 This is St. Tech, Hawaii. Community matters here. Guess what? Really special here on a given Tuesday after Christmas on the one o'clock block. We're following up. That's really important. We've got to follow up. There's two kinds of people in the world, you know, the ones who follow up and the others. Today we're following up with Roger Epstein. He's in New York now. We talked to him before the tax bill was passed. The tax reform bill was passed. And now we're getting together with him again to see what happened to follow up with him. It's really interesting. So, Roger, welcome back to the show. It's so nice to have you here for this discussion. Thanks, Jay. Always great to be with you. Yeah. So, big question is why we have a prosperity or so it seems. Maybe it's a short-lived prosperity, but we have a prosperity. Why do you pass a tax bill when you actually don't need to get the money back in the till, so to speak, because we have a prosperity anyway? Why do you do that? That's a fantastic question, Jay. And only Donald Trump and the Republicans really know, because everybody else who's looked at it says this makes absolutely no sense. You don't want an economy to be overstimulated. You run the risk of inflation. You run the risk that interest rates will start going up. The economy's been growing and doing really nicely since the terrible recession we had. And we've been out of it for six quarters before Trump came into power. But the Republicans have said for years that we need to cut taxes, that government shouldn't be spending as much. And I think the shoe that's about to drop after this year is you're going to have to cut spending. So the key has been, this has been a theory that's been professed by Republicans for 40 years. If you can't cut spending, then you ought to lower taxes and force yourself to cut spending. Yeah. It seems pretty certain that we're going to have either a cut in spending or what the Treasury Department has said for many years, if you go to these low corporate rates, you're going to have to have a value added tax, which is essentially a federal sales tax. Yeah. Now that would be brand new. Brand new idea. Well, it would be brand new, but most countries in the world have a bad. And when they talk about, which was one of the discussions that the corporate tax rate is too high and therefore our corporations can't be competitive worldwide, they say corporate tax rates are lower in many countries. They say all countries, but most countries it up, but they have a national sales tax and that makes up for it. And when the people in Treasury who at the time they were actually saying what was true, they would tell you, hey, if we're going to lower corporate tax rates, we can do it, but it's got to be backed up with a value added tax. Yeah. But we can expect that. Now, I haven't heard that said at this time, now that this bill is passed, what they're saying is, okay, we're going to have to lower spending. And of course, I don't know if you understand this pay, pay go situation, Jay. Okay, what happens when you have a bill passed or a situation with something like a hundred and fifty million dollars a billion dollars over the budget, then you have to start reducing line items, you have to start reducing items in every department in the country, just sort of prorata to what their share of the income is, what they're, you know, what they get for their budget. So this bill would have done it, but they passed a waiver for this bill of the pay go regulations because this bill increases the deficit over 10 years by one point trillion dollars, one point five. Wasn't it almost one point five trillion dollars? I think, yeah, one point four, five, five was one legitimate estimate. One was one point four, five, six. And so now what happens is every year that hundred and fifty billion, if you divide that by 10, that's a hundred and fifty billion a year, roughly. So a hundred and fifty billion a year is going to come up next year. We're going to get to the pay go and we're going to say, hey, unless we waive it next year, we're going to have to reduce everything across the board. And of course, the Republicans at that point will say, we're not waving this and it takes a 60% vote to waive it. So even if the Democrats should nominally win the House, they would still not be able to make 60%. So they kind of work it out so that the big bill this year didn't trigger the pay go so it doesn't look like we're going to have to reduce all the spending. But it will every year for the next 10 years. And without a waiver there, we're going to get these spending cuts, which is I think one of the main purposes of the bill. This is kind of choke, choke the dragon, choke the big dog because we're just spending too much in the federal government. That's the real, that's one of the real purposes of this bill. Yeah, that's awful. That's a deception on the public. That's a huge deception on the public. Huge deception on the public. No question about that. And I'm reminded of when there was a guy who was on the Trump transition team and he became a lobbyist for a big law firm in DC and he was interviewed and he said, well, look, what good is it to be a lobbyist now? Trump's going to strain the swamp and he's not going to be with his friends. And he said, oh, you got to know the difference between red meat fodder for the masses and reality. Red meat rhetoric and reality. He says, and Trump really knows the