How the Supreme Court Could Impact Your Taxes & Another Billion $$$ Airline Merger

0:26Race the rudders! Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. On today's pod, we are getting deep and asking existential questions like, what is income? Then we finally got ourselves an airline merger to talk about. But will the Department of Justice let this one slide? It's Monday, December 4th. Let's ride.

0:53Neil, first of all, it's great to be back. I was in Mexico for a wedding on Friday, and even though I did not get a tan, I did get recognized in the Puerto Vallarta airport, which was super cool to see Morning Brew Daily go international. It is very cool. I don't know how this keep happening to you, though. I think it's because I wear my Morning Brew Daily sweatshirt absolutely everywhere, so it's pretty easy to pin me down. But when I left on Thursday after the show, it was November, but now it's December, which means it's the season of giving. and in that spirit, we're going to do a little Morning Brew Daily mug giveaway.

1:27The rules are simple. For the next week, if you send us proof of you sharing Morning Brew Daily with a new listener, you'll be in the running to win a beautiful, one-of-a-kind Morning Brew Daily mug. Yep, maybe you screenshot a text message of you spamming the family group chat or if you're more of a face-to-face person, send a selfie with your new inductee to the MBD Mafia. One time, someone shared the show in their all-company Slack channel, which was epic, in something we highly encourage. Yeah, so if you've been itching to get your hands on a mug, either tag us on social media at MBDailyShow or send an email to MorningBrewDaily at MorningBrew.com.

2:04Before we jump in the news, I just have to get something off my chest, Neil. I wasn't here on Friday. You and Kyle held it down as always. But I can't say I'm not a little bummed that I missed out on the reintroduction of Yahoo Finance as our presenting sponsor. We did miss you. How did we do, though? Did we do it justice? Oh, 100%. You guys did our Purple Prince proud, but I am back now, so I get to give Yahoo Finance a little love. The thing I love about Yahoo Finance is that it provides everything a budding business podcaster needs. There's just something about its best-in-class market data and real-time news updates that gets the people going.

2:39I am pumped to be back in the saddle spreading the good word. So head to finance.yahoo.com today or download the Yahoo Finance mobile app to get it directly on your phone. eczema isn't always obvious but it's real and so is the relief from ebglyss after an initial dosing phase about four in ten people taking ebglyss achieved itch relief and clear or almost clear skin at 16 weeks and most of those people maintain skin that's still more clear at one year with monthly dosing ebglyss libra kizumab lbkz a 250 milligram per two milliliter injection is a prescription medicine used to treat adults and children 12 years of age and older who weigh at least 88 pounds or 40 kilograms with moderate to severe eczema.

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3:49All right, Neil, big Supreme Court case on the docket today that could shift how bankruptcy settlements are handled going forward. The name Purdue Pharma and its owner, the Sackler family, is not a popular one in the pharmaceutical industry. They are seen as the architects of the U.S. opioid epidemic through their aggressive marketing of the painkiller OxyContin. In 2019, Purdue Pharma filed for bankruptcy facing a mountain of legal cases against them. And a judge ruled that they were on the hook for$6 billion that would be paid out to addiction treatment and other relief efforts while shielding the billionaire Sackler family from further legal claims.

4:26Now, this was very controversial. Proponents of the settlement are happy money will go towards helping fight addiction, but some believe that no amount of money is worth letting the architects of the opioid epidemic off the hook. The Supreme Court's job is not to judge what is best for each side, but to determine whether bankruptcy courts have the authority to strip away victims' right to sue in that manner. Neil, if the Supreme Court decides to throw out the settlement, not only will the legally dubious third-party immunity rulings become a thing of the past, it would also mean the victims and their families have to go back to court to fight their cases again.

5:03A lot is on the line here. Yeah, this is kind of an do the ends justify the means kind of deal. It's kind of an agonizing decision because$6 billion will be going to opioid treatment and addiction services. But on the other hand, you have the DOJ, which sued to get this to get this case to go to the Supreme Court, and several of the victims saying we want them to kind of languish in court. We want the Sacklers to languish in court. And we don't want to get we don't want them to get off scot-free here besides the money, because they would be shielded through this bankruptcy clause from further litigation for opioids for perpetuity.

