 Back for the two o'clock block on a given Wednesday, the day before July 4th, Independence Day. I'm Jay Fidel. This is Think Tech and the handsome fellow at my left is Roger Epstein. Hi Roger. Hi Jay. Nice to see you. So nice to see you. Happy day before July 4th. Yeah, well, July 4th too, I don't know what to deal with that, I mean how to deal with that. With July 4th? Yeah, it's special this year. You have to wrap your mind around it this year, it's harder to think patriotically this year. Anyway. Go to the beach and watch the fireworks in Kailua, you'll be happy you did. Drink beer. Drink beer. So, you know, we're really talking about the same thing, I think when we talk about tax today, because our mission today is the Tax Reform Act of 2017, two years later. Yeah, otherwise known as has the Tax Reform Act done what was promised two years ago? Wow, you've been looking into that. I know we've talked about it a couple of times. We've had a couple of conversations about this Jay, and now it's two years later. And do you know this is the biggest tax reform bill since 1986? Here's a book, Tax Cuts and Jobs Act, the complete bill. This is what the bill looks like. So huge amount of changes in the tax law, some of them very small, but mostly designed to help the owners of businesses versus the workers. I would say that's the most significant thing I take away from. The idea, and you would expect that from Republicans, the idea that the people that create the jobs are much more important than the people that do the work. And therefore. The top-down mentality. Top the trickle down. That got us into the depression back in the 30s, that same kind of mentality. Oh, absolutely. And this is going to get us into the next depression unless we make some changes. It's hard for me to imagine it cannot generate a next depression. Well, you know, my boiling down of it or my recollection of our discussion anyway was that the... say hello for me. It's God. God's call. He wanted to join the conversation. Gosh, I don't know. I apologize. I apologize. Well, back, back, it happens. Back, you know, back couple of years ago, my recollection is that the Tax Reform Act benefits were buying off the public and were a way to kind of buy off the public so the public would go along with the program thinking they were going to have real benefits. But in fact, the real benefits were illusory and temporary. Yes. The corporate benefits were bigger and they were permanent. And I don't think the public realized that. They were after a quick buck and they let it go and they let the statute pass without any significant opposition. Furthermore, something happened in Congress that Congress passed this without a single committee hearing, this huge big book of a statute without a single committee hearing. You know, what's wrong with that recipe? Yeah. Well, what's wrong with it is now you end up, there's a lot of technical problems with the bill, particularly in the foreign area, which is extremely complicated. You talked about the individuals. I don't think they needed anybody to support this because they controlled both houses and they had a Republican president. And they squeezed it through before the end of that year. So that, you know, they had control of both houses. It was easy to do. Right. And when you've done it then, look what happened in the subsequent year. You know, they lost control of the second house. So I think when you look at the overall bill, you see that it exacerbates the gap between the rich and the poor. And there doesn't seem to be any concern about that in the Republican group. You know, when George Bush was president, they started talking about how wide that gap had gotten. And it's spread in the last 40 years. And so he said, well, that's because so many more people got rich. But that's not really true. The truth is we're losing if we haven't lost the middle class because you can't make enough money to buy into the capital market. The relative value of labor in capital has gotten so skewed that if you don't start with capital, you can't accumulate enough just by working to get in. And you see it here where the average house is $800,000 and you jump out, you come out of college even making $25,000, $30,000 a year. You have no hope of saving 120% for a down payment unless. Perfect example. Yeah. And it wasn't always that way. When you were a kid, I wasn't born yet, of course. But when you were a kid, you could buy a house. If you came out of college, you could buy a house for one to one and a half to two times your annual salary. So imagine you come out now, you're making $30,000. You could buy a house for $45,000 to $60,000. You could buy a starter house. So that's gotten way out of hand. College and expenses. College, when I went to college, I paid $100 a semester. Today that same college is $10,000 a semester. So that recognition is reflected in this or the lack of recognition or the lack of concern is reflected in this tax bill. And what it really says is we're going to favor the owners of businesses and we're going to give them as much tax breaks as we can so that they'll have more money to stimulate the economy, to make the economy grow by investing that capital. But it's also that they are the ones who contribute to the Republican Party and they contribute to Donald Trump's campaigns and the like. It's like the July 4 thing tomorrow. He's giving away free tickets to tons of Republicans. I didn't get any free tickets. Have you got any free tickets? Well, I'm a Republican. Oh, OK. Well, you didn't get a free ticket either. Yeah, I got a free ticket. You're not enough of Republican. I'm not enough of Republican. No, I'm just kidding. I'm just kidding. I really feel that we're in an era where, yes, the businesses are so dominant over the government that things have to change or we'll move into something else. I mean, another form of government. A form of government or a revolution or something. They talk about the right-wing revolutionists. But people can't put up with this forever. 