Warning Labels for Social Apps? & IRS Closes $50B Loophole

0:00Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers, a network of 130 million of them, in fact. You can even target buyers by job title, industry, company, seniority, skills, and... Did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply. Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howe.

0:35Today, the tragic story of a Wells Fargo co-branded credit card. Then does social media need to come with a warning label? The U.S. Surgeon General certainly thinks so. It's Tuesday, June 18th. Let's ride.

0:52Boston's long nightmare is over. The Celtics won the NBA championship last night over the Mavericks, ending the city's five-year title drought That may not seem like a long time for people in Minneapolis or Buffalo, but it's Boston's second longest span without a title since 1960. It also marks the Celtics' 18th championship, which moves them one pass the hated Lakers for the most in NBA history. Boston may not have affordable suburbs, but it's got plenty of trophies. I just want to take a minute to remind everyone, though, of the fact that the last time the Boston Celtics won the title back in 2008, Lehman Brothers collapsed and the world economy descended into chaos just three months later.

1:32Well, you know what happened in 2008. That's all I'm saying. I'm not wishing that upon anyone, obviously, but just something you can have in the back pocket today to remind that annoying Boston sports fan of yours in the coming days. This episode is brought to you by State Farm. Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs.

2:07Like a good neighbor, State Farm is there. Now, let's talk Yahoo Finance. One thing about hosting a daily business news podcast is that it feels like you have homework assignments due every single morning. It's like having to do an oral presentation in front of the class every day. And don't get us wrong, you guys are a great audience, very respectful, asking always good questions. But there's no textbook for business news, no flipping to page five to brush up on the latest Elon Musk tweets. And that's where Yahoo Finance comes in for us. It's the closest thing to a business news study guide you can get.

2:42You can keep tabs on what's going on in their news section, dive deeper into the fundamentals of a stock, or sort through an earnings report all in one place. Saves us clicks, saves us time, and helps us put together this oral presentation for you guys every morning. All right, all right. Let's just call it a morning show, okay? None of this oral presentation stuff. If you want to brush up on the latest news and market data, head to finance.yahoo.com or download the app on the Play or App Store. Imagine logging on to Instagram or TikTok and being greeted with a warning label about its dangerous side effects.

3:14This is the future the U.S. Surgeon General, Dr. Vivek Murthy, is urging Congress to make a reality. He wants to introduce warning labels that regularly pop up and warn parents and children of the potential dangers associated with all that endless scrolling. If this sounds like the labels that are on tobacco and alcohol, then you're spot on. The Surgeon General thinks social media should be talked about in the same breath as those vices. in a guest essay on the New York Times. Murphy cited studies that found nearly half of kids have some sort of body issues tied to social media use and that kids who spend more than three hours a day on it are far more likely to suffer from anxiety and depression.

3:53Neil, there's also a body of work cited by experts and tech CEOs that say the link between teen mental health and social media is lacking concrete evidence and tends to get exaggerated. So do you think that something like adding warning labels to popular apps is overkill? are we heading in that direction? I don't know whether we're headed there because it would take an act of Congress, but this is Murthy getting ahead of the PR conversation and saying, look, we don't know whether this is, we have evidence perhaps that it is harming teens, but then again, we have no evidence that it is safe either.

4:26And we're not going to take any chances here. And I would love to put these warning labels on social media platforms because when I look at the stats here, I'm speaking as Murthy, I see that teens are spending five hours a day on social media, and that just as much as three hours a day leads to significant worse health outcomes. So this is him just putting his stake in the ground, and he's done this before. He sounded the alarm going back years saying social media is not good for teens, and we need to do something about it because it's leading to this loneliness epidemic and a lot of depression among kids.

4:58Right. His approach to it is saying, let's not wait here. One of the quotes from his op-ed was, one of the most important lessons I learned in medical school was that in an emergency, you don't have the luxury to wait for perfect information. You assess the available facts, use your best judgment, and you act quickly. So that is how he's approaching the social media situation. He knows that there's conflicting research out there. He admitted that, but he said, I'd rather take action now than wait till down the line till we have more concrete facts, more concrete information, because clearly he's seeing enough warning signs here that is causing him to take this recommendation action.

