tv Washington Journal Karl Smith CSPAN July 14, 2020 7:24pm-8:01pm EDT
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foundation does and how you do it. is an the tax foundation organization that educates the public on tax policy and also assists members of congress in developing tax policy. we do in particular analysis of the costs to the economy and to the government of tax increases or tax increase -- tax decreases. host: as we look at recovery efforts, it has now been four months since america started shutting down. congress appropriated over $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 is hard to say. i 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. so we would have sort of a three-part approach to this
during the immediate crisis, providing liquidity for businesses, households so they could keep their rent payments, they could, businesses could keep people on payroll. passed, acute phase had sometime around august, we would start on our growth trajectory. what has complicated that is everybody probably knows that there seems to be a second wave in cases. we don't know what the response to that is going to be, whether there is going to be a second wave of lockdowns that happens. we may need to do more on the liquidity end of the response, because while we can put in a lot of measures to encourage growth, if we have new lockdowns in effect, it is simply not possible for most businesses to go back on the payroll without support or expand towards the future. it is complicated. host: we showed viewers the chart on appropriations for
coronavirus response. a lot of this from the cares act, and some of the other smaller acts passed by congress in response. you add them up and it is close to $2.6 trillion. the entire federal expenditures back in fiscal 2006 was $2.6 trillion. when does this level of spending start to catch up with us, especially if we are talking about potential more liquidity to get us through the here and now? guest: the fortunate thing for us right now is that interest rates on government debt are very low, and the crisis actually sent them down even further. people became afraid to invest in anything that had any risk associated with that, so they put their money into 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 we will see interest rates rising at the -- in the next two or three years. at that point, it will become
increasingly important to turn towards some sort of long-run plan. host: the u.s. national debt and the u.s. debt clock, it is taking a not when he $6 trillion $26 trillion.at you can see the numbers rising in real-time. how do we promote a post-coronavirus recovery? what issues should we be looking to when we turn to that? been onur focus has restructuring the economy, so there are many things that will have to change. the completenless threat of the virus is gone and we have a vaccine, a series of vaccines or whatever we need, they -- there are probably going to be new ways of doing business , more remote business, retail locations are probably going to be larger, we may have less
office space. that is going to require new physical investments. we think it is important for congress to look towards what we call cost recovery, which is various methods. our preferred method is full expensing, making it easier to for businesses to build new things. they will need to build things to make the economy resilient in the post-coronavirus environment. we will see a much it happens. is there going to be a reworking of supply chains around the world? we think a lot of companies will at least take a second look in moving some of their operations either back to the united states or back to north america. because the virus has interrupted the flow of trade around the world, and has made it so areas that are not under u.s. jurisdiction or control, or even a strong ally, we don't know exactly what they're virus response will be, when it will happen, when another crisis will
happen. measures that will help companies move investment back, we like these full expensing, which is essentially allowing companies to deduct the full cost of their investment up front. it is a neutral plan. lots of congresspeople we are less a fan of that. reward they tend to people who have a close relationship with members of congress, and just encourage jockeying for special interest plays. anyone who builds something physical in the united states, instead of having to deduct that over time as the tax code does now, we would deduct it immediately from your taxes to reduce the cost investment and flowg you additional cash and we think that is the most
evenhanded way to speed things up. that is our plan for turning the corner on changing the structure of the economy. it will be a lot of difficult -- when it turns to how we are going to deal with this in the long run in general, we've advocated to the extent you want to look for new revenue sources, that we make them as broad-based as possible. it's possible tax increases that are well at of the minor in percentage terms can raise revenue that will make a significant impact on the debt. the more you concentrate on any reticular segment of the economy or on a group of taxpayers, the higher those rates will have to be. that's going to cause a disruption and will be especially difficult. carl smith and his group tax foundation advises congress
on tax policy. if you have a question on the topic, now would be the good time to call in. 202-748-8000 free democrats, 202-748-8001 for republicans. 202-748-8002 for independents. we have our text messaging line, 202-748-8003. carl smith, you laid out your recovery plan here. tax hurdles that would keep the plan from being implemented? how much are we talking about changing tax policy and legislation to do so? >> the things we are putting forward are not that legislatively complex. congress and the tax cuts and jobs act had a provision to allow some forms of this type of expensing for equipment.
