Taxpayers Skirt a Gutted IRS & United Eyes an American Airlines Takeover

0:01Good morning, Bridge Daily Show. I'm Neal Freyman. And I'm Toby Howell.

0:05Neal Freyman:Today, why sneaking by the IRS has never been easier than United designing this airline for a potential mega merger. It's Wednesday, April 15th. Let's ride.

0:20Good morning. Crazy weather we've been having lately, huh? Pretty hot. I hear it's going to stay like this until Friday. Neil, what? This is the most boring start to a conversation ever. Sorry, sorry. I'm just making small talk because new research shows it's not as bad as we all think. A study published in the Journal of Personality and Social Psychology found that people enjoyed talking about nothing way more than they expected going in. And if you avoid small talk, which we all seem to do, it can come at a significant cost to your mental health, relationships, and mood. The Michigan PhD candidate who ran the study said, people underestimate how interesting and enjoyable conversations about boring topics will actually be.

1:00Neal Freyman:So Morning Brew is having a company on site right now, which has led to a lot of mingling with people you don't normally see. And this article is correct. It has been fun riffing about nothing. Here's another perspective that hopefully will have you embracing small talk. Gillian Sandstrom, who's a professor of psychology in England said, if we don't practice talking to strangers, how are we going to make friends? How are we going to do on dates and do well in a job interview? So treat every low stakes interaction with people you don't know very well as a practice ground for the conversations that do matter.

1:34Neal Freyman:But you are right, Neil. It has been unseasonably warm. The weather is quite crazy. OK, this episode is brought to you by On Investing, an original podcast from Charles Schwab. Each week, host Lizanne Saunders, Schwab's chief investment strategist, and Colin Martin, head of fixed income research and strategy for the Schwab Center for Financial Research, bringing you fresh insights into what's happening in the markets and why, and what the implications might be for your portfolio. Join Colin and Liz Ann as they explore questions like, how do you evaluate corporate bonds that look interesting and what sectors are on the move right now?

2:06Neal Freyman:You can download the latest episode and subscribe at schwab.com slash on investing or wherever you get your podcasts. Happy Tax Day to all who celebrate. Individual tax returns are do today, but not worried about you guys. I know you're a wholesome, proactive bunch who always meets their deadlines. But if you are trying to slip something by the IRS, your chances haven't been this good in years. As the Wall Street Journal reports, the Trump administration has been scaling back tax enforcement, canning auditors and investigators who hunt down tax cheats and collect unpaid bills. Perhaps there's no agency that's been dojified more than the Internal Revenue Service.

2:40In the past year, the IRS has lost 27 percent of its workforce and about three quarters of its senior leadership, according to Brookings. Speaking of leadership, there's been more turnover than a retail space in a college town. The IRS has gone through seven commissioners, and the current leader is doing it part-time. He's also heading up Social Security. It all amounts to a reduced focus on enforcement and revenue for the federal government. Inflation-adjusted spending on tax enforcement is the lowest in at least two decades, says the Progressive Center on Budget and Policy Priorities. As a result, audits of people with at least$10 million are projected to drop 39 % this year after falling 9 % the year before that.

3:17In fiscal 2025, the IRS collected less direct revenue from audits and appeals than in any year since at least 2012, per the journal. Toby, there's never been a better time to tell the IRS. Catch me if you can.

3:29Neal Freyman:Yeah, Trump does not like the IRS. He has his own personal history with it after they audited him. And then also a lot of IRS people have just been reassigned to different parts of the government as it was sort of doge-fied. More people were going towards immigration enforcement rather than actually doing tax enforcement. So what happens, though, when you gut the IRS, you collect less money as a country. So according to a Yale Budget Lab analysis, the cuts to the workforce for the IRS saved an estimated$46 billion in federal spending. But the fact that we have less enforcement when it comes to collecting taxes, that means it has reduced revenue collections by$643 billion.

4:13Neal Freyman:These are just projections. So when you take in less money as a country, obviously your budget is going to suffer because of that. So it is interesting to see maybe in the short term you save a little money by reducing the size of the IRS. But in the long term, you're going to collect a lot less tax revenue. Yeah, an$861 billion hole. Here's what the Trump administration is saying. They want to, you know, shrink the federal workforce across the board. And the IRS chief executive, Fran Bizzignato, told a congressional committee that, look, we can do more with less. We are going to put AI and technology first here.

