tv Washington Journal Karl Smith CSPAN July 14, 2020 12:50pm-1:25pm EDT
>> our live coverage continues at 1:30 p.m. eastern when joe biden talks about his clean energy plan. we will take you live to wilmington, delaware, for that announcement today. at 3:30 p.m. eastern susan rice former obama administration national security adviser and u.s. ambassador to the u.n. will talk with "washington post" columnist jonathan capehart. they will discuss u.s.-china relations and her potential to be running mate for joe biden. then at 4:00 eastern dr. fauci director of the national institute of allergy and infectious diseases will discuss covid-19. he speak at event hosted by georgetown university. you could watch all of these events online at c-span.org or listen live with the free c-span radio app. >> carl smith joins us the assumed serves as vice president of the tax foundation, discussion on tax policy and how
be used to spur economic recovery but first remind folks what the tax foundation does and how you do it. >> the tax foundation is an organization that educates the public on tax policy and also assist members of congress in developing tax policy. we do in particular analysis of the cost to the economy and to the government of tax increases or tax decreases, tax foundation.org is a website as. as we look at recovery efforts, it's now been four months since america startedon shutting down. congress congress is appropriatr $2.5 trillion in response. at what point do we start focusing on long-term recovery as opposed to responding to immediate needs that are happening in the here and now? >> guest: that's hard to say. i had originally thought when the crisis began that around the end of the summer we would need to make a strong tilt towards long-term growth.
we had sort of a three-part approach to this during the immediate crisis we needed to write liquidity for businesses, for households so they could keep the rent payments if they could, key people in payroll. if there are able to. and then once they key phase that sometime around august we would start on our growth projected. what's called because that is everybody probably knows is that there seems to be a second wave in cases if we don't know what the response to that is going to become whether or not there's going to be a second wave of lockdowns. that happens, we may need to do more on the liquidity in other response again he comes while we can put in a lot of measures to encourage growth, if we have new lockdowns in effect, it's something a possible for most businesses to go back on the table without any support or to expand towards the future trend
we show to viewers that chart on appropriations for coronavirus response took a lot of this on thea cares act and some of the other smaller acts that were passed by congress in response. to add them up and is close to $2.6 trillion. the entire federal expenditures back in fiscal 2006 was $2.6 trillion. when did w this level of spendig start to catch up with us, especially if we're talking about potential more liquidity to get us do the here and now? >> guest: the fortunate thing for us right now is that interest rates on government debt arere very low, and the crisis sent them down even further. people became afraid to invest in anything that had any risks associated with it andk so they put a lot of the money in government bonds. that gives us maybe a year, a couple years of low interest rates while the crisis is here, but i would probably think that we'll see interest rates rising
again maybe the next two to three years. it will become increasingly important to turn toward some sort of long-runn plan. >> host: just a note, the u.s. national debt and its use debt clock.org that sees vendors often see taking in that $26,515,022,000,000 and counting and you can seeee those numbers continue to rise. as they do in real time in u.s. debt clock. how do we promote a post coronavirus recovery? what issues should be looking to when we finally turn to that? >> guest: when we do, our focus has been on restructuring the economy. there are a lot of things that will have to change. number one, unless the complete virus is gone and we have like a vaccine, series of vaccines whatever we need, they are probably going to be new ways of doing business. still more remote business,
retail locations are probably going to be larger. we may have less office space at all that require new physical investment. we think it's important for congress to look towards what we have called cost recovery, which is various methods are preferred method is full expensing of make it easier for business to do like new physical investments, to build new things. they will need to build things to make the economy resilient in the post coronavirus in 500 we will see how much it does happen. we think a lot of companies will at least take a second look at moving some of the operation is the back to the united states or back to north america because the virus has interrupted the flow of tradefl around the worl, has made it so areas that are not under u.s. jurisdiction or control or even with a strong ally, we don't know exactly what the virus response is going to be, when it will happen, with
another crisis like this will happen to measures that would help companies new investment back. again what we call full expensing which allows companies to deduct the full cost of the investment up front. it's a very neutral plan, a lot of congressmen like tax credits which they can target for very specific behavior. we are less a fan of that. we think they do work -- they tend to reward people who have close relationships with members of congress and they encourage this kind of jockeying for special interests play, a sort of broad basing as well as anyone who built anything physical in the united states, what we're going to do is instead of having to deduct that overtime, we want to deduct that immediately. that will reduce the cost of ofe investment, also give you additional cash flow. if you're having cash flow needs right now to do more investment. we think that's the most