5:42Yeah, the money angle is interesting because you can look at this as, dang, do we really want to kind of get rid of this hefty settlement just to leave the Sacklers open for more legal action? But some think that the states already have enough money. $50 billion has already been allocated from settlements with other pharma companies, So maybe no amount of money is actually worth shielding them, giving them this immunity. Because, yeah, even though this is$6 billion, if you put it in context of that$50 billion figure, maybe that$6 billion isn't going as far as a lot of the proponents of this settlement say it might.

6:15And let's talk about the bankruptcy angle, because legal experts say this is probably the most important bankruptcy case before the Supreme Court in 30 to 40 years. Because over time, companies have been doing this maneuver when they face massive claims of personal injury to go to the bankruptcy courts and get a settlement there instead of the civil courts. Some organizations that have done this include USA Gymnastics, the Catholic Church and the Boy Scouts of America. And so a bunch of organizations have been saying like, oh, there's this thing that we can do by declaring bankruptcy, agree to a massive settlement.

6:52And in the future, we're shielded from future lawsuits. And the government is saying that this process has been abused. This is not what bankruptcy court is really for. So this is kind of the comeuppance for this kind of shady, legally iffy maneuver. Yeah, those against this, these liability shields say that these are for kind of these debtors in financial distress, not for these very wealthy institutions or wealthy families like the Sackler. So that's one of the big reasons why this case in particular is the one that is being tried in front of the Supreme Court. Proponents of this tactic say that it's the only way to kind of lubricate massive settlements in the first place.

7:34If these companies have to go through unending litigation, then the claimants will never actually be paid out. So that's just the other side of the case. That isn't the only high-stakes Supreme Court kicking off today. Another one that gets going could upend up to one-third of the entire U.S. tax code, which is why it's been dubbed the quadrillion-dollar question. And that question is, can the U.S. government tax you on unrealized gains, which are investments that you haven't sold, so there's no real money that you've pocketed? Should you have to pay a tax on that? It's actually not clear because under the 16th Amendment, the government is allowed to tax and I quote income from whatever source derived.

8:14But as you can see, it doesn't specify what income means and it doesn't state whether that income needs to be realized. So there's quite a bit of gray area. The case itself centers around a couple called the Moors who say they had to pay$15 ,000 in taxes on unrealized gains on an investment they made in an Indian company. They're arguing that this tax is illegal because it's on income they've never seen and they're suing the government for a refund. Now, the reason people are getting alarmed about this is because if the court makes a broad ruling in favor of the Moors, deciding that they were subject to an illegal tax, then it could invalidate huge chunks of the U.S.

8:50tax code, stripping away the government's ability to collect trillions of dollars in revenue. It could also nip in the bud any plans by the Biden administration to implement a wealth tax on billionaires because that proposed wealth tax on ultra-wealthy people relies on taxing their unrealized income. So major implications, really deep questions about what is income stemming from just a$15 ,000 tax bill. Yeah, the Supreme Court has kind of backed themselves into a corner with this one, because if the Moors win, companies could demand billions in dollars in refunds tied to that 2017 law. And likely, yeah, it opens the U.S.

9:29government up to tons and tons of legislation tied to a new interpretation of the tax codes. And then if they go forward with this kind of narrow definition of realization, as you said, almost a third of the current U.S. tax code could become invalid. So, again, it's just crazy to see how sweeping and how the domino effects fall from this one particular case involving one company who had investments overseeing India and how it can spiral into, yes, as you said, the quadrillion dollar problem. So you mentioned the 2017 law and that we should probably go over that because that's kind of the impetus for this tax in the first place.

10:07Trump enacted these tax reforms in 2017, these tax cuts. Some of it had to do with taxation on foreign profits. One of the measures in there, it's an obscure measure, but it's kind of the bedrock of this case, is that companies and investors overseas could bring back their money to the U.S., but for a future, they didn't have to pay taxes on it. But there would be a one-time repatriation fee to bring it from overseas back to the U.S., And that is the that is what this fifteen thousand dollar tax bill is. This these this couple invested in an Indian company. They owned more than 10 percent stake and therefore they were subject to this new tax.

10:48And that kind of spiraled this whole thing to come to the Supreme Court. Yeah, this would also not be good for the whole balance the budget thing, too, because a ruling in favor of the Moors could cost three hundred and forty billion dollars in the next decade, according to the Justice Department. That would cancel out all the extra revenue that is supposed to be generated by that$80 billion IRS funding boost that we've talked about on the show before. And then add that all up, it could contribute another$140 billion to the national deficit. Whenever you change the tax code to make it harder to collect taxes, it's always going to impact the budget as well.