4:44And we think that will be better, more efficient outcomes going forward when it comes to tax enforcement. Actually, when you look at the actual audits, it still seems like the IRS is doing at least some of them toward large corporations. The IRS initiated more audits of large companies last year than in 2024. They've opened even more criminal investigations into identity theft and money laundering. So they're coming from a place of we don't need as many humans to do this. Opponents say, yes, you actually do need humans with longstanding know-how and to work with tax lawyers who want people to have this experience.

5:18Neal Freyman:And let's be clear. For the most part, you and I and normal Americans do pay their taxes. Taxpayers as a group pay 85 percent of what they owe. as they file when they're doing their returns. That climbs up to 87 % after audits and collections. So again, that is pretty good. If we ever got to 100 % rate, that would usually require a level of government intrusion into your private life that most Americans will not stand for. So again, these cuts don't affect everyone equally though. Wage earners are much more likely to pay what they owe because they have W-2s. Like it's very easy to audit them. Business owners, on the other hand, can get a little fast and loose with the rules, a little extra zero here, take a zero away there.

6:01Neal Freyman:That is how you dodge taxes. I'm not giving a playbook by any stretch right now. But again, wage earners pay their taxes. Business owners get a little bit fast and loose with their depreciation sometimes. And that has led to a pretty yawning tax gap, which is the difference between taxes owed and paid. I know you're plotting our fellow Americans, 85 % are paying their taxes. But that 15 % leads to a pretty big number. the former IRS commissioner said it was approaching, this tax gap was approaching $1 trillion a year from the taxes owed to the taxes paid. Moving on, two of the biggest airlines in the world might be joining forces like Beyond Sun and Ambrose in kicking and screaming.

6:36Neal Freyman:United Airlines is floating the idea of merging with American Airlines, talking to senior government officials about the tie-up, according to Bloomberg. It would be a bigger merger than when you veered in from the emergency lane just before the airport exit. Their combined fleet would number over 2 ,800 aircraft. Their combined revenue would top $100 billion, and it would bring more than a third of the entire U.S. airline market under one carrier. That is, of course, if antitrust regulators can stomach numbers like that. A merger of the second and third largest U.S. carriers by revenue would face huge opposition from smaller rivals as well as some on Capitol Hill.

7:11Neal Freyman:They would need to get the green light from both the Transportation Department and the DOJ before proceeding. But unlike your ex, the current administration is at least open to the conversation. Transportation Secretary Sean Duffy told CNBC earlier this month that President Trump, he loves to see big deals happen and there's room for some mergers in aviation. Neil, we've talked about airline mergers before on this show, most recently between JetBlue and Spirit, which failed, but this one would be much, much bigger. There's a pretty juicy personal backstory to this. I don't mean personal for me, but personal for Scott Kirby, who is the CEO of United.

7:45Previously, he was the president of American Airlines, but he was passed over in the succession to become the next CEO. So he jumped ship, went to United, then became CEO there in 2016. And by all accounts, he's done a much better job at leading United than the people, the folks who have been leading American have. United has a market value of about$31 billion. American Airlines has a market value of just$7.4 billion, which is setting the table for Kirby to maybe lead American once again.

8:15Neal Freyman:Yeah, a lot of missteps have been made at American over the past couple of the past decade, really. American tried to go and compete with Spirit Airlines, with Frontier Airlines. They tried to compete on a price better than compete on the luxury side of things, which is what has been driving most of the industry right now. So they made decisions like removing premium seats from planes, closing some of their airline clubs, removing the screens from seat backs. These are all decisions that maybe at the time seemed depressing because they wanted to be an affordable airline. But the airline industry has gone in the complete opposite direction, which does make it right for a potential merger.

8:54All right. Let's talk about whether this merger is going to actually happen. Because when we first saw this news, we were like, how is this possible? I mean, the government blocked JetBlue from taking over Spirit. And now it might let United take over America. I mean, there's only four major airlines in the country. So this would shrink it to three. Wouldn't this drive up prices for consumers, reduce competition? The answer is maybe, probably, which is why, you know, these United executives, it's not even reported that they talked to American. The first people that they talked to was they went straight to the White House.

