Why the DOJ is Suing Google & IRS Coming For Millionaires

0:00Stocks? ETFs? Or what about mutual funds? Choosing your investments is easier with Fidelity. Our step-by-step experience can help you pick out the right investments for you. Plus, with recurring investments, you can decide how much and how often to invest. Lastly, there's 24-7 help if and when you need it. To find your next investment, head to fidelity.com slash trading. Investing involves risk, including risk of loss. Fidelity Brokerage Services, LLC, member NYSC SIPC. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. On today's pod, we'll talk about why President Biden's visit to Vietnam was such a big deal for American companies.

0:39And if you're a millionaire or a hedge fund that isn't paying your taxes, the IRS is coming after you. Then the biggest antitrust trial of the modern Internet era kicks off tomorrow. And after 10 weeks of arguments, we could end up with a very different looking Google. Plus, we'll tell you all about the surprising resource powering the AI boom. It's Monday, September 11th. Let's rock.

1:06Neil, I'm feeling especially excited this morning because we are going to meet some Morning Brew Daily listeners face to face today. I'm, of course, talking about the live screening of Dumb Money we're hosting at 6 p.m. in New York. What are you most looking forward to? Well, I've been practicing my handshake. I got a really good firm grip going now. No, I'm most looking forward to hearing people's misconceptions. Like, oh, I thought you were taller. I thought you'd be put a little bit more put together. What about you? I'm most excited, yeah, just to see it face-to-face. It's always the funny thing of when you see the amount of listeners on a page, it doesn't mean anything.

1:43But when then you see a room full of them, you're like, whoa, a lot of people listen. So I'm looking forward to getting context for how many people are actually tuning in. And just some logistics for the people who are coming to the event. I wish the theater could fit everyone, but this one's mostly for New York City-based listeners. The event starts at 6 p.m. at Regal Union Square, located at 850 Broadway. We recommend showing up a little bit early, especially if you have a standby ticket to help ensure you get a seat. Also, we'll be hanging out and we'll be, yeah, you can judge Neil's handshake on a scale of 1 to 10.

2:15I can also give hugs. Yeah, okay. There you go. Okay, Neil, let's dive into our top story of the day where the biggest Monopoly trial since the days of Bill Gates and Microsoft kicks off tomorrow. It's Google on the hot seat this time as the U.S. government is taking on the Silicon Valley behemoth over anti-competitive behavior. At the heart of the trial is the fact that Google controls 90 % of the search engine market. That screams monopoly already, but what the Department of Justice case is zooming in on is that hardware companies like Apple make Google the default search engine on all their devices.

2:50And it has a point. Default options are super powerful. One exec at a competing search engine, DuckDuckGo, said an Android smartphone user would need to take 15 steps to select DuckDuckGo as the phone's default search engine. But Google will likely fire back by saying, yes, we're the default, but you can change your settings to another search engine, so how are you going to call us a monopoly? Whichever way it swings, the case is going to be massive. The DOJ and Google have already deposed more than 150 people and produced more than 5 million pages of documents. Neil, this is the first monopoly trial of the modern internet area.

3:27What are you most looking forward to? Well, you just read so much about antitrust trials in history. The IBM one in the 70s was so big. And I know, you know, growing up, you hear a lot about the Microsoft one that started in 1998. And they all seem to be part of a broader technological innovation that's sweeping computing. So, you know, the IBM one was from mainframe to PC. and then the Microsoft one was at the precipice of the advent of the internet. And now this one, it seems like it's coming at the beginning of the dawn of AI. So using this as a way to look forward for what's going to happen in the tech industry in the future seems to be super interesting because it could shake up the power dynamics in Silicon Valley.

4:13Because right now we have the five fang companies, Amazon, Meta, Microsoft, Google, all the ones that have kind of become dominant in the past 20 years. And this new AI wave has the potential to shake up the way the power balance shakes out there. So we'll see whether the DOJ can handicap Google enough to, you know, maybe open the open path for new players to come in. Yeah, that's kind of what Google is harping on, though, is that this trial is backwards looking while they're saying, yes, we're looking forward to AI. So they're kind of saying, like, guys, we're moving on past like search engine monopolies at this point.