11:21So it's just another one of those things that you have to consider when taking in this case. All right, Neil, after so many failed attempts, we finally have an airline merger to talk about. Alaska Airlines, home to the best coffee in the skies, agreed to acquire rival Hawaiian Airlines in a deal valued at around$1.9 billion. Despite the beautiful location it mainly serves, this year has been a little ugly for Hawaiian Airlines. Its stock is down 53 % year to date as it struggled to bounce back from the pandemic and the fallout from the Maui wildfires. Now, Hawaiian and Alaska have said that they expect the deal to close in 12 to 18 months, but it is subject to approval by regulators.

12:03And as any longtime listener sitting at home knows, the Biden administration's Justice Department is not a huge fan of airline mergers. Earlier this year, the DOJ won a lawsuit to break up a regional partnership between JetBlue and American Airlines, and it has repeatedly stymied JetBlue's merger attempts with Spirit Airlines. So, Neil, we have another airline merger on our hands. Do we think it makes it through the DOJ meat grinder this time? I mean, who's to say? First of all, it's very funny that Hawaii and Alaska are getting together as the 49th and 50th states and the ones that you always see on inserts in U.S.

12:39maps. It's easy to lump them in together, but Alaska is a much bigger player. They're the fifth biggest U.S. airline, and they're eyeing expansion in Asia. And I think what they see in Hawaii is they can get a base. They can build a bigger hub in Honolulu and reach a bunch of Pacific Asia destinations. They're currently based in Seattle. They're kind of a big player. The big question is there are these big four for the DOJ and anyone thinking about the airline industry is that these big four players who own 80 percent of the market. Then there's all these smaller guys, the Spirits, the Jet Blues, the Alaskas, the Hawaiians in the world.

13:15and what you want is for them to compete with one another to bring down prices. The question is, are they more of a disruptive force together? Is JetBlue and Spirit more of a price drag together? Are Hawaiian and Alaska more of a price drag together than separate? The DOJ is arguing, at least in the JetBlue and Spirit case, that Spirit will disrupt prices and bring down prices more than a JetBlue-Spirit combined thing. So I don't know if they will apply the same thing to two other smaller fish, Hawaii and Alaska. See, I do think that the fish are decently small enough to not trigger the DOJ's kind of antitrust hackles, get their hackles up, because their combined fleet is 365 airplanes strong.

13:58For context, Delta operates around 936 aircraft, American 933. So you mentioned that 80 % number. The big boys are still a lot bigger than this new combined player. I also like it just from a branding and marketing perspective, though, because they are maintaining their brand identities, which I think is smart because both Alaska and Hawaii have very strong regional presences. That's why, from just a marketing perspective, I never liked JetBlue and Spirit because they plan to bring all of Spirit's branding under the JetBlue brand, rip out all the seats, put those really big TV seats in them. And I just didn't think it was smart.

14:34I like preserving the identities of a merger. So in terms of just from a high-level perspective, I am more bullish on this merger than maybe some of the others we've discussed in the past. I think Hawaiian Airlines probably has a stronger brand than Spirit. Like who's crying when Spirit gets repainted from its yellow thing? I don't think anyone looks to the skies and sees the yellow plane and they're like, oh, that is so beautiful. But Hawaii, interesting Hawaiian Airlines, very, very historic airline. It started in 1929 before Hawaii had decades before Hawaii Hawaii had statehood and it served it was kind of like a lifeline for those island hoppers uh so it's pretty interesting reading into the history of of that airline which dates back almost 100 years now yeah that's kind of crazy all right Neil before the airline regulars break up the Neil and Toby merger this fine Monday morning let's take a quick break tonight on NBC Jimmy Fallon and Bozema St.

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16:27Welcome to the winners of the weekend, end this segment where Toby and I picked two things that had a better weekend than someone who got upgraded to first class. I won the pre-show Dr. Pepper tuition giveaway, so I will go first. And my pick is the University of Alabama football team. Alabama joined Michigan, Washington, and Texas as the four teams selected to compete in the college football playoff. And ooh boy, was it controversial. In choosing Alabama, the selection committee snubbed Florida State, which unlike Alabama was undefeated this season. It's the first time in the playoffs history that an unbeaten power five conference champion was excluded from the field.