9:25And it's reported that they even talked to President Trump because he is going to need to bless this deal. So huge antitrust questions, questions whether United decides to pursue American. The airline industry has faced a lot of antitrust concerns just because there's so many barriers to get into this industry. You and I just can't make a plane, get all these slots at airports. So there's not that many players and we'll see what the government has to say.

9:51Neal Freyman:Yeah. Remember though, the U.S. industry, as we know it, has been built largely through consolidation. I mean, Delta merged with Northwest Airlines. You don't even remember Northwest Airlines. United and Continental merge, American U.S. Airways. These are the bedrock of the modern industry. But now you are right. Like if JetBlue can't get it done with spirit, how would you know, American is the biggest carrier in the world by just total number of flights. So it sounds crazy on the surface. The one angle that United was apparently floating to the Trump administration was that this tie up would help carriers compete on international routes.

10:25Neal Freyman:He previously has talked about how the fact that two-thirds of long-haul seats to and from the U.S. are often by foreign airlines. So maybe that's the tack that he's bringing to the administration saying like, hey, we need to beef up our domestic long-haul operations. This is one way to do it. Yeah. So I mean, American Airlines, you don't think about it that much, but it is the biggest airline in the United States as far as like just taking passengers, the most planes, the most routes, et cetera. So that's why United is make it, that's why it's an attractive target for United. When they lost my bags the other week, I can tell you what, I was thinking a lot about American Airlines.

10:59Okay, let's move on. You know that meme where the room is on fire, but the dog is sitting there thinking, this is fine. Well, that's the U.S. economy. In their earnings reports yesterday, major American banks said that U.S. consumers and businesses are doing just fine, even amid a global energy crisis from the Middle East. The three banks, J.P. Morgan, Wells Fargo, and Citi, brought in a collective$27.5 billion in profits in Q1, a 17 % bump from a year earlier. Jamie Dimon, CEO of the country's largest bank, J.P. Morgan, said that the U.S. economy remained resilient in the quarter, with consumers still earning and spending and businesses still healthy.

11:33Spending volume on J.P. Morgan's credit cards rose 9 % from the previous year, while delinquency rates on consumer loans, like mortgages, fell. Wells Fargo flagged that consumers were spending about 25-30 % more on fuel than before the war, but the CFO said, quote, overall spend continues to be quite resilient and quite strong. The road ahead could be trickier to predict, however, and fraught with potential danger. Diamond wrote, at the same time, there is an increasingly complex set of risks, such as geopolitical tensions and wars, energy price volatility, trade uncertainty, large global fiscal deficits, and elevated asset prices that could derail the strong economy.

12:08Overall, Toby, banks are doing well. And as the makers of the plastic people use to pay for things every day, they say we're doing well also.

12:15Neal Freyman:Yeah, it was a very interesting earnings season for banks because on the one hand, they are trying to paint this very complex picture of the economy and say a lot of risks abound. But then they look at the actual details. It's literally like putting a thermometer in the consumer's mouth. And they're saying they're reading all right. They are reading pretty healthy right now because when you look at where consumers are talking with their wallets, they are still spending. Delinquency rates aren't jacking up anywhere. So it was this kind of awkward trying to straddle the line between between saying like, hey, we know there's a ton of risks everywhere else.

12:46Neal Freyman:But right now, from what we're seeing, or at least what we were seeing over the past quarter, things are looking pretty hunky-dory. Yeah, we haven't really talked about the stock market recently. But it is also responding to maybe these banks saying that, yeah, we know that the world is maybe on fire. But U.S. economy is doing pretty well. The S &P 500 is now less than 1 % from its all-time high. It's had nine positive sessions in its last 10, while the technology-heavy Nasdaq has gone 10 straight consecutive gains in the green. It seems like there are overtures that Trump and Iran are talking that the war could wind down.

13:20And then you have J.P. Morgan, Wells Fargo, Citi coming out saying, yeah, people are spending like it's fine. Yeah, gas is a little more expensive, but people are still going out and traveling.