4:50Obviously, this is what Google is saying. But it is interesting. Google's defense does kind of center on the fact that they're just saying that people use Google because they like Google, not because of any anti-competitive practices. They say that it's just a superior product. And the fact that you can change your default search engine on these devices, that's kind of what Google's defense will center on. even though we know default options are extremely, extremely powerful because it's much harder to opt out of something than it is to opt into something. So there's definitely cases to be made on both sides that this particular thing of Google preloading their search engine on all these hardware devices, there's definitely arguments on both sides.

5:32And they have resources to spend because Google pays Apple billions of dollars so that on the iPhone you have Google search as the default option. But either way, this trial, whatever happens at the end of this trial, it could sort of handicap Google. Because if you look back to the big antitrust trials that we've talked about, IBM and Microsoft, both IBM and Microsoft did OK at the end. Like they didn't have to break up or anything. But there's this phenomenon called policeman at the elbow, which was coined by Tim Wu. And it's the idea that you're always going to be looking over your shoulder at regulators after something like this.

6:06It's hugely distracting. It's hugely costly. and it could hamper your innovation going forward because you're always just kind of like, all right, well, am I doing okay? Am I going to have to go to trial again? What's going on? So no experts predict that Google will actually get broken up over this, but they're saying it could have long-term consequences for its growth potential. It would be so wild to see Google did actually get broken up, though, like where you have to segment Android, Google Maps, Google Search business. They won't do it. But it's too, Google's are just too infused into every single one of its product that it's just not possible to break it up.

6:39But in 1984, maybe the last time that a huge tech company was broken up was AT &T into seven different telecom company, regional telecom companies. And there is so much discussion in the business literature about how this impacted things, whether, you know, it was great for competition in the telephone services market, But also it hampered innovation at Bell Labs, which was critical for some of the biggest innovations we know today. So over the next 10 weeks, we'll see. Whatever way it shakes out, we're going to get 10 weeks of content out of this. It's a win for us. It is a win. All right. President Biden is on his way home from the G20 summit in India, but he's making a couple of pit stops first, including his first ever trip to Vietnam yesterday.

7:24You might think that the U.S. isn't the best of friends with Vietnam, given our brutal war there 50 years ago. And that was the case for many decades. But recently, our relationship has warmed and Biden sees Vietnam as a crucial geopolitical and business partner in Southeast Asia to counter China's growing influence in the region. While Biden was in the country, Vietnam upgraded its relations to the U.S. with the U.S. to its highest level and maintains with only four other countries. And most relevant to us on this business podcast is Vietnam's emergence as a manufacturing hub. American multinationals have made products in China for years, but with the U.S.'s relationship with Beijing hitting Joe Jonas, Sophie Turner levels, many companies are looking for other options.

8:06And Vietnam, with its cheaper labor, has become a hot destination. Apple, Nike, Microsoft, Dell, Google are just some of the big American companies that are entering Vietnam or expanding their operations there. And just overall, trade between Vietnam and the U.S. has doubled in just the past five years. So this is becoming an increasingly important friendship for Biden to nurture. Yeah, Vietnam checks a lot of boxes right now for the U.S. in terms of the current geopolitical landscape. One, they're one of the only countries in the region that also has some of the same misgivings about China and about the national security side of things.

8:41So that's a big checkbox for the U.S. And then also from an economic perspective, they're one of the few places that you can actually scale up that manufacturing to meet these huge multinational companies, these huge U.S. companies demand. So, again, it is kind of like this perfect storm or like perfect, I don't know, Goldilocks place for the U.S. And they're taking things slow out of the gate. Like this is mostly a symbolic relationship at the current time, because, again, like China is still such a big player in the region that Vietnam doesn't want to piss off Beijing too much. So it is like there's no like lower tariffs or anything like that right now, but it is a big symbolic step forward.