difference between the two. So this is a big piece of red meat rhetoric, but the big benefits all go to the wealthiest and there's, there is some for most other people. But for example, the people in the making 19 to $38,000, they're going to save something like $380 and if you're making over $72,000 first year, you'll save $31,000. Wow, this is $380. What about the poor? Do the poor have a refundable credit? Do the poor stand to gain anything in this deal? Yeah, I think so. I think so. And I think there is a big benefit. I don't think they're actually lying when they say everybody gets something. It's just that the rich gets dramatically disproportionate more. Yeah, the corporations be more. And so one of the good things I think is they double the standard deduction and eliminated tax exemptions, which means for those people, most people file the standard deduction. So when they double the amount, there's going to be a lot fewer people who are really going to owe any taxes and many people will get off the rolls. So I think that's a that's a good thing. Yeah. But you know what you were saying a minute ago, Roger, when you were saying a minute ago, the rest is something else. That next year, we'll we'll we'll have a reduction in the Congress will decide, can't control by the Republicans. They'll decide they can't. They don't have enough money because of this tax reduction to do spending. And can we unpack that for a minute? Because I've heard it said that what is spending but the social safety net? They're not there. These same people who are getting a few bucks here in year one are not going to get the benefits from the government that they've been getting. And that might include cuts in Medicare, Medicaid and other aspects of the social safety net. Am I right? Are you absolutely right? In fact, one of the ways that the bill is paid for is by not subsidizing health care for for those who can't afford it. And I think that saved a huge amount, 150 billion or 300 billion. Some big part of this was to cut that back. And that eventually will throw 13 million people out of health care. Yeah. So they may may get a couple of hundred bucks, you know, as a benefit in year one. But by the time we're in year two, three, four and so on, you know, there won't be a benefit at all. There'll be underwater. And I suppose social security is also at risk, isn't it? Social security is less at risk because the pay go rules that I was talking about don't impact social security, but they do impact Medicaid and Medicare. So those will be cut further. Now, the thing that I think is important to understand for for those of us who are child's children of the 60s and and liberal and educated, this is a program that that our government that has been elected has decided. That's not what governments for. We're not to take care of other people. You put in money so you can have domestic security so you can build roads, very nominal. You have a police force to the extent, you know, the federal government needs to take care. These are the things that the people in control of our government believe are important. And the other things they believe are improper for the government to do. You want to have charity, churches should do it. Individual philanthropists should do it. It shouldn't be forced on the wealthiest by the poor by by the poorest just because there's more of them. And, you know, we we we've had we've had this situation before many times. If you look back on the Industrial Revolution, there was the very wealthy. We had sweatshops. People worked 14 hours a day. Children work for pennies and, you know, and it was up to the employers to to be good natured about it. And so at some point, the pendulum swung the other way and it kept swinging and then it swung through the 30s during the Depression. And Roosevelt tried to drive us out of it. Then we had the war and we got fat again after the war. And then other people in the world started getting richer. And those who had the money decided they didn't want to. They wanted to be the richest in the world. And the only way to do that was to pay lower taxes. As I said on the last show when I started as an internal revenue agent in 1967, the highest tax rate had just come down from 90 percent to 70 percent. Now it's thirty nine and a half down to thirty seven percent that they wanted to go to thirty five, but they couldn't make the numbers work. Maybe they will next time. And so it just goes down until you get to a situation where we had the fabulously wealthy, the one percent, the five percent of the population that owns something like 40 percent of all the wealth in the country just disproportionately benefits. Well, you know, Roger, you know, power these days seems to come out of the internet's social media comes the people who control the internet. That's why the internet issue was important, I think. And so the robber barons are back because they'll be able to accumulate, you know, that and the end of the estate tax, at least for a while, that will enable them to go on or save more money than ever before and become a kind of new a new no-blessed. And this is of great concern to the country in the way of, you know, an undermining of democracy, I think, because you have just a handful of people who have the money to control the voting because we know that votes can be bought through the media. And so I wonder your thoughts. Well, first, first one, one other thing I'd like to cover