what we rx -- suggesting is in the covid environment, what's as important as structures. buildings, office buildings, a new factory that might be built. we are asking for this kind of treatment to be used there. in terms of realty investment. concerns.some we've explained are laid out for congress neutral cost recovery which allows businesses to index their deductions over time and gives them the same economic treatment as full expensing. a brand-new office building can be an enormous one-time expense into fei company attempt to deduct that at once, they would have to carry that forward over time.
that could also encourage companies like hedge funds or wall street firms to attempt to buy a building and use that as a deduction on what would otherwise be a large tax bill that doesn't really have anything to do with realty. it's a relatively technical , it has basically the same effect as the tax bonus expecting -- we passed. host: a few callers already. let's start in south carolina. steve, republican print --. caller: good morning. if you expected the conversation to go in this direction but i'm in a bring something up that's been dear to me for a long time and others around the country.
i'm in favor of a consumption tax. we know it does away with the underground economy, under the present system, business owners andbuy nice trucks and cars hang a sign on them and depreciate them and use them on the weekends and take them home, they could buy a boat. and use them for recreation. rich people pay more taxes and buy bigger ticket items so there you to pay more taxes as they consume. and people who make less pay less taxes. it just seems a good common sense idea to me to level the playing field for all income levels. host: carl smith. guest: when we think about what we are going to have to do repay some of the cost of the virus and particularly if congress doesn't change the trajectory of
entitlements or as many people are talking about expand entitlements come we made the point that consumption taxes are the only viable way to even attempt to -- some of this stuff. a lot of the times measures of congress especially ones who want to expand title months point to the size entitlements in europe in one of the points we've made his overtime europe is actually been lowering some of the taxes on business and they've been increasing their already relatively large reliance on consumption taxes. particular on the value added tax. it's like a sales tax but levied on the business prior to the sale rather than the consumer at point-of-sale. it's for essentially the reasons the caller outlined. the larger tax rates get, the more incentive there is to play games with the system to avoid taxes, even especially for businesses to leave the country
or go somewhere else altogether to get out from under these. consumption tax, because they are so broad-based and hit everything, can have that impact. the rates will be a bit lower but i think that's probably where we have to go especially in this environment. thereher alternative out would just be very large income tax increases for business and especially their trying to concentrate it at the higher ends. they want to do that to spare people of the lower ends, but the more concentrated gets, the more just the higher the rates get. it becomes more and more difficult to shield the economy from the effects of raising this revenue. , theore broad-based it is lighter the overall impact can be and he can keep growth going.
host: consumption tax, value added tax. james on twitters is the fair act -- fair tax makes too much sense. what do we mean by that? guest: usually people mean some sort of national sales tax. of theng at least all regular federal income and maybe -- with a national sales tax. ,rom an economic standpoint there is sense to an a consumption tax model. there are two issues with the fair tax. taxou put a very large 20% it would have to be on the consumer bring there is an enormous incentive for the retailer to get under -- get out from under that.
the second thing you'd have to note is if you're putting the codee burden federal tax on a consumption tax, that would result in large increases for people at the lower end. not advocatede that or enforced the go that far. once we show most people the numbers, they are skeptical of that increase. you need to raise more men -- or if there are going to be more entitlement spending, the increase beyond this should probably be focusing some kind of consumption tax. michael, good morning, you are on. caller: good morning.