9:21Right. The four other countries that the Vietnam has the has its highest level of relationship. I should mention our two of them are Russia and China. So, you know, Vietnam definitely has a good good relations with Beijing and Moscow, which the U.S. would ideally not like. But when you look at what is made in Vietnam over the past couple of years, it's quite interesting. Apple shifted its AirPod production to Vietnam. So your AirPods are made there. Google makes some of its Pixel there. And then Microsoft makes Xbox and Amazon makes Fire TV in India and Vietnam. So this is becoming a pretty big electronics hub.

9:55Foxconn, Apple's biggest supplier, spending$300 million opening a plant there. And it also has Samsung's biggest plant, Samsung being the South Korean electronics giant, because labor is really cheap there. Foxconn put up an advertisement to hire 5 ,000 workers. And they're at three hundred dollars in monthly pay, which is less than half of what they do, what they'd get in Shenzhen, China. So you can see why a bunch of the American companies are like, yeah, I could probably hire five to six thousand people here to work at a factory and it won't break the bank. So, yeah, Vietnam, Vietnam does not have a great human rights record, which is something we can talk about.

10:33So that is another thing that, you know, the U.S. is is a little concerned about. But obviously, Biden went there that he's perfectly fine with strengthening his friendship because countering China is more important. Yeah, I mean, it's kind of the strategy in the region for sure. Like we've expanded U.S. military bases in Philippines. We've agreed to jointly produce jet engines in India. So it definitely is this new focus on how can we diversify away from China in that region. All right, Neil, let's move on to our next story. When you think about the core of the AI boom, I'm sure Silicon Valley and big tech companies come to mind.

11:09You probably don't think about Iowa and water. But it turns out without the cornfields of Iowa and a whole bunch of H2O, we probably wouldn't have the ChatGPT we know today. Microsoft has been using massive data centers cooled by water in the small town of West Des Moines to train its large language models. Remember, to train a model like ChatGPT, it requires a ton of computing power to analyze massive troves of text. All that computing takes a lot of electricity, which in turn generates a lot of heat. So in order to keep a data center cool, you need to pump in lots of water to keep things up and running.

11:48And Big Tech is thirsty. In its latest environmental report, Microsoft said its global water consumption jumped 34 % from 2021 to 2022 to nearly 1.7 billion gallons a year, mainly due to its AI research. Google also reported a 20 % growth in water use in the same period. Neil, I feel like this is one aspect of the AI boom that people are just overlooking. Just how much water is this constraining resource. I didn't think about it until I read this article. I was like, whoa, damn, like ChatGPT was chained in Iowa and it requires gallons of water. But I don't know if you like look at your computer, you have 30 tabs open.

12:28You get that fan service going. It heats up. You're like, I wish I had some water to cool this. Well, imagine I never think that. But imagine if you had that going at, you know, an exponential rate. And when the when the temperature gets over 85 degrees in Iowa, they need to bring in water. So it's really interesting to see. This is the next phase of the water wars. whenever you think of water constraints obviously the first thing you think of is agriculture but with so many data centers being built out to support the internet and ai infrastructure then this is becoming a crucial crucial resource to have also where are these data centers going it's not in you know the the most rainfall intensive places it's in uh desert areas like in arizona which themselves are already going through major droughts.

13:15And so you've seen a lot of battles at the local level with residents and pushing back against Microsoft and Google building data centers because they're like, we need drinking water. We need water for our crops. And these things come in and guzzle up so much water. Like in one area, in one town where Google is going in in Oregon, it consumes more than a quarter of all water there. If I was Microsoft or Google, I would never put a data center in Arizona or of all places because it's so hot. And one of the big reasons why people like Microsoft and Google are drawn to Iowa is because for most of the year, the air outside is cold enough that it will cool down the data center.

13:55So there's no difference in terms of how the training occurs, whether it's in Iowa or it's in Arizona. It's just the difference of how much you need to cool these data centers down. So why aren't we putting them in like... I'll tell you why. Canada? I know exactly why. Okay, tell me. Because the places they're putting their data centers in are more geared toward renewable energy. So it lowers their carbon footprint because they have these targets to hit. So those are the areas where they're putting it in, where they're powered by solar and wind farm, more so than in the Northeast, where maybe it rains more, but they're not sort of lowering their bottom line carbon footprint.