in this part of our discussion and that is the kind of small benefits that go to the middle class. Those benefits expire right in 20, 25, seven years away. But the big benefits go to corporations and the like that make the robber barons all the more rich and powerful. Those do not. And those are permanent. How do you see this changing the country? Well, it depends on how we respond. These are the times, Jay. These are the times. Trump was elected with about half the vote, a little bit less. He's got a base of a third of the country that thinks he's doing no wrong. Those are some of the poorest and some of the richest. Now, fortunately, we still have an election that comes up every two years for the House of Representatives, every four years for the president, every six years for the Senate. And where's the country want to go? We have reached a point where with Citizens United, where there's an unlimited amount of money that can be placed on an election, money is totally, completely in control. Even if you look at the Democrats, if you see the emails that come across, all they talk about is we got to have 100,000 to meet this date. We got what are you talking about? That's not a vote. How does money looks like a vote for everybody? So could we get to a system that first takes the money out of it? That's extremely difficult, because even if you took the money out of the individual's elections, you still have the big organizations that can put in money for other kinds of ads. But nevertheless, we could do well with that. And secondly, do people believe what you say? At the important part of the United States is the ability to start with nothing and move your way up in the system through education and hard work. Or are we going to have a class system where you're born rich? One of the things about the estate tax, it made it very much more difficult to have this aristocracy of the rich because you had to pay a huge amount in what you'd accumulated. Now, if I had that and I had a hundred billion dollars, why would I want to give the government 40 billion instead of my kids? But yeah, what's what what philosophy do we want? Right now, where we've moved to Reagan, Bush, Trump. That's been the progression for the Republicans. Yeah. And and you might look at the Democrats and say we went, you know, from Kennedy to Clinton to Obama, who was much more concerned about the underclass. Yeah. Well, Roger, let's take it. We're going to have to take a small break. But when we come back, I would like to talk about the economics, the macroeconomics that flow out of this, out of the fact that we are, you know, doing this tax break at a time when we are in prosperity. At a time when we were going to be spending more on infrastructure, when we need to, you know, need to help people who are underprivileged. And so we're going to have a profound effect on this. And you mentioned last time the possibility of inflation. I'd like to cover that. I'd also like to cover a few of the salient changes that affect individuals who will be filing tax returns soon enough. And maybe even some less minute planning now between now and the end of the year. We've got a lot to talk about. That's Roger Epstein. He's a retired tax lawyer and he's the vice president and co-founder of Asia Pacific Group. OK, we're talking about the status and effects of the tax reform bill, the good and a lot of the bad. We'll be right back with Roger after this break. Welcome to Sister Power. I'm your host, Sharon Thomas Yarbrough, where we motivate, educate and power and inspire all women. We are live here every other Thursday at 4 p.m. And we welcome you to join us here at Sister Power. Aloha and thank you. Aloha, I'm Keeley Ikeena and I'm here every other week on Mondays at 2 o'clock p.m. on Think Tech Hawaii's Hawaii Together. In Hawaii Together, we talk with some of the most fascinating people in the islands about working together. Working together for a better economy, government and society. So I invite you into our conversation every other Monday at 2 p.m. on Think Tech Hawaii Broadcast Network. Join us for Hawaii Together. I'm Keeley Ikeena. Aloha. We're back. Roger Epstein on the other side. He's in New York City, joins us by Skype. He's a retired tax lawyer, vice president and co-founder of the Asia Pacific Group, which is important. And we're talking about the tax reform bill and let's unpack some of the provisions first, Roger. What should we take away in terms of the changes of things we've become used to over the last several decades? Well, we briefly covered the fact that the brackets have changed. Yes. And essentially, Jay, the bracket changes reduce each bracket by two to four percent. So but the brackets have changed a little bit. But essentially, you could figure you're going to your brackets going to go down to two or three percent. And so that will save a little bit of money. And of course, if you're way over the brackets and you're really making a lot of money, it saves you a lot more. Secondly, the corporate rates have dropped from 35 percent to 21 percent. That's a 40 percent drop, the largest in history. There's also a break for small businesses who are in S corporations and pass-through entities. They essentially get a 20 percent reduction of their of their income. And then there's a number of limitations. But essentially, it's designed so that if you're in business and the owners of business will be down to something close