i wanted to know that the cares act come what the effect you think it will have on the economy as a whole and i wanted since one of things that hurt us with the coronavirus ,hich came from another country could china reimburse our country for the financial ,ffects that it's had on us and i looked at the cares act legislation in here in pennsylvania, they've been flagging i think about 100,000 fraudants, citing either or not following rules relating to the cares act. program andnged the i was confused because the house and the senate passed the
requirement of the cares act, how can states then go and give federal law those passed by the congress and signed by the midstream?nd change if i've changed after you applied, of course out people -- i would have people flagged. aest: the cares act had number of different provisions. the broadest was the rebate check that went out to most households. one thing we've seen, i don't know if this is with the caller is referring to. one thing we have seen our states have decided that the rebate checks that went out to underolds was taxable state encumbered that's caused some difficulty for some taxpayers either to file their taxes and didn't claim the cares in payment may have had
their file flagged. largergram that's much that we are seeing more difficulties is paycheck protection program. that program essentially gives out loans to businesses if they are going to keep people on payroll. we had some administrative difficulties with that. there are so many businesses in so many different situations. when we think about what we are to do next, congress, at least we are hearing is there's probably going to be some sort of rebate in response to the increasing caseloads and the countryion part of the which shut down longer than expected. but there's more intense debate about what to do about the paycheck protection program and whether that should be extended or whether a simpler program should be put into place. on the one hand didn't require or have as many detailed
requirements but on the other hand functions more like a pure loan. the paycheck protection program, if you had 90% of people of your payroll maintained through the period, if you fell under certain other guidelines. you would get the loan you took out forgiven. and so the structure of the program focused a lot on the forgiveness and making sure people got that. that made it, kid for everyone. some people just need a liquidity paid there is some talk of turning it more towards a pure loan that would be available for companies. we wouldn't have to be as significant -- specific about requirements you'd have to go through. easier might make things in the next round. those of the two programs i know that have had the most implementation difficulty.
host: from companies to individuals, a lot of individuals in an effort to work from home have made a lot of investments to try and allow themselves to have the technology to work from home. is there any tax relief for those individual investments and workersion, there are who have to get in -- go in and some are getting hazard pay. any provision those workers should know about? >> being able to deduct the expenses you have for what you done at home, that is covered under the cares and under the includeslegislation that. or workers that are getting hazard pay. there is talk about congress
funding hazard pay itself. there isure legislation that specifically addresses hazard pay that hasn't been administered by congress. i haven't heard about that in this one. i may have missed it but i don't recall that. host: this is john, and independent. do away with the federal tax return. use algorithms to track people's income. this is crazy when it cost the taxpayers and the federal government to implement the tax returns. the second question is i have a 401(k) or a 457. the first when he thousand in new york state is nontaxable. citizens, ther
first 20,000 would not be taxable. thank you. i think in terms of the first 20,000 deeming the first two take out every year. there are proposals to do something like that. what we are generally discouraging is times of targeted to this particular program and originally there was going to be a program that would allow people to put away tax-free extra savings during the recovery in universal savings accounts. that kind of stuff i think we can think about as we are going forward maybe how to simplify the retirement system and roll of the 401(k)s and traditional iras into a single simplified saving system.
coming up in a very short amount of time, new savings vehicles themselves are probably not the way. it's probably that are to go with broad-based. even some like the rebate checks. a lot of people had concerns may be people who didn't need them were getting them. the general simplicity of a program like that has a lot of use in a time like this. we seen that with a more targeted programs. irs, i thinkhe altogether unless we change tax code significantly, that's not realistic. more automatic filing is more realistic for some taxpayers. i think that's something we should consider. smith, should also note he is an opinion columnist with bloomberg. you can see his columns at bloomberg.com. one of your more recent columns has to do with what we are talking about when it comes to federal programs amid the pandemic.