50% to 70% of the population in Hawaii is living paycheck to paycheck. It's crazy. And they're giving huge one point. This bill was supposed to be $1.5 trillion of debt. It's now estimated at $1.9 trillion of debt. Well, that's the part I couldn't understand. I mean, we needed to take on additional debt for what? No. There was no good reason. I mean, you can talk about filtered down. I never thought that was much of an argument as it wasn't in the 30s. But what's happened is we haven't been able to pay the bills. It was a week after the Congress passed this Takamemi bill, Tax Reform Act, that Paul Ryan, then the speaker of the House in the Republican House, announced that there wasn't enough money to carry on with Social Security, Medicaid, and all that. And my goodness, or to maintain the social safety net. So on the one hand, they were giving away the money, largely to corporations. And on the other hand, they were claiming they didn't have enough money to run the government, run the social safety net. This is really bad planning. And this leads to all kinds of dissatisfaction at every level. I mean, we know that the public, I should say the electorate because that's a hard word these days, the public in this country is different than it was. It's not all white. It's not all capitalists. It's everybody. It's diverse more than ever imaginable right now. And people are learning what you're talking about. They're unhappy with it. And so this was asking for trouble to do this. Well, you know, Jay, this bill violates every fundamental rule of economic. There was eight year run up to this of improving economy. You don't pass a bill to stimulate economy when the economy's improving. You overheat it with that. And not only that, with all the money going to the wealthy people, 93% of the tax savings in this bill went to 1%, the top 1% earners. That's crazy. Who control something like 45 to 50% of the wealth in the country already. Rich get richer. And you know what? 60% went to the 0.1%. 0.1%, that's about three million people. Got 60% of this bill. For what? Big campaign contributions. Big campaign contributions. And so, you know, one of the things that I think is hopeful is that the Democrats did carry the House. And hopefully, they'll be able to undo some of this because this is gonna come back to haunt us. This huge, almost $2 trillion in additional debt. We only had, I think, 10 trillion or something. So we've added 20% to the future payments of our children, of the next people down the line. And we're spending huge amounts of money. I mean, he was spending, what was it, $50, $60 billion extra for the military? $180 billion he put on the budget. Oh my God. And then, you know, you have this war in Iran that's gonna cost money. It's costing lives and money. You have all these escapades that he's involved in, and it's all costing money. 2.5 million for July 4th tomorrow. With tanks. Well, that's cheaper than sending him to Mar-a-Lago for a weekend. Exactly. Security along. Jay, we know where we are. The question is where do we wanna get to? Where do we need to be? What's going on with the United States as it goes down from the dominant player in the world for at least since World War II and maybe for longer than that. Maybe since the beginning. So 100 years or so or more. Okay, now you've got Asia just booming because of China, because China was a third world country when I first went there in 1982. Not that long ago. Not that long ago, and all of a sudden, they've got a middle class, booming middle class. They took 800 million people out of poverty. And now, remember we used to talk about the dominoes, the domino effect of communism? Well, now it's come into capitalism in Vietnam. I had two inquiries within the last couple of years of billionaires in Vietnam wanting to do real estate development here. Billionaires in Vietnam. Remember the war that you and I, somehow managed to- They're coming to invest in Hawaii in the US. Yeah, yeah. Cambodia, Laos, Thailand, Pakistan. You go down the list, they're all growing now. The world has changed. The world is changing. We're not keeping up. No, clearly, the Republican and the Trump concept is to go backwards, to keep what we got. Bring coal back. Pretend that this isn't happening. Who else in the world? Look at all the things that are going on in the world about climate change. And the United States, the biggest leader of the world, supposed to be leader, says it's bullshit, we're not gonna have it, and let's get out of the Paris