5:32And he's directly linking it to some of the most iconic, you know, consumer safety measures in American history, like the seatbelt, like helmets on bikes, especially the first thing that comes to mind here is the warning labels on cigarettes, which went into effect in 1965. And at the time, 42 percent of U.S. adults were daily cigarette smokers. Just think about that for a sec. 42 percent. Wow. And then by 2021, after those labels came into effect decades after, that had dropped to just 11.5%. Don't know whether causation is correlation. There's obviously a lot of other things going on. But those warning labels did come into effect in 1960s.

6:11And we saw a huge precipitous decline in cigarette smoking in the United States. And Murthy wants to go beyond just these warning labels, too. He had a lot of recommendations for policymakers. He's calling for legislation that shields some young people from some of the more violent or sexual content on social media. He wants to ban platforms from collecting children's data. He wants to restrict push notifications, autoplay, infinite scroll, these features that he says prey on developing brains and contribute to excessive use. And then he also wants to force social media companies to undergo this independent safety audit where they share data that they have regarding the health effects, regarding all these things that we've talked about with independent scientists and the public.

6:50So he's not just hand-waving here. He is coming with a litany of demands and a litany of recommendations on how we could make social media safer beyond just slapping on these warning labels. But I did go down a rabbit hole to see if warning labels actually do anything, and there's quite a bit of a body of research over the years. It seems that they're so ubiquitous now. When you go into a grocery store, you go into a drugstore, you see so many warning labels that their impact has maybe been reduced because you see so many. and each one sort of has a, you know, less of an impact on you. But they did a study that showed that the only kind of warning labels that actually do anything are graphic, graphic warning labels.

7:29So images that are graphic in nature that show you the impacts of what you're about to consume. Like if you show a person with very rotted teeth or a bulging belly for something like sugary drinks in a study by Harvard Business Review, that was the only type of warning label that actually moved consumers to make different choices. Right, because I was going to say I have limits on my social media where it pops up and say, hey, you've been spending too much time on Instagram. But I'm just so used to clicking buy that at this point because you're right. It's just words. It's not really inspiring anything in me.

7:59Yeah, consumer safety advocates say warning labels are the last resort. That only comes after making the actual products safe to use. This is a conversation that we're going to continue to have. Anyone listening extremely rich and is a partner in a hedge fund or real estate investment firm, the IRS is coming after you. Yesterday, the agency announced a plan to close a major loophole used by large, complex partnerships to avoid paying taxes with the goal of raising$50 billion in tax revenue over the next 10 years. The crackdown targets a process known as basis shifting, where businesses or people shuffle assets between related parties in order to shield them from paying taxes.

8:38The IRS calls this really just a shell game that provides no economic benefit to anyone except the people who lowered their tax bill. It's also part of a series of actions the IRS has taken recently to go after tax avoiders. Two years ago, the Biden administration plugged it with$80 billion in fresh funding. And the IRS wants to prove that's a worthy investment by recouping tax revenue to bolster the Treasury and pay for itself. Yeah, so the IRS looked at the body of evidence here and said that the filings for these pass-through businesses that are used in this sort of basis shifting this tax avoidance loophole, those increased 70 % from 2010 to 2019 up to almost 300 ,000 of these unique sort of filings.

9:20However, the audit rates for those types of businesses actually fell from 3.8 % to 0.1 % in the same time frame. And again, the IRS said, listen, our hands are tied here. We just don't have the resources to audit all these pass-through corporations that are being created. And so they're saying now that we have more resources, now that you gave us a little more money, they're making a big show of saying we are going to start cracking down on these because essentially they've just been used as a loophole for far too long. And just for some X's and O's here, a pass-through business is where it's very complicated, but the idea of it and why it's called a pass-through business is because the income and losses are passed directly to investors.