17:05Florida State's coach went off saying he was disgusted and infuriated with the decision and asked, what's the point of playing games? Other sports commentators came to FSU's defense, arguing that the playoff had become a beauty pageant at this point instead of a competition. And this marks a dramatic end to the 14 playoff format because next year the field is expanding to 12 in an attempt to squeeze even more TV money and get more eyeballs on the best teams at the end of the season. Toby, so much drama. I haven't even scratched the surface with that intro. I know people are so up in arms about it.

17:38You know what this reminded me of though, is the 2017, 2018 Philadelphia Eagles season, because similar situation where you have an MVP, Carson Wentz leading the team. He goes down with ACL injury. Imagine if some shadowy committee had said oh your best player because this happened to fsu their their star quarterback went down broke his leg out for the season and that really factored into the decision making so imagine if someone had said sorry eagles like your best player is down we're not gonna we're gonna discount everything you did prior so i totally see why that analogy really made me think god i would be so mad if i'm sm fsu and so the committee uh is instructed to assess teams based not on their historic performance uh but on their uh on how they're playing going into the playoff and so they use that rubric to determine that alabama was a better choice than florida state which went undefeated but yes they are on their third string quarterback they don't they don't have their start quarterback so we now we have michigan is playing alabama and texas is playing washington in the final edition of this 14 playoff format who is your pick i'm going with michigan i think even though they cannot do anything else other than run the ball i just think they're they're gonna get it done finally this year fun fact now now that georgia was eliminated the university of minnesota remains the only three-peat national championship that was all the way back in 1934 to 1936 so there's a fun bar trivia fact if if anyone wants to talk to you about the college football playoffs today all right my winner of the weekend is george santos the polarizing Republican from New York was expelled from Congress for ethics violation on Friday.

19:16But by Sunday night, he already had a movie in the works about his life. HBO Films optioned the rights to a new book about his life and is already developing what it describes as a forensic and dark comic look into the crazy rise of the controversial politician. Neil, it's hard to overstate just how insane George Santos's life is. He was expelled from Congress for allegedly using donor funds to pay for everything from OnlyFans to Botox surgeries. He allegedly committed identity theft when he stole a campaign donor's credit card info. Heck, he even lied about where he went to high school and college.

19:52Neil, this dude lies about everything, but he's almost transcended the truth at this point. He's expelled from Congress, but this is not the last we're going to hear of George Santos, and the documentary is proof of it. He's really the embodiment of the American dream, right? Lying your way to get into Congress, getting kicked out, then making a boatload of money off of your story because you're such an eccentric character and you own it. So it's just so funny that he became one of the fifth or sixth person who's ever been expelled from Congress. And we declare him our winner of the weekend. But this guy has a illustrious entertainment career coming ahead of him.

20:26If you consider Dancing with the Stars or the Masked Singer illustrious, he'll probably end up on one of those shows. Yeah, the producer of the Santos doc is the same one that executive produced Veep. So it's going to be good no matter what actually comes of it. And then also, I just love going through, if you type in George Santos lies on Google, you will get so many articles, some of them power ranking his lies from like 1 to 32. When you have Lisp power ranking your lies, you know that you are a serial liar. But yes, as you said, American dream, the man is going to make a boatload of money off his career.

21:00All right, Neil, AI may be more like us than we thought. A series of recent findings have researchers considering if ChatGPT is getting lazier, reacting to emotional stimuli, or even performing better when promised a tip. For instance, one startup founder asked GPT4 to generate a list of upcoming calendar dates, and it just straight up told him to try using a different tool to find the answer. Researchers also found that using, quote, emotional prompts significantly boosted the performance of certain generative attacks with an average improvement of 11%. And finally, an amateur sleuth that goes by Thebes on Twitter found that ChatGPT gives far longer answers when you promise it a tip.

21:43Neil, ChatGPT is a bit of a black box when it comes to what's actually going on inside its various generative algorithms. But what the heck do you think is going on here? Is ChatGPT becoming lazier, more emotional, a.k.a. a bit more human? I think it's easy to get swept up in the fact that this large language model responds to emotional stimuli and responds better to tips and makes better answers when sort of like prodded psychologically. And then we're like, oh, it's becoming human. But at the end of the day, you have to go back and just remember, this is a computer program that's trained on data on the Internet that humans have written.