to the 21 percent rate that corporations are going to pay. Now, for individuals, shareholders, there was a lot of discussion about doing away with the state taxes, state and local taxes. What they did with that was to cap it so that your state and local taxes can't exceed $10,000 a year. So that's the combination of your property taxes and your state taxes. And all of a sudden, you asked for what to do before the end of the year. There's a huge discussion, in fact, action by many states to allow people to pay their state taxes, property taxes and or income taxes in advance so that if you pay now when there's no limitation, you can deduct it in your 2017 return. What about Hawaii? What about Hawaii, Roger? What about Hawaii? Can I do that in Hawaii? You can do that in Hawaii. I don't know how far in advance you could pay your your taxes, but you certainly can pay what you owe in advance and you can certainly pay anything you owe for income taxes in 2017. For 2000, you can pay that right away. I don't think there's a possibility to pay your 2018 taxes right away. But I wouldn't be surprised if people tried. So I did read that in New Jersey and New York, they were trying to pass rules to allow substantial advance payments. So the next tax, the next item for the average person is interest on your your home home mortgage. So it's been that you can deduct interest payments on your home mortgage and a vacation home up to a million dollars. Now they've reduced it for new it's grandfather if you're already in. So whatever your interest payments are, up to a million dollars of mortgage, you can deduct that from your on your itemized deduction list. But if you just buy in a new house, now it's going to be limited to 750,000 and eventually 500,000 to for for mortgage payments. And there's been some discussion about, well, that's going to discourage people from buying houses. I don't think so. I don't think it's a big enough disincentive. Everybody wants to own their own house. And to the extent they get any tax break, that's going to be good. What I worry more about, and this is something you alluded to, is the fact that the big reduction in taxes, the big one point three one point five trillion dollars worth of benefits are going to the richest people who then can bid up the cost of housing. We see this in Hawaii, down in Kakaako, where it's the wealthiest people in the world who are buying those high rises. And the few Hawaii people who can get in are those who are in the housing market and have retired and their houses have gone up and now they're downsizing. And that's who's buying that. So I think we're going to see more of that. And I think it isn't a concern of this administration, the gap between the rich and the poor. It's not a concern. It's a big concern for the other side. And that's why I said before, we'll see where these where it ends up. Yeah, we're going to go to the last really major point. And that is and we you and I talked about this before. So all of a sudden, you know, you have one point five trillion dollars in the corporate kill, theoretically, at least over 10 years. And now this could create inflation. Do you still feel that way? Is there going to be inflation? Remember, the triple that the trickle down effect, you know, the Republicans are hoping for a trickle down effect. I think that happened with Calvin Coolidge and it didn't work very well. We wound up in a depression over trickle down. So can trickle down work? Can it work here? Will it work now? Well, what the what the corporations have say, if you believe the guys who are going to get the money, the big corporate people, they said they're going to spend the difference between 35 percent and 21 percent on three items, paying dividends to their shareholders, redeeming stock from their shareholders and mergers and acquisitions. So clearly the dividends that go to their shareholders, which are still at a lower rate, still paying 20 percent on the dividends. Now we're going to have that much more money in the hands of people who don't need to spend it. So they're not going to stimulate the economy by spending it. They're just going to do it by buying more things, which are going to push the prices up as far as I can tell. Buying back the stock has the same impact. You buy it back at a capital gain rate. You pay little tax on that or substantially less than you pay on working person's income. And then mergers and acquisitions reduce the competition, reduce the number of jobs and again, consolidate the power in the hands of fewer and fewer. Yeah. You know, one thing that strikes me is, you know, as we go forward here, the national debt will grow and there'll be a price to pay if not an inflation, then an inability to have the sufficient funds necessary to rebuild the infrastructure and the like. And, you know, I just I wonder whether it's possible to reverse this, quote, tax reform bill, you know, in the in the realities of the politics going forward. It's not as if you can switch this around, is it? It's not as if the Democrats get in and they can return to the good old days. This is history now. It happened. It has happened to us. Yeah, no question. What happens if Congress should change? Are we going to be able to return to where we were? I don't think so. I think if we are, it's only because of a continued determined effort to change things around. And and and maybe we need to look for different solutions instead of changing