Accord. At some point, people begin to laugh and not take us seriously. Aren't they now? And when you say, what's in it for me, my goal, Donald Trump says, what's in it for me, my country, how can you be the leader of the world? Would you join a group where the head of the group says, I wanna get everything I can for myself? And you get nothing. And you get nothing. And you fight for everything. And by the way, all these things we did for you before, we entered into agreements with you where we knew we were top dog. So you got a little bit of favoritism. Those suck. Now we're pissed because we got into them. They're breaking. Our leader tells you, we were cheated because we decided to be magnanimous in some case because the example I like, it's old now, but when I was in elementary school sometime, the teacher said, you know, in the United States, the average income is $3,200 a year. In Russia, it's $125. And I thought, wow, that's cool. That's good. So when you were in Russia, you were starving. And so that was the rest of the world too. So now we see the United States has matured. We don't have the same kind of infrastructure. We, you know, it's not as modern. You go to Shanghai or Beijing. You look at the subway systems and you go to New York City and we don't have the minerals that we have. It's important right here. So the main thing is, how do you deal with the future? When you see the future is moving towards Asia. They've been talking about this for 30 years. Remember Bank of Hawaii changed its name to the Pacific Century Bank at one time until they had the big crash there in 2000. They backed off that one. And they backed off that. But the point is, people saw this coming and it's not gonna go away no matter what we do. So I'm looking at, we're having a trade war with China. What do we hope to accomplish? What is our end game here? To get them to stop stealing our technology. That's why we're having a trade war, to hold them back. I mean, I don't understand what the goal is. And I also don't understand, who are our warriors in this battle? Is it Walmart and General Motors? Are they our guys? I mean, Nissan has as many plants in the United States and probably is General Motors. You can't tell with these mega companies who's our guys and who's somebody else. So, tax, tax is very important in all of this. It is. Tax is the single most highly leveraged legislation you can do, really. Yes. And what is interesting is that, oh, the other thing is that people don't understand tax. Right. You may, but the middle class. No, I know, I know. Fowler returns. There was a chairman of the Ways and Means Committee years ago who wanted to make the tax law simplified enough so the average lawyer could understand it. And he never came close. You have to specialize in this. And today, you have to specialize in small portions of the Internal Revenue Code to really know what's going on. You can't even be knowledgeable about income taxes, much less estate taxes. So nobody is going into the street with pitchforks on the regulations to section 61. Just making that up. No, no, I hear you. And the people don't get excited about it. And it creeps up on them. We did this year. We got the faith action community to testify in favor of the tax on real estate investment trusts. Real estate investment trusts in Hawaii earn a billion dollars, pay no income tax. And we got the law passed through the legislature. Now the governor says he's going to veto it. Yeah, he did. Because of power. He didn't veto it. Did he veto it already? He said he was on his list. Well, OK, I think he will. He will. There's no question about it. Well, maybe he's committed to it. Anyway, whatever. It's really sad because there's a lot of ignorance operating there and a lot of political twist operating there. But the question I was going to put to you is, what this really says to us is that tax has become an entirely political affair. And in order to change it, I mean, a wonderful thought to go back and fix this, reverse parts of it, make it fair, make it treat everybody fairly. In order to do that, you have to have both houses of Congress. It's white out. It's radioactive. It's political. The two houses of Congress in our lifetime, really questionable, Roger, that they're going to be able to get together and do this wonderful thing about making the tax code fair again. How do you do that? And that was 30, 40 years ago that I was talking about. Well, the tax law has always been politicized. There are incentives in the law for various things, like home mortgages, like charitable contributions, like oil and gas drilling, that encourage certain kinds of social actions and economic actions. The biggest incentive for controlling. Now, you see, we had this change when Reagan came in. He said, government is not the solution. It's the answer. Government is not the answer. It's the problem. Thank you for that. So that's exactly what these people are reflecting. We don't want government. Of course, the government spending has increased under Trump. Even though he put the taxes. So you lower the taxes and you increase the spending. What does that lead to? It leads to disaster and maybe the six bankruptcies that Trump had in the past when he overleveraged himself. Let's have a