don't shame businesses were taking government money. what's the point? guest: the point there was a lot of businesses, it started out with businesses people thought , she shacko large got a lot of pushback for taking the paycheck protection program. when the government released the names of businesses that had taken the program a few weeks list,ou look for the kanye west company took money. when the more humorous example is the i'm rand -- was the ayn rand. my point was number one, shaming these businesses for taking these adds another hurtful on top of consideration. they already have a lot of requirements come do i qualify this, sverre apply for this, when you put the possibility
there will be public pushback, that's good discourage more people. what we want to do right now is have as many businesses as our unnecessary. especially talking about the loan side of the provision. use the loan. these focused on various in loose ways, industries and suggesting those should've gotten funding. one of the congress when designing the program had a number of mcdonald's franchises in the program allowed multiple franchises to claim as separate businesses so if you on five mcdonald's. that made it easier for franchises and there some suggestion maybe this wasn't
overly generous position -- proposition. i think that kind of stuff also limits availability of the program. to the extent we are making it easier for people to apply, that's good. what we should do. is look for examples of businesses who couldn't get the loans or couldn't get the forgiveness because they didn't understand how to apply for it. spending time trying to highlight cases where you think people shouldn't have applied only sort of reduces the effectiveness of the program. and will have the unintended consequences of some businesses
being nervous about not only to the qualify technically we do the qualifying terms of how newspapers will look at them and how people judge them. that's what we don't want in the midst of a crisis. especially to, take as much of the loan portion as they need, their lease payments. layoff is few people as they can so that we start to rebuild come we don't have the crisis causing lots of disruption in employment or people having lost their business. that could've been avoided. there were and fund mental economic reasons going forward. beingwant as much of that is voided as we possibly can. the way to do that is to make it as simple as possible. ruth's chrisnk doesn't meet alone, they can make it, but if one of the things they do to make it is not
have some of their part-time staffers or reduce their suppliers, that hurts people down the chain. that we can analyze all of and figure out how that's going. making things as broad-based as possible. take the loan come we will try to pay back when it's all done. we don't want artificial disruption to come in because of this. >> coming up on the east coast, time for more calls. first on the west coast, this is lucille out of l.a.. suggesti would like to during this pandemic that maybe the government would ok a write off for those living on credit card debt. maybe some of the interest could be applied. so many companies have closed.
and they closed down. people are desperate, their living of the credit card debt. a lot of credit card companies turned into banks once we had that recession in 2008. i think it's time to look towards those that are really struggling. there are some people paying their medical expenses by credit card. i certainly understand that. that is part of the motivation we have come we had originally , probably weut will do some like that again is to help people who have unique circumstances. what's difficult is we try to focus our efforts on one knowcular group, we don't
the consequences that will come from all of that. something like allowing people to deduct their credit card interest. if you think about that, it's only going to affect people who have heavily credit card debt and also have significant tax liability. probably the people struggling the most are people who lost their job and don't have any tax liability. and so it sort of check to get them by would be more effective yourn general, circumstance where it occurs to you but in general trying to identify here is one thing and it's the only thing we should go for. is not a good idea. it should be as broad as possible. across taxpayers. and so people who don't have tax liability now, how do we help them, people who consider going to their credit cards are going
to their tax. they have a lot of tax saving come plenty to use a retirement or other things. how do we do something for them? catchesad-based rebate people in all those categories. thean't alleviate all of debt everyone has. but making it broad-based gives us some ability to help everybody through a little bit. i think that's probably the best way to go. this is mark out of michigan. caller: thank you. i'm looking at restructuring. , which saidtrump hillary run for president. we had trump take the million-dollar taxpayer right off. hillary, she was in a
raise taxes on the rich but there's so many tax write-offs that it would mean anything. how do we restructure our tax money down on the deficit rather than letting the politicians bar ourselves to death? the concept is, i want to it prorated tax, a five-year tax cycle. for everyone who's working. we'll have a chance to not pay federal taxes for one year. which was mean they would be saving, they would be receiving 1/5 of what every they were expecting to pay in the city, state and down. they would get 1/5 of it back, they can spend or save or keep it if they want to. art -- are to be taxed more. on a 7, 10 or 15 year cycle. for years nonconsecutive.
they will only be charged 70% of their income. the rest of the three or whatever years left overcome 100% of their income would be taxed, but 70% goes down on the debt and/or natural disasters. taxdo we fit that into our scheme? >> thanks for bringing up the plan. carl, a chance to respond to that plan in the last minute and a half we have left. aest: having some sort of relief that's broad-based like that is good. i tried to follow the plan as he did it. it sounds like something like especially if up there were big changes from the five-year year cycle to the 10 year cycle, encouragement to adjust yourself to the cycle. that's what makes things difficult is to make them as simple as possible while trying
to achieve your objectives. the plan there is more likely for people to game at. it is tax foundation.org. journal,'s washington every day we take your calls live on the air to discuss news of the day and policy issues that affect you. wednesday, a new york times reporter discusses economic proposals by democratic presidential candidate joe biden. and beth connolly talks about how the pandemic has affected the opioid epidemic. what c-span's washington journal limit 7:00 eastern wednesday morning. join the discussion with your phone calls, facebook comments,
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