10:02So you're not taxed at that corporate level. You're taxed at the individual level. And that's been a very popular mechanism or business structure. LLCs, S-Corps, things like that have popped up because they become more attractive in terms of sort of the tax scheme here. Let's look at some of the other initiatives that the IRS has been pursuing since they got that additional funding. In 2022, they've been pursuing people and businesses more closely for their usage of personal flights on corporate jets. That was a big one that we've spoken about on this show before. And then they are also trying to collect a bunch of these delinquent back taxes from millionaires who are trying to wriggle out of some of these back taxes.

10:43But yeah, it all goes down to saying that, listen, you gave us some extra funding. We have to show that we're doing something with it. It was initially$80 billion of funding. Congress actually already clawed back$20 billion of that funding. So expect to see a couple more of these announcements dripping out in the coming months and in years as a way for the IRS to show that it's doing something with the money it's been given. when a deal sounds too good to be true the deal is usually too good to be true as wells fargo is beginning to understand back in 2022 a buzzy fintech startup called built struck a deal with wells fargo to launch a co-branded credit card that comes with a pretty sweet deal you can pay for rent using the card without incurring the typical fees from landlords so you get a bunch of rewards points because rent is expensive without getting nickeled and dimed by landlords Consumers liked the sound of that, and more than 1 million accounts were activated in the first 18 months after the card was launched.

11:41Sounds like a success, right? But again, if something sounds too good to be true, it usually is. And in this case, it was Wells Fargo that was getting absolutely fleeced by this arrangement. Wall Street Journal published a piece that found the bank is losing as much as$10 million every month on the program as consumers take advantage of the card. According to the article, execs at the bank miscalculated on some key revenue drivers, including the likelihood cardholders would carry balances on their cards and how much they might use the card for purchases other than rent. Neil, this is a major egg on the face moment for Wells Fargo.

12:15What were they thinking here? It's bad for Wells Fargo. It's great for built. They built their valuation, no pun intended, to$3.1 billion through this partnership. Their founder is a billionaire. And if you look at the specifics of this partnership, which is really cool because we don't often get the details of a credit card partnership like this. Companies do not want this information leaking out. It looks like Bilt was making a lot of money. First of all, you just said that a million people opened up the accounts. Well, Wells Fargo paid Bilt$200 each time a new account was issued. So that's$200 million right there off the bat.

12:50Wells Pays Bilt a fee of about 0.8 % on each rent transaction. And then they both split those interchange fees every single time someone uses a card to pay for anything other than rent, which is not as much as Wells Fargo at Hope. So as sort of embarrassing as this looks for Wells Fargo, it looks like a great deal for Bilt. And this is a deal that they can't, that is on the books through 2029. Right. Wells Fargo is trying to wriggle out of it, but Bilt is not trying to wriggle out of it because it has been great for them. So what was Wells Fargo really thinking here? I mentioned it a little bit, but they thought that Bilt would be more of a top of wallet card that people would use for everyday transactions as well.

13:29And they thought they could recoup some of their fees on those everyday swipes. But people said, wait, this is a card for paying my rent. I'm just going to pay my rent with it. Then they also thought people would carry balances on the card and Wells Fargo could charge interest on that. But again, rent, just habitually thinking about how people pay rent, you pay it every month. It's not something that you let kind of sit as a balance on your credit card. I don't know why people's consumer preferences would change all of a sudden when you're paying it on credit. So it turns out that they just massively miscalculated on both those things how much transaction fees they get on non-rent charges and how much interest they'd earn on balances carried each month.

14:07And that is what turned this into just a black hole of money for them. Can I offer an opposing view? So I read this article by Gary Leff, who writes a very popular blog about airline industry and credit card rewards called View from the Wing. And he said that this shows Wells Fargo actually coming across really well. First of all,$10 million a month, they're losing. They make$7 billion in revenue a month. So it's just not that much at all. They were experimenting with a new car. They're trying to go after a new market, which is younger consumers. They had this concept that they could cross sell mortgages off of that, which was, you know, maybe an interesting notion, maybe maybe a good strategy.