evenhanded way to speed things up. that's our plan for turning the corner on changing the structure of the economy. it's going to w be a lot of difficult thinking i think when it turns to how we're going to deal with us in the long run budget cost. in general we have advocated to the extent that you want to look for new revenue sources, that we make them as rod based as possible. it's possible with very broad-based taxes that tax increases that are relatively minor in percentage terms or whatever can raise revenue that will make a significant impact on the debt. the more you concentrate the tax increase on any particular segment of the economy or on a particular group of taxpayers, the higher those rates are going to have to be. that's going to cause a disruption to growth especially difficult and time were trying
to rebuild the economy. >> host: karl smith and his group acceptation advises members of cox on tax policy. if you have a question on the topic note be a great time to call in. phone lines as usual, 202-748-8002 for democrats.mo8- --we we do still of our text messaging line. we will look for your questions as well. you can go ahead and start texting us and calling us. karl . karl smith, you laid out your recovery plan. what are the tax hurdles that would keep that planur from beig implemented? how much are we talking about changing tax policy and legislation to do so? >> guest: i think our plan or the things that we are putting forward are not that legislatively complex. congress in the tax cuts and jobs act had a temporary provision h to allow some formsf
this type of expensing for equipment. what we are suggesting is that in the covid and five at what's at least as important is the structures. so buildings, office buildings, a new factory that might be built so we're asking for this kind of treatment to be used to bear. in terms of real estate investment for very long-lived buildings, there are some concerns about the way -- i don't know how much interest this is to be used but we've explained or laid out for congress will recall neutral cost recovery which allows businesses to index their deductions over time. it gives them the same economic treatment as full expensing, but a residential building especially or brand-new office building can be an enormous one-time expense if the company attempted to deduct that all the ones they would create what we call net operating loss that he would have to carry forward over
time. they can also encourage companies like hedge funds other wall street firms to attempt to buy a building, get the nol and use it as a deduction on what would otherwise be a very large tax bill that that that anything do with real estate. we don't want to encourage that kind of thing so we push for this program called full expensing. ..
and to a lot of other citizens around the country and i know this is not about tax policy change. i think it's almost impossible but i'm in favor of a consumption tax. we know it does away with the underground economy, all the 1099s go away and under the present system business owners can buy nice trucks and cars and having a magnetic sign and depreciate them and use them on the weekends, they can buy a boat if they work in waterways on piers and docks in the name of the company and use them for recreation and i know the consumption tax obviously rich people pay more taxes because they buy edgar dollar cost items that are going to be pay more taxes at as they consume and people who make less pay less taxes. it seems like a common sense idea to level the playing field for all income levels and i'd like your thoughts on that . >> carl smith. >> when we think about what we're going to have to do to repay some of the costs from the virus and in particular
if congress doesn't change its trajectory of entitlements or as ofmany argue about expanding entitlements we made the point that consumption taxes are the only viable way to even attempt to afford some of this stuff. a lot of times members of congress especially ones who want to expand the title entitlements point to the size of entitlements they have in europe and one of the points that we've made is overtime europe has actually been lowering some of their taxes on business and they've been increasing their already relatively large reliance on consumption taxes, in particular public value added tax. it's like the sales tax but it's levied prior to the sale rather than on the consumer at the point-of-sale and its for essentially the reasons that the color outlined. the larger and larger tax rates get the more incentive
there is to play games with the tax t system, to try to avoidtaxes. even especially for businesses to leave the country or go somewhere else altogether to get out from underneath taxes consumption taxes because they're so broad-based and because they had everything tend to have less of that impact and also because their broad-based the rates can be lower . so to the extent we need to raise revenue , i think that's probably where we have to go especially in this environment . the other alternative would just be very very large income tax increases or business tax increases especially if they're trying to concentrate it at the higher end . they want to do that to spare people the lower rates but the more concentrated it gets , the higher the rates get and the more intense and gets so it becomes more and more difficult to shield the economy from the effects of raising this revenue. more broad-based it is the
lighter the overall impact can be and that helps us keep growth going even if we need to raise revenues. es>> we talked aboutconsumption tax, value added tax and james on twitter says the fair tax makes too much sense and would take too much power out of the swamp. what do we mean by fair tax ? >> guest: usually people mean a national sales tax. the national replacing at least all of regular federal income and maybe social security with a national sales tax, from an economic standpoint there's a sense to a total consumption tax model. there are two issues with i think the fair tax system. one is if you put a very large twentysomething percent tax it would have to be on the end consumer. there's an enormous incentive for the retailer to try to get out from underneath that.