things around. You know, in the 60s, the government did expand dramatically because of the the South being unwilling to change their civil rights policy. You had the federal government taking things over. There's a lot of truth in the fact that it's a one size fits all is not a good thing for this country. And so do we want the federal government to go back and grow? Now, my thinking, and I've been talking with some people in Hawaii. What does Hawaii do in the Trump era? Federal taxes are going down. Well, people are going to have a little more money. Maybe we need to spend it in Hawaii. Maybe we need a concerted effort to get together with just a million, two hundred thousand people, the state of Hawaii is in a position to say, what do we want ourselves to look like? Are we going to have to pay some of the federal tax money back in state tax, which is a better way to spend it because you get a deduction from your federal taxes, even if your federal taxes are lower, you get some benefit. So I've been encouraging people and I'd like to see you who have such a big influence on this, start thinking about getting you the people that do your shows to think about what does Hawaii look like in the Trump era? Are we going to go back? No, it's so much easier to reduce taxes than to raise taxes. You know, what they did with this bill is they give everybody a quarter and take five dollars. In fact, it's it's the one percent. Jay, if you had a hundred people and you had them in the proportion of the people in the United States, you got a hundred dollars to give to a hundred people. The one that got the one percent of one guy gets eight bucks. The next four guys, they get eight bucks to then everybody else begins to split whatever is left. When you get down to the lowest, I think seventy five percent, they each get forty five cents. There you go. So so they say to the to the, you know, the red meat rhetoric, hey, you got forty five cents. What the hell are you complaining about? Now are you going to turn around and go back and say, give me back your forty five cents, give me back your eight dollars? You know, Roger, a lot harder. This is going to play out in such interesting ways because there'll be all kinds of economic and social implications going forward. We can predict now, but I guarantee things will happen that we don't completely predict. And I think you and I have to get together, you know, from time to time and and check it out how this bill is actually affecting the public fist, you know, the government spending and the social structure. For that matter, democracy in the country, Roger. So let's get it getting together again. Yeah. Jay, you and I talked about maybe doing a show in the new year called What does Hawaii look like in the Trump era? What do we want Hawaii to look like and bring on some people? You know, it's time, in my view, to think out of the box. Can we go back to what did were things so great before this tax bill was passed? We had a lot of issues. Maybe we have to think about better ways to do things than just throw money at it. We've got we've got a criminal justice system in Hawaii. We're going to we just went through this whole mess with the train. We're still going through it. Now we're going to build another prison for a billion dollars or six hundred million and and where are we going to get the money when at time after time? It's been shown that if you had prison, the criminal justice reform, you could save a ton of money and get more people not to, you know, take them off the recidivism list. And so I think we got to start thinking a little more intelligently. Yes, we got to say just money. Yes. And one other thing I'm going to I'm going to put in one other thing. You know, the baby boomers are getting older and they've got a ton of money. And in Hawaii, people have a lot of money and some leisure time. Volunteerism could be a very important thing in our community. If we figured out more ways to have volunteers, maybe even volunteer to do things for the government. Yeah, maybe volunteers do things for think tech. But volunteers do things for think tech. Let's I'm just saying this may be and here's one thing to think about. A dollar is only has value to the extent we give it value. And so it's not an absolute kind of thing. And one example I'd love to use is when I work for the federal government in the 60s in Washington, they passed a raise for the all the government workers, which was, you know, 60% of the city. The parking lot the next day went up by a dollar. Of course, we didn't even get the money and it went up by dollars. So if you put out more money, inflation can eat it up. Yeah, if you spend an hour of your time doing something good, it's an hour of your time. Yeah, it's a fixed amount. Doesn't change no matter what. It's not a relative value. Ah, but time change. Times have changed. This bill changes things. One way or the other, we're going to see a lot of changes come out of this. If I look forward to talking to you again, Roger Roger Epstein, a former tax attorney and the vice vice president and co-founder of the Asia Pacific Group, I so appreciate you coming on the show. Roger, my pleasure. Next time we could talk about China and what they're doing in the age of Trump. Absolutely. That's where my that's where my Asia Pacific Group has an office. OK, thank you. It's been a lot of fun and I'm happy to come talk to you anytime. Happy New Year. Talk soon.