national bankruptcy. What happens if we can't pay our debts? First, our bonds go bad. And our currency goes bad. Who knows what could happen? But we got $13 trillion worth of debt out there now, national debt. And if you can't pay it, there has to be some recourse or you start fighting about it. Change the world. Well, the world is changing. You're right. And so to me, you have to be sensible about it. OK, I'll give you an example. So right now, you have a number of companies that are doing business worldwide. American companies. OK, so they set up a company in Ireland, let's just say, or UK. And they make a lot of money there. So let's say in Ireland where the tax rates are low, they pay maybe 5%, 10%, let's say, tax on their income from there. So if they bring it back to the United States, now they got to pay, well, it's only 21% now, but it used to be 35%. So they don't want to bring it back. So the question is, what do you do about that? And this administration said, well, we want the money to come back. So we'll let it come back tax-free. And then at least we'll get the money. We won't get any tax, but at least we'll get the money. So if you're an international company and you're doing business outside the country, you don't have to pay American tax anymore. Now, another solution would be, hey, why don't we just tax it before they return it? Why should they be able to set up this little company here in Ireland and say, it's not my money? Of course it's your money, it's all the same company. Why not just tax it? And then they want to bring it back. They had to pay US taxes anyway. We do that in certain circumstances. So you see how you have these choices and you go one direction or another. So you change the way global business works. And you change, and this foreign tax, that's what they did. And it'll have huge, huge implications for tax shelters and the way people do business and all kinds of things. And for the United States, it's a huge loss of revenue. And so can we afford that? I don't think so. Well, we haven't been able to do anything about infrastructure. I mean, to name just one thing. Well, they'll take care of that. I think there's something we'll be done with infrastructure. It'll have to be. It's on a Republican agenda. So anyway, I mean, so we don't have enough money for the social safety net. And we're abandoning the social safety net. And so do you believe that we need a social safety net? Even Reagan said we needed a social safety net. I believe it because I want to see everybody happy. I don't want an unhappy country. You know what happens in unhappy countries? Revolution. You bet. You know, it depends on what you think government is for. So if you think government is just to have a police force and a military, and that everybody else should take care of themselves, then you don't need a social safety net. What my thinking has always been, the government reflects the coalition of all the people who live in there. The government is supposed to be in charge and helpful to people having a good life. And so I think that's a whole different way of thinking. It is. And it's political. And it's the two ideological opposites that are happening right now. And that's why I think it's difficult to find a common ground because the philosophies are so different. And so it's going to be who is going to gain control. And right now, it's the Republicans. And one thing about Trump, he just keeps moving along. He's got thick skin. And he doesn't care what anybody says about anything. And of course, he manipulates what really happened. And he puts headlines up there behind his back. He's doing all these things that we don't hear about. Oh, he's the absolute con man who's making you laugh while he's picking your pocket. Yeah, exactly. And especially the people that support him. So what's your prediction for what's going to happen here? It isn't a pretty picture. I mean, you have poor people, disadvantaged people, people who need a safety net, from a moral as well as a practical point of view, you know, the country has traditionally, at least in the last 100 years, since World War I, it has tried to take care of them, offer them some consolation, some support. Now, if this continues, it will go away. There won't be any money for it. And there won't be any political will in a divided Congress. So what happens to the country? What happens? How can we fix this, Roger? Is there a way to fix it? There is a way to fix it. The way to fix it is to vote for people who have a different concept. Now, the problem that the Democrats have had is they don't really have a plan. Bernie Sanders has a plan, and some of it is viable, some of the new people that came into office. I think the answer is if 41% of the people like Trump must mean that 59% of the people don't. And so find, come up with some reasonable solutions. Don't run against Trump. Everybody knows what he's doing. Run against his policies. Run against his results. This bill is horrible. And there was a report to the Democratic Committee talking about how terrible this is, and you've got to reverse things. We shouldn't have reduced taxes. We should have raised taxes to take care of things. And so if you believe that it's government of the people, by the people, for the