so if you did something like that it would probably be a value added tax instead of a retail sales tax or the fair tax as usually structured. the second thing you'd have to note is if you're putting the entire burden of the federal tax code on a consumption tax, that would result in fairly large increases for people at the lower end . we usually haven't advocated that or endorsed a proposal that goes that far. or to be honest once we show most people in congress the numbers there a little skeptical of that kind of increase but we have said to the extent you need to make raise more revenue to pay back some of the costs we're enduring now or if there are going to be more entitlement spending that the increase beyond this should probably be focused in some type of consumption tax but national consumption tax.
>> host: philly, this is michael, a republican. you're on with carl smith of the tax foundation. >>. >> caller: good morningand i wanted to know does the cares act , what effects do you think it will have on the economy as a whole and i wanted to know really a two-part question. since one of the things i've heard of was the coronavirus which came from another country could 1, could china reimburse our country for the financial effects that it's had on us and i looked at the cares act legislation and here in pennsylvania, they've been bragging i think 100,000 applicants citing either fraud or not following the rules relating to the cares act but they changed the program midstream and i'm
confused because if the house and senate passed a requirement of the cares act, how can states then go against federal law that was passed by the congress and signed by the president and changed midstream which if i change a program midstream after you've already applied, of course i would have people flagged. >> yes, so the cares act had a number of different provisions. the broadest was a rebate check check that went out to most households. one thing, i don't know if this is what the caller is referring to. one of the things we've seen our state have decided that the rebate checks that went out to households will be taxable under state income. the original concept under the cares act is it wouldn't be taxable so that's him difficulty for some
taxpayers. people who filed their taxes and didn't claim the cares act payment as part of their taxes may have seen their file flagged. the program that's much larger that we are seeing more difficulties is the paycheck protection program. that program essentially gives out loans to businesses if they're going to keep people on payroll. we had some administrative difficulties with that program and it's so large, there are so many businesses in different situations and i think when we think about what going to do next, congress what we're hearing if there's going to be some additional sort of rebate. in response to the increase in caseloads and expectation that we're going to be shut down at least larger than expected but there's more intense debate about what to do about the paycheck protection program andwhether
or not it should be extended or whether a simpler program should be put in its place . that on the one hand didn't have as many detailed requirements but on the other hand functioned more as a pure loan. one of the features of the paycheck protection program is if you completed a bunch of steps and you had 90 percent of people on your payroll maintain throughout the entire period , if you follow the other guidelines u that are more complex you would get the loan thatyou took out for you . so the structure of the program is focused on the forgiveness and making sure to many people didn't get the complicated for everyone and some businesses don't meet the forgiveness, they just need liquidity so there is some talk of turning more into a pure loan that would be available for company and sensitive pure loan we don't have to be as specific about requirements that you would have to go through , the basic requirement is that you pay it back. so that might make things a little bit easier and the next round of care so those are part of the two programs
that have the most implementation difficulty . from the last cares act and that congress thinks about in this next round that will come out in july. >> from companies to om individual a lot of individuals in an effort to work up from home have made a lot of investments try to allow themselves to have the technology to work from home . is there any tax relief for those individual investments and in addition there's also workers who have to go in and some workers are getting hazard pay for going in and working during the pandemic. there tax provisions that those workers know about. >> so being able to deduct the expenses that you have or your work at home, that is covered under cares and actually under the original pga legislation. it would include that.
for workers that are going hazard pay, there's talk about congress funding hazard g pay itself. i'm not sure there is a legislation that specifically addresses hazard pay that hasn't been administered by congress. inthe last cares act that came through. i haven't heard about that in this one. i may have missed it but i don't recall that . >> this is john, an independent, good morning. >> mister smith, do awaywith the federal tax return. this is the 21st century, use the cloud and algorithms to track people's income . this is crazy . the way it cost the taxpayers and federal government to implement the tax returns. they already know what you've made so and the second question is i have a 401(k) or a 457 and the first 20,000 new york state nontax bill, stimulate the economy do it for the senior citizens retirement.