14:31So that's why they're putting it there. It is interesting, too, to see this playing out just across kind of industrialization across the world because Tesla is facing a similar headwind at their Giga Berlin factory, where a bunch of local residents are saying, wow, Tesla, you use a lot of water. Their water usage could provide the same amount of water for a city of more than 30 ,000 people. And so the local residents are going like, all right, Elon, we love the jobs you brought to the region, but please stop using as much water as you're using because it is a drought-stricken region. So we're going to see this tension more and more going forward, but it was interesting to kind of zoom in on West Des Moines, Iowa as kind of this AI hotspot and also kind of the center of the burgeoning water wars.

15:16All right, Neil, before we jump into our next story, we're going to take a quick break.

15:23Tonight on NBC, Jimmy Fallon and Bozema St. John host the 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 tonight on NBC.

15:56When did making plans get this complicated? It's time to streamline with WhatsApp. The secure messaging app that brings the whole group together. Use polls to settle dinner plans. Send event invites and pin messages so no one forgets mom's 60th. And never miss a meme or milestone. All protected with end-to-end encryption. It's time for WhatsApp. Message privately with everyone. Learn more at whatsapp.com. We are back to talk about everyone's favorite government agency, the IRS. The IRS received$80 billion in funding from last year's Inflation Reduction Act, and it wants to show us all it's putting it to good use.

16:36So on Friday, it announced a few initiatives that aim to claw back more revenue from wealthy people and companies who have been less than honest when filing out their TurboTax form. There are two prongs to this project. One is setting dozens of revenue officers loose on 1 ,600 millionaires who owe at least$250 ,000 in taxes each. The other is using AI to identify 75 large business partnerships, which average$10 billion in assets and include hedge funds. and real estate firms that have been using shady accounting tactics to avoid paying what they owe in taxes. This is all about proving to Congress that the IRS deserves this fresh funding ahead of negotiations this month.

17:15Lawmakers are haggling over a spending bill to prevent a government shutdown by October 1st. Democrats want to keep the IRS flush, but Republicans want to shrink its budget. So this is the IRS saying like, yo, we're putting this money to good use. Keep our funding, please. What I thought was interesting about what the IRS commissioner specifically called out that it is using AI tools, which I know that he was trained to say like, oh yeah, we're definitely using these new AI tools. But it is interesting to me that you can train an AI tool to recognize patterns, to recognize trends in tax evasion.

17:47You think it's such a case by case basis, but I guess these companies are kind of using the same practices and certain red flags pop up that you can identify using AI. So just another AI use case that I didn't think we'd be talking about. No, it does seem like it's effective. And he said previously with our budget. We just could not afford to, we couldn't afford this kind of technology. And, you know, overall audit rates at the IRS, which has been hemorrhaging employees, has dropped precipitously. So the number of people with incomes of 1 million or more has jumped 50 % over the last decades, while the number of audits on million dollar tax returns has fallen by two thirds.

18:25Meanwhile, customer service was abysmal. The average phone call to the IRS took 24 minutes, 27 minutes, I'm sorry. And now thanks to this$80 billion in funding, it seems like they're kind of hiring more, getting things back on track. The average phone call fell to just four minutes. Blissful, I mean, it's faster than most airlines, honestly. And so, and they're ramping up their auditing here to get some more revenue for the government. So this is the IRS saying, we are really, thank you for this funding. We want to show you that we are being productive with it. Don't take it away. Republicans, meanwhile, they've been against funding the IRS from the beginning.

19:04They're saying you're going to go after middle class people. You're going to go after small businesses and hamper growth there. Just like we talked about the policeman at the elbow, everyone's going to be looking over their shoulder for IRS agents. So you have this little partisan bickering happening. Yeah, it definitely seems like Democrats are hanging their hat on the fact that the top 1 % consistently underreport their earnings and are just not audited as frequently as they once were. While Republicans are hanging their hat on the fact that this is just an excuse for the IRS to hire a ton of agents and then audit America kind of at scale.