people, and that means it's supposed to take care of the people, not ignore them, then you have to put people in office. I think this is the way our country runs. If we keep going like this, we'll have an aristocracy of the rich. I don't know what, we have a lot of it now. I mean, look at the people paying to get their kids into college. Sure. So money is so powerful. And since United makes it politically powerful. Why can't any state accept Connecticut? Connecticut passed some laws requiring the government to pay for their elections. That makes such good sense. And then you don't have somebody giving you $10,000 and then calling on the phone to ask you a favor. I mean, if you're an elected officer and I give you $10,000 and Haley gives you nothing, whose phone call are you going to return? That's what happens. I mean, you can't help it. It's the way it is. But there's a corruption there. Jimmy Stewart would never go along with this. No, but he's dead, so to heck with it. You're absolutely right. Our fundamental concept is corrupt. That money should control what goes on. But it's also hard to keep it out. Suppose there wasn't money. What about paid advertisements? What about people just spending the money themselves to do it? They don't have to give it to a candidate. So I think you've got to recognize that the rich and the powerful are going to have more control than the poor and the weak. Increasingly, Roger. It seems like increasing. Well, that's the question. The question is not should the guy who goes out on a limb to create a business and you've got a job, should he get more than you as an employee? Yes. How much is the thing? So 40 years ago, the CEO of a manufacturing company made 40 times more than the guy on the floor. Today, it's 400 or 500 times. That's what's happened. Something wrong. It's the disparity. Big error. But let me go to one thing, and that's the children in the immigration service, the border patrol, which is being revealed as a pretty nasty outfit. And the concept there is that these people have no papers. They have no standing. And regardless of the fact that they're human beings in great need, who haven't done anything wrong, except seek sanctuary, the government is dumping on them and essentially starving them, asking them to drink out of toilets, and essentially killing them. A number of died and separating parents from children. All morally reprehensible things. This, to me, is the canary in the coal mine. If you dump on the disadvantaged in that way, the next step is you dump on the disadvantaged in other ways. Other disadvantaged people who are American citizens. People who just have a raw deal. You make them drink out of the toilet, too. It's a question of treating each other. The country, I think, was based on at least a fundamental notion of taking care of each other, being together in this deal. And we've had exceptions to that, of course. But I think we've lost that. Oh, we've lost it. We've lost it. Well, remember that even before Trump, our Congress was dysfunctional for 20 years. It was never the way it was 30 or 40 years ago when people would talk to each other across the aisle. They would collaborate on bills. They would, it doesn't happen anymore. And I think what's going on at the immigration war is on purpose. Maybe not killing people, but they want to demonstrate to everybody in the world, don't come here. This is a demonstration. If you come to the United States, you're going to be treated like shit. What I'm saying, though, is this is really a harbinger, treating people who are disadvantaged very poorly. And so the question is, is the system, we can't answer this at a time, but is the system going to correct itself so that we can deal with this and return to a kind of a moral government? Not clear to me. Not clear to me, Roger. Close by telling me how you feel about that. Well, I still feel like we're in a country that has the ability to make a choice. And I don't see, when you're in a dark period, everything looks dark. I think that's where we are. I think things could well get better. I think there's a lot of sensible people. I think people care about this country. And I think you just have to begin to stand up and say what you believe. And if we can get those people elected, we can change the system. People have testified. We could turn this around in a minute. We should raise taxes instead of lowering taxes. Yeah, we should. We should have a state taxes so that people can create a history of aristocracy of the rich. If you believe this is our country, then we still have the ability to do it. So I say, let's keep having conversations like this where people see, this is my option. And it's easy to trick people. It's hard to know. I mean, you get misinformation constantly. But if you keep plugging away, maybe we'll come out with the right answer. Thank you, Roger. Great to talk to you. Can we talk again soon? We can talk anytime you want. I'm happy to see you. Thank you, Roger Epstein, tax lawyer and co-founder of Asia Pacific Group. Asia Pacific Group. And also, Galaxy Trade and Technology Limited, which I will show in that, Roger. I will tell you that on my next show. I will. Eventually, when that's going good, we'll have a good talk about it. Thanks so much. Thanks, Jay.