401(k) is the first 20,000 would not be taxable, thank you. >> so i think i'm not exactly sure, there's a burden in terms of 20,000 if you mean, you take out of your 401(k) everyyear? there are proposals to do something like that . what we are generally discouraged is sometimes it's really targeted so take this particular program and reduce the taxes on, originally there was going to be a program that would allow people to put away tax-free extra savings during the recovery under usa so the universal savingsaccounts . that kind of stuff i think we can think about as we're going forward maybe how to simplify the entire retirement system and roll all 401(k)s rock traditional iras into a single more
simplified savings system and that makes a lot of sense. coming up in a very short time, about new sort of savingsvehicles , themselves are probably not the way i would suggest t you is probably better to go with broad-based things, even something like a rebate checks, a lot of people have concerns that adp many people that in no need them or getting them but the simplicity of a program like that as a lot of advantage in a time like this and we seen that with the more targeted programs that we've gone to and as to eliminating the irs, i think altogether unless we change the tax code significantly that's not isrealistic but more automatic pilot probably is realistic for some taxpayers and i think that's something we shouldconsider . so i'll just put that there. >> carl smith with the tax foundation and we should also note these opinion columnists with bloomberg. you can see his email@example.com.
one of your more recent columns have to do with what we're talking about here when it comes to federal programs amid the pandemic. the headline don't shame businesses for taking s government money . what was the point. >> point was that a lot of businesses have started out with this is that people thought might be too large. ruth chris, shake shot got a lot of pushback for taking the paycheck protection program. when the government release the names of businesses that had taken the program a few weeks ago, they look through thelist. kanye west's company some pushback . i think one of the more like humorous examples were people with ayn randinstitute had taken some and they are of course a free market institute. my point was number one , shaming these businesses for taking these funds as sort of another hurdle on top of the consideration. programs are already complex and they have a lot of requirements . they have to decide should i pp
qualify for this, should i apply for that and when you put the possibility there's going to be public pushback on top of it there's going to discourage more people and what we want to do right now is half as many businesses as possible take these so that they will avoid layoffs that are unnecessary especially when you're talking about the load side of the operation. a lot of businesses maynot need or qualify . so you use a low interest rate loan and encourage that and another thing i think some people have focused on was connecting even the loose ways congressmen in various industries are suggesting that those industries shouldn't have gotten funding. for example one of the congressman who was seen designing the program at a number of mcdonald's franchises and the program allowed multiple franchises to claim as separate businesses so if you own five
mcdonald's one could claim as a separate business and that made it easier for franchises to claim and it was suggested this was an overly generous provision put in there because one of the congressman was a franchise owner themselves. i think that kind of stuff also limits the availability of the program. to the extent that we're making it easier for people to apply that's good and what we should do and i think what journalists should do is look for examples of businesses and there are plenty who couldn't get the loans because they were too complex . couldn't get the forgiveness they didn't understand how to apply for it and highlight those pieces and help us find ways to rectify that and make it simpler. spending time trying to highlight cases where you think people shouldn't have applied, you need to apply even if they met the qualifications, only reduces the effectiveness of the program and even easier than
it is to start out with and it can have unintended consequences of some businesses being nervous about not only do they qualify technically but do they qualify for the in terms of how newspapers will look at them and how people will judge them and that's precisely what we don't want in the midst of a crisis. in the midst of a crisis we want people to especiallythe loan portion as much as they need . keep the rent payments, their lease payments. lay off as few people as they can know that when we start to rebuild, we don't have a crisis having caused lots of destruction in employment for people having lost their business. that could have been avoided, that wasn't on the economic reasons going forward just because of the shortage of tax flow so we want as much of that to be avoided as a possible. the way to do that is to make it as simple as possible. there are interaction effects you wouldn't predict so you might think that ruth chris doesn't need a loan. i have plenty of money, they
can make it one of the things they do to make it is not have some of their part-time staffers or reduce what they're buying from supplier. that hurt people down the chain and it's impossible in real-time analyze all of that . and figure out how all that's going so making things as broad-based as possible saying take the loan. when it's all done but we don't want artificial disruption to come in because of this crisis. >> coming up on 8:30 on east coast and time for one or two more calls first on the west coast, this is lucille out of la,a democrat . >> good morning. i'd like to suggest that during this span that maybe the government would okay a write off for those that are living on credit card debt. maybe some of that interest could be applied as a write-off. so many companies have closed.