14:48Had it worked out. And then once they realized this was not working, they sort of packed up their co-branded credit card team and they're mitigating their losses. And they tried something new and they're not losing a ton of money from it. Ten million dollars a month is not a ton for them. So maybe this was just something that they should be applauded. built obviously should be you know it should be applauded for what they did here uh so that's just an opposing view that maybe shows that wells fargo isn't maybe this isn't this isn't a particularly embarrassing episode for them because they tried something new it didn't totally work out like they expected but maybe it will going forward my opposing to your opposing view though is that it's it seems a little desperate because they just really wanted to jump into the co-branded credit card game they wanted to make this splashy entrance and when you see how much they miscalculate regulated in terms of what they thought would be revenue drivers.

15:39That's where I think it's embarrassing for them. But you're right. It's good for consumers come out on top on this. So they should be applauded for taking that risk. Up next, hold on to your caffeinated beverage. Toby's Trends is coming in hot.

15:54Tuesday on NBC, Jimmy Fallon and Bozema St. John host a highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On brand with Jimmy Fallon. Series premiere Tuesday on NBC. I'm Christian McCaffrey, pro running back. And Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the internet last year.

16:33And I think this season's lineup is even cooler. And so does my wife, who keeps stealing all my hoodies. Stay fit for the season and Abercrombie's newest arrivals. Shop NFL by Abercrombie in the app, online, and in store.

16:53There is something so alluringly tactile about thumbing through nice, glossy magazine pages that just hits different in today's online world. Kids these days may not remember the sights, smells, and sounds of the age of magazines, but gosh darn it, I'm going to do my best to paint them a picture on today's edition of Toby's Trends where I comb through the internet for a trend that you guys should keep your eye on. And today's trend is not just about magazines, but the surging interest in very high-end, very niche magazines. There is this batch of independent mags focused on the great outdoors like Adventure Journal, Mountain Gazette, and Summit Journal.

17:29Then you have the golfer's journals and surfer's journals of the world, which target the obsessive hobbyists. One thing unites these publications. They're not meant to be consumed online. Most don't even have a digital presence. They are instead meant to be browsed, toted around in a shoulder bag, or even just left on a coffee table for the vibes. They are collectibles, not disposables. And they are decently successful. The surfer's journal has around 28 ,000 subscribers and sells yearly subscriptions. Again, these are niche businesses, not huge corporations, but they are carving out their space in an increasingly flat and one-dimensional digital landscape.

18:06Yeah, the business owners here are painting these magazines, these high-end magazines, as an antidote to our culture of constantly scrolling online. They say it's not necessarily nostalgia for print. It's more just the reading experience in general. They say when you read on a computer, as I'm doing now, you're leaning in, and when you read a magazine in print or anything else in print, you're leaning back and it's just much better experience for your body for physiology for your mental state in general and that's what they're saying their success hangs on it's not necessarily nostalgia like maybe records or or things like that i've seen a resurgence but it's more just this is a better reading experience this is what people want yeah i'm so glad that this exists in the world today because you're right it is just a delightful experience to chill back with a magazine some through i was talking about like the experience of feeling a magazine and that is something that they take very seriously.

18:57Debbie Pesman, who is the Surfer Journal's publisher, she says, one, never underestimate the intelligence of the reader. Always deliver them quality as much as possible. But then she talks about doing things like printing a magazine on paper that's 18 % thicker. And she's like, listen, it's not the best business decision. That's going to cast us an extra$22 ,000 in postage. But when you see the other magazines out there, the only way you can really differentiate yourself is to just keep continually dialing up the quality and 18 % thicker pages just screams quality. So, and also we just have to say too, these magazines are beautiful.

19:33Like we were just marveling at, I mean, we were looking at them on a computer screen, which you're not supposed to do, but the spreads, the photography, it just is a very luxurious product and I'm just glad it exists in the world. Yeah. And some, you know, heavy hitters are actually getting into the space. We said most of this was mom and pop, but if you ever heard of the country's singers, Eric Church and Morgan Wallen, they just bought Field and Stream, which is an outdoors magazine that did not have print. They're bringing print back and they're going to issue two magazines per year, Field and Stream, saying like, this is just what our parents had.