22:21So naturally, it will have those kind of impulses. It's still very interesting to think about, obviously. I think this tipping study was super interesting. When the guy said he asked for a bit of code. And then when he said, I won't tip, there were shorter answers. When he said, I will tip$20, there were roughly longer answers, a market increase. And then when he said, I will tip$200, there was an even longer and more detailed answers. Super interesting. Also, none of those, the length of the responses had to do with tipping. They were actually substantive. But when he said, I will offer a tip of$1 billion, that's what got ChatGPT to say, you don't have to tip me.

23:01It's not a big deal. It is interesting to see the threshold where to change this behavior. And I think what we're seeing is a difference in capabilities versus behaviors. These models are still clearly capable of answering the questions in the same way, but their behaviors change on tweaks, either through the prompts you're feeding in or something on maybe the open AI side of things. So I do think, as you said, these are algorithms. These are models built by humans. So inevitably, some of that is going to seep into kind of the way that they end up generating answers. But it's crazy. I also think there is some truth on the laziness front, though, because chat gbt is incredibly expensive to run there was one estimate that put uh that estimated that chat gbt was costing open ai nearly seven hundred thousand dollars a day to run so maybe the lazier a chatbot gets the more money open ai can save because it doesn't have to kind of pay for as much computing power so again these are slight conspiracy theories but if you connect the dots a little bit you can see why maybe chat gbt is throttling back on the amount of data it provides when given any input.

24:06Right. When you said that, that makes more sense. But when you say something like chat GPT is getting lazy, I think that is what manipulates us into thinking that it is, you know, it has human qualities. When you say something like chat GPT is getting lazy, it's because we get lazy, but chat GPT is not. It's whatever that, uh, whatever it learns from the programs it's been fed. But Havan, mind is in a pretzel already. And it's Monday morning at 6.30 a.m. Jeez. Okay, let's hit our week ahead. The November jobs report is on Friday. People should get hyped for it because it's going to be a big one.

24:39With inflation stats not as mission critical anymore, everyone's attention is turning to employment numbers for a gauge on whether we could enter a recession. U.S. employment growth declined significantly in October from the month before, so we'll see if that downward trend continues for November. Economists are expecting still solid job additions last month, about 190 ,000 new jobs and an unemployment rate of 3.9%. If the job market continues to grow at a slow but steady pace and we don't see a big spike in unemployment, it is further evidence that the Fed has pulled off a soft landing, bringing inflation down from 9 % without triggering a recession.

25:16I'm so happy we're talking about soft landings again. We got away from it for a little bit, but hopefully we get a good jobs report so we can we can start talking about our soft landing again. It is a huge week in the video game world because we're getting a trailer for one of the most anticipated games of the decade, the next edition of Grand Theft Auto. The announcement of this game last month sent shares of the game's parent company, Take-Two Entertainment, soaring. So clearly the expectation is that this will be one of the best-selling games in recent memory. It has been a long 10 years since the last GTA came out.

25:48I'm trying to memorize the down, down, A, B, sideways triangle hacks that you got to learn to to make gta happen i was never a gta player but maybe this is the entrant for me i think you will be everyone's gonna be talking about it it is a busy week across the sports world the nba is going to wrap up its in-season tournament later this week and we'll finally be able to say goodbye to those hideous courts has this been a success toby i think so because the games definitely feel a little different there is and we haven't even reached the knockout stages yet so far so it is totally one of those things that it imbues a little bit of energy the courts are literally the worst thing i've ever laid my eyes on so maybe that's where the extra energy is coming from it is injected a lot of energy to the nba is a long season it goes until june or july it's crazy but a lot of the games in the fall have not really mattered therefore viewers haven't tuned in but because of the in-season tournament there's a little hype around the the fall nba games and you viewership numbers are up 26 over last season this month so it has been a good at least from a viewership perspective it's been a good uh tactic by the nba in college football army is going to play navy on saturday and foxborough mass which is the first time in its 20 124 year history that the game is going to be played in new england just crazy i didn't know that didn't it play in philadelphia oh is philadelphia not oh no i just exposed myself right there i'm so sorry to everyone listening oh my god let's move on to soccer it's a little more comfortable for you the mls season wraps up on saturday with the mls cup finals seems like messy mania has kind of faded from the summer i miss messy mania that was the best time to be a soccer fan finally in the sports world mlb's winter meetings will start today in nashville and the only question that matters is where will free agent shohei otani end up he is a lock to sign the most lucrative contract in the history of american sports should we submit a bid neil should we try to get him on morning brew daily's payroll oh let's get him we can totally afford them.