some have gotten the funding from the ppe program and close down. and people really are desperate, theirliving off debt .edit card the bank, a lot of creditcard companies turn into banks . once we hit that recession in 2008. and this gives us time to look up towards those that are really struggling. there are some people that are paying their medical expenses by credit card. that's all i have to say. >> i certainly understand that and i think again, that's part of the motivation that we have. we had originally for giving out this all american taxpayers will probably do something likethat again . just to help people who have unique circumstances in this time. what's difficult is if we tried to focus our efforts on one particular group.
we ate, we don't know the consequences that will come from all that. 2, something like allowing people to deduct their credit card interest, if you think about that, that's only going to affect people who are both very heavily in credit card debt and also dihave significant tax liability. probably the people who are going to be hurt the most are people who have lost their job and don't have any tax liability this year so as sort of check to get them by would be more effective and in general, like i tried to say i know when you have the circumstance that really occurs to you but in general trying to identify here is one thing and that the only thing we should go for is not a good idea. as broad as possible across taxpayers. so people who don't have any tax liability now, how do we help them, people who instead
of going to their credit cards have gone to their tax savings they have a lot of cash savings they were planning to use for retirement or other things and they eat into those cash savings, how do we do something for them? sort of a broad base and his people in all those categories and we can't alleviate all the things that everybody has but maybe making it broad-based gives it at least some ability to help everybody through a bit. soi think that's probably the best way to go . >> this is mark out in michigan, independence, good morning. >> surprise, thank you. i'm looking at restructuring. loi'm looking, we just had trouble, we just had hillary running for president. we had trouble a million-dollar taxpayer right off for 20 years and i find that fraudulent, but he gets
away with it we had hillary, hillary was going to raise taxes on the errich . there's so many tax write-offs that's not going to mean squat anyways so how do we restructure our taxes to put money o, not on the deficit rather than letting the politicians borrow ourselves to death. the concept is i want to do a prorated tax, five-year tax cycle, prorated one year. but everybody's working that will have a chance to not pay federal tax in which would mean they would be basically they would be receiving 1/5 of whatever he or she was expecting to pay in the city, state, federal tax, they'll get 1/5 of it back. then they could save or even if they want to. at the end of the year, i don't care which the rich are going to be taxed more but looking on a7 10 or 15 year cycle, two years , three or
four years non-consecutive. they will be only charge 90 percent of their income. the rest of the three, whatever years are left over, 100 percent of their income would be taxed but 70 percent goes down on the desk and or natural disasters. who wants to pay for them and how do we get into our tax scheme or yours.>> for bringing up your plan for the caller, thanks for bringing up your plan to give you a chance to respond to that plan in the last minute or a half we haveleft here . >> i think that having some sort of relief that had is broad-based like that is good. what i would say is i tried to follow the colorsplan . it sounds like something like that probably would serve up a lot of gaming especially if there are big changes from someone and particularly the 10 year cycle. there's encouragement to adjust. that's what makes these things really difficult.
it can make them as simple as possible and while still trying to achieve their objectives and more complex the more likely it is for people to attempt to gain it in some way or other. >> called, president of economic policy at the tax foundation firstname.lastname@example.org. ialways appreciate you coming on the program . >> a discussion now on the biotech industry and what will play in the fight against coronavirus, doctor jeremy levin chairman of the innovation organization the ego as well as other therapeutics. jeremy levin, explain what encompasses the biotech industry. how many companies are we talking about and what's the difference between biotech and big pharma . >> that's a great question. biotech industry was formulated in the united states.