20:07I saw it on my dad's truck every summer and I want to bring this back. So there's some pretty heavy hitters getting into this space. It does seem like all these business models are somewhat similar. They charge a subscription. They offer two to eight magazines, or they even call them journals per year. And then they have a few sponsors on top to keep the lights on like the Patagonias of the world. So that seems to be the business model and Eric Church and Morgan Wallen are getting in. As any fan of Good Burger knows, nothing can replace the experience of a person taking your fast food order. Apparently, McDonald's is just finding this out.

20:40The company is ending its test of drive-thru automated ordering and removing the technology from more than 100 locations that had been using it. McDonald's drive-thru AI experiment began two years ago with a partnership with IBM. Hopes were high that the tech could speed up drive-thru lanes more clogged than your arteries after you eat McDonald's and shift human workers to other tasks. But the chatbots rolled out to take your order were no Kenan Thompson, and customers captured their frequent mess-ups and posted them to social media, where, of course, they went viral. In one spectacular fail, someone received an ice cream cone topped with bacon.

21:16Honestly, would try. Moving forward, McDonald's says this isn't the end of its push to AI-ify the drive-thru, but it might seek out a partnership with a different vendor than IBM. Toby, it feels like more AI products are being rolled back than rolled out these days. Yeah, you know what they say, you don't go broke buying IBM. It feels like McDonald's is going a little broke buying IBM here. all the the official corporate statement on this was saying like no we enjoyed our partnership it was really great but there is some rumblings that McDonald's did have a problem with IBM's technology itself and clearly through the amount of social media videos that were posted one one of my favorites was someone wanted one sweet tea and then all of a sudden it ordered nine sweet teas for them because it picked up some additional uh voices from another drive-through lane so So there's just a lot of issues here.

22:05One thing is for certain, though, I don't think that the restaurant industry is giving up on AI by any means. Like this is definitely going to be something. If you can replace that cashier or reroute them to be doing something else rather than taking orders, it's going to save you a lot of time, increase efficiency a lot. So this is definitely not the end of it, just the end of this specific partnership with IBM. No, and McDonald's, which has been so tech forward, has actually been less aggressive in its push into AI than other chains like Carl's Jr., Wendy's, Dunkin', Taco John's, Hardee's. Wendy's especially inked a partnership with Google last year to roll out AI drive-thru capabilities.

22:44But it's really interesting that the AI drive-thru situation is very complicated for an AI chatbot. It's not so easy because when you're taking an order, a human can understand things that an AI may not because when you're ordering at fast food, sometimes you're using the term, you know, the company slang like you're ordering a Frosty instead of a milkshake. You're ordering biggie bags instead of, you know, the more official term. So that is something that the AI needs to parse through. Meanwhile, you've got your family in the backseat. Your brother's being annoying. They're all being loud. So the AI has to parse through exactly what is being ordered.

23:18Meanwhile, how many times have you changed your order in the middle of the way through? You're like, yeah, maybe I want the medium instead of the large. I've been with you and you've done that. So the AI also has to do that. So this problem is not so easy to solve as it may be just like a simple query to chat GPT. I mean, McDonald's publicizes the famous, can I get a while you're thinking about what to order? But another instance that I think AI can enter the fast food service space is that a lot of these companies are training large language models on their own operations and procedures. So there are rumblings that Google also announced a deal with McDonald's in last December around the same time that they announced that deal with Wendy's to make a chatbot called Ask Pickles, which you could do things as an employee and go on and say, like, hey, the ice cream machine is broken again.

24:05Like, how do I fix this? and then the Ask Pickles would walk you through how to fix that ice cream machine. So I do think that we're gonna be seeing it not just consumer facing, but also internal facing to try to speed up and spruce up those internal processes. Well, that discussion is a perfect segue to our next story, which is that customer experience ratings in the US have declined for a third consecutive year to a record low, according to a new report from the consulting firm Forrester. Yeah, seems like most of you are not feeling the warm fuzzies after interacting with a company. To put a number on it, the average customer experience score people gave companies was 69.3 out of 100, down from a peak of 72 in 2021.