19:38So you're definitely seeing kind of the partisan, I don't know, heebie-jeebies come out on both sides. So it is interesting. And yeah, and caught in the middle is the IRS just saying, we just want more people. Like, please, like, let us hire more agents so we can do our job effectively. So I don't know. They are saying that it's been working so far in July. IRS said it collected$38 million in delinquent taxes from more than 175 high income taxpayers. It's not a ton of money, but it's not nothing at the same time. It's all relative. And they also said in response to Republicans' concerns, they said that we're not going after anybody whose incomes are lower than$400 ,000.

20:16Okay, Neil, it's Monday, so let's move on to our winners of the weekend segment, where we bring you two stories from the news that feature someone or something that had an especially good weekend. Neil, you won the pre-show chili cook-off, so you're up first. Who's your winner of the weekend? Secret ingredient, cinnamon. My winner is the opposition party in New Zealand. And you're probably thinking, why is Neil's winner the opposition party in New Zealand? So I will tell you, rugby. But now you're probably wondering, what does rugby have to do with New Zealand politics? It will all be revealed.

20:50So the Rugby World Cup started in France, and the New Zealand All Blacks team lost to France in their first game. And Kiwis are absolutely mad about rugby. The All Blacks are everything to them, and their success is considered to impact the overall national mood. So Bloomberg found this pattern between the All Blacks performance at the World Cup and the performance of the incumbent government in election years when the tournament is happening. This is not peer-reviewed research, but when the All Blacks won the World Cup in 1987 and 2011, the incumbent government was re-elected shortly after. But when the team lost in the semifinal in 1999, the government was booted for the other party.

21:29So New Zealand Prime Minister Chris Hipkins and the rest of his Labour Party better hope the All Blacks turn things around because there is an election next month. I love these stats. I love these like not really correlated, but correlated sports to politics or sports to economic indicators. I remember like a year or so ago, the Phillies were in the World Cup and the Mortar Brew in the World Series found that anytime the Phillies won a World Series, the U.S. enters a recession. So like 2008, 1980. So it is funny to me that there is something like this for New Zealand politics. and I also love this move from the Australian rugby coach a few months ago.

22:05They were playing New Zealand, and he literally brought this up and said, man, I'd be nervous if I was the rugby team because if the rugby team loses, the whole country sinks. He was literally calling into question this relationship between how the rugby team does and how the national mood is. He says it's not just rugby that sinks. The country sinks. The whole economy goes down. The prime minister is there with his fingers crossed hoping that all blacks win because he knows the economy is going to drop if they lose. I don't know if that's scientifically backed up, but New Zealand people, they do love their All Blacks.

22:38They love their rugby. All right, Neil, my winner of the weekend is myself. That's right. The curse of the inverse Toby is finally over. Now, for some background, I make a fair amount of predictions on this show, most of them sports-related, and so far every single one of them has failed to come to fruition. I said the U.S. women would win the World Cup. They did not. I said Trinity Rodman would be the breakout player of the tournament. She didn't score a goal. I said Jessica Bagula would win the U.S. Open. She lost in the round of 16. I could go on and on, but finally the curse has been lifted because I predicted on air that Novak Djokovic would win the men's side, and lo and behold, the Joker did it.

23:18So yes, Neil, I am my own winner of the weekend. But also, let's just talk about the U.S. Open for a little bit. Even though Djokovic winning was cool, my highlight was probably watching Coco Gauff win the title, especially on the 50th anniversary of the U.S. Open celebrating equal pay for men and women. Very cool. Yeah, we really went out on a limb there with Djokovic. Well, okay. Yeah. To be fair. He was a real underdog. I was saying, like, I think Alcaraz isn't going to get it done. So it was a little bit of a contrarian take. But also I did say that he would beat Alcaraz in the final. So if you really wanted to get nitpicky, the inverse Toby still lives a little bit.

23:54I can't believe Coco won. She was down 6-0 in the first set. I was like, well, it's over. I was thinking, should I put some money on Coco? It was awesome. She broke down and cried. I was crying, too. Whenever they go and hug their parents, that just gets me. And it was really cool to see Billie Jean King, too, hand her the trophy, hand her the check. And it was just a cool moment. Probably the first of many majors for her. She's playing really well. All right, let's preview the week ahead. It is extremely busy. There's going to be a lot of content for us. Let's go. All right. The huge auto