13:29Neal Freyman:The curmudgeon in the room, though, is the International Monetary Fund, the IMF. I know, it's always the dang IMF. They are basically saying that the world economy has been upended by the Middle East. They are slashing their growth forecast in their latest World Economic Outlook report. 2026 forecast is now for the global economy to grow 3.1 percent. That is down from 3.4 percent in 2025. So basically, they're saying the most severe case is that the energy markets continue to be in turmoil. Global growth drags all the way down to 2 percent. Inflation jumps up to 6 percent. So they are talking about the downside risks much bigger than a lot of other people are kind of forecasting.

14:11Neal Freyman:So even the U.S. economy, which we've just talked about, they say that we're not immune to the energy crisis. So there are conflicting signals everywhere you look. You can look at bank earnings and see a rosier picture of the economy. Or you can look at the IMF, who is not pumped about what they're seeing. All right, we're going to take a quick break and come back with a story about gummies right after this. I hear we're talking about acting today. No, we're talking about Tax Act. Then why did I bring a skull? I have no idea. But the reason we're talking about Tax Act is they help small business owners get their taxes done.

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16:26Neal Freyman:Get your head out of the gutter. The wellness crowd is all in on healthy supplements in gummy form. Grooms is probably the poster child for this gummy craze. Started three years ago. They just sold to Unilever for over a billion dollars as the big CPG giant tries to capitalize on the nutrition trend du jour. What benefit do Grooms actually provide? It's basically a normal multivitamin that your parents always stored in the kitchen cupboard. 21 vitamins and minerals, 6 grams of fiber, but the form factor is cute green gummy bears. It feels like you're having candy for breakfast. It's fun, it's novel, it's cute, and it doesn't feel as clinical, Nate Rosen, a CPG writer, told Bloomberg.

17:04Neal Freyman:Groons also promises all sorts of vague benefits, like their website boasting that 67 % of users say their overall health and well-being has improved. It's all a little hand-wavy because it can be. Supplements are a far less regulated industry than pharma, which means they are far easier for influencers to sell, which they do in droves. The U.S. supplement market reached$69 billion in 2024 and is expected to balloon to$87 billion by 2028, according to a nutrition business journal industry report. Neil, it is gummy mania out there. You know who doesn't need a gummy to feel good right now? Chad Janis.

17:41I mean, this guy, so he's the founder of Groons. And this is one of the wildest CPG exits we have seen in years. He started it as a Stanford MBA candidate. And he was just super sick of mixing powders and juices to get those supplements, kind of like you before the show. So he decided to create this gummy. And he first hit the market in August 2023 as a direct-to-consumer gummy product. And then he just barnstormed the entire retail landscape. So they're already crushing it on Amazon. And then they get into Walmart, Costco, all these other grocery stores. Sprouts was their first biggest retail partner.

18:18Then all of a sudden they go to Unilever and sell for$1.2 billion in less than three years. It's a crazy story.

18:24Neal Freyman:Don't expose me for mixing all my powders and stuff in the morning. No one, that stays between us and the MBD team. But you are right. The industry as a whole is embracing this category with open arms. I look at Unilever who just sold their big food business to Spicemaker McCormick in a$44 billion deal. The main star of that show was Hellman's, which is mayonnaise. Now here they are splashing out a billion dollars on Gruen's, which is a supplement. You can see the thought process in that alone. Would you rather have a household staple that grew at a meager 0.4 % in the last year, or would you want to move into the supplement category, specifically gummies, which grew 4.7 % over the same period?

19:06Neal Freyman:So that right there is the state of the industry right now. And you can't ignore the social media of it all. I mean, whenever we talk about a super hype product or a super hype segment, especially in health and wellness, I mean, you can draw a direct line to influencers on social media. TikTok shops, US sales, almost 80 % of them last year were health and beauty related. So these little green gummy bears just work so well on social media. They're visual. You can watch people eat them. People talk about them. They don't have to be FDA approved. So just the TikTok to$1.2 billion exit pipeline is very strong.

19:41Neal Freyman:Yeah, and the final factor here is the GLP-1s because GLP-1s are hurting the packaged food industry as a whole, but they are helping the supplement industry because as you eat less, you want to fill some of those nutritional gaps that you are seeing in your diet. And one thing that Grooms did very well is they hyped up their fiber offerings. Each serving of Grooms comes with six grams of fiber. And remember, we've talked about how GLP-1 users don't get enough fiber. They don't get enough of some of the essential ingredients that they need. So just kind of the right product at the right time, powered by the right social media trends, Grooms is crushing.