselves in an incredibly bad position. You lower taxes. It was supposed to cost $500 million. It actually cost $2 trillion. Then you put another $3 trillion on top of that. You have no idea how much a trillion dollars is. It's unbelievable. And so, yes, we put ourselves in a hole. Yes, the Republicans are totally responsible for it. Is there a way out of it? Maybe not. Maybe we're due for another depression. When you say that the value of capital has gone so crazy compared to the value of labor, one way to fix it is a depression. You don't have to raise the salaries. Just bring down the cost of a house. Bring down. I'm not saying we should do this, but the universe and nature have a way of taking care of things. The invisible hand that Adam Smith talked about is an invisible hand in economics. And it's going to take care of the circumstances one way or the other. But I hear you saying, Roger, is if we have this huge deficit, which is just astronomical right now and getting worse, there's no end to it really this year, next year, then, okay. So, we've been talking about the disparity of income, the disparity of wealth, disparity of earnings between the 99% and the 1%. And now we're talking about a deficit that we can't repay. And we're talking about a depression to fix that or to equalize it somehow. So, who pays for this huge deficit? Well, it's the 99% guys. Of course. And that makes it even more unfair because they're going to be suffering through a depression. And in case nobody listening knows about the depression, let me tell you, if you read anything about the depression, you know it was a bone crusher. It was a killer for millions of people. It's not fun. And it won't be fun. And if that's what's going to come out of this, it's going to be so bad that government, and there were chances that government would change in the 30s, you know, the whole thing would be torn up because people were so unhappy. Government will change if we have a depression on top of that disparity, right? Well, what we have to decide is government for the people, of the people, for the people, by the people. And if a lot of people wanted to be that way, we can implement things which can minimize the problem. We can implement ways, their policies that could replace the insanity of lowering taxes when the economy was doing great. We've got to do something. If you don't have enough money, taxes are the way to go. And to come down to the low rates we have today is ridiculous. And you've got to be selective. You can't put it on everybody. You've got to put it on the rich period. You want to say soak the rich? They've been soaking us for a long time. And I'm rich too. They've been soaking us for a long time. And it's not right. And people have to start back to reason. You remember Franklin Roosevelt was called a traitor to his class, but he saw what you're seeing. And of course, it was after the fact. We're not quite in that depression yet. But we'll get there if we don't make a big change and start moving in other directions. Well, it's the we that stymies me. It's the we. Who's the we? The we is not the Republicans in the Senate. The we is not the people around Trump. The we is not the evangelicals who follow this kind of greed first, corporate profit for libertarianism first. They're on the wrong side. And my view is they're on the wrong side of the ideology, but they're in control. And even if they don't lose all the control, they'll still have some control. It'll be a big argument to go talking about. But you're supposed to look. 60% of the people are against Trump. 30 or 40% are with him. You may talk about who's more solid and who's not, but 60% is a big number. And so all you have to do is get those people to come out and vote. Trump's out, the Republicans are out. There are ways that you can ameliorate. There are ways that you can turn the clock forward in a significant way. And yes, we're all going to have to help each other. If that's what we want to do, we put ourselves in a horrible box and we need to stop it and then come forward with some plans. And the people who are elected, let's assume it's a clean house election, the people who are elected have to resist the lobbyists. That's right. The lobbyists are very powerful in the culture of Congress now. More powerful, way more powerful than they should be. You can buy votes on the street. You can buy votes in Congress. If you have enough money, you can get anything done. And that process, that seductive process will continue even if the Democrats win. Well, there's no question about it. We in Hawaii tried to pass for many years. There was a professor at the university who was leading a movement to get rid of money and business. I mean, I practice law with the biggest companies in the world, literally, as well as the biggest companies in Hawaii. And everybody knows that if you put... If I give you $1,000 and you don't, and somebody else doesn't, when the phone rings, who's phone are you going to call back? Me or the guy who didn't give any money? I mean, it's patently absurd that money will not influence people. You remember the Lincoln Savings and Loan scandal? And the guy who did it, they asked them, did you think you were buying influence when you put the money when you did that? He said, what the hell do you think I put the money up for? I mean, we can pretend to be ignorant, but it's obvious money in our voting system and our politics starts it out making criminal. It's really hard to work around it. If we don't... It's all in the culture. It's a floor in the way our democracy has evolved. And then the Supreme Court... The Supreme Court failed for it. Yeah, the Supreme Court says business can't be limited in how much money they can be. Yeah, Citizens United. Well, Roger, I think the jury's out. Can I say the jury's out on this? We have to see all of the shenanigans that Trump plays out between now and election day. In fact, between election day and January 20th as well. There's all kinds of scenarios. Oh, that's going to be... If Trump loses from November 3rd to January 20th, it's going to be wild, the wild west. This year has been something. And in 2020, we're supposed to have perfect vision. Yeah, right. Thank you. Thank you for saying that. But Roger, we have to get back together again and connect the dots as we go forward and see which one of these trends prevails and see whether we, the people, buy the government for the government and all that, whether they can get together and prevail or whether the tipping point tips the wrong way. Here's what we should do next time we have a talk, Jake. Let's look at some answers. Are there any answers? That's a question you asked. Are there any answers? Are we just screwed? And it's ridiculous to think a country of 330 million people with all we've done and as capable as we are. Yes, we've kind of ruined our schools. Yes, we've kind of ruined our economics. But we ain't dead yet. And there are ways to recover. And you know what else? We got into this mess over 40 years or so. So we ain't going to get out of it in two days. All right, I'm feeling better then. That's Roger Epstein, a tax attorney who can see this stuff clearly. He can see the effects of tax bills rammed through by the Trump administration. He can see the changes in fiscal policy and he can see the changes in the country and the fabric of the country. And we'll follow this again. We'll talk to Roger again. He promised me. Thank you so much, Roger. Thank you, Jay. It's a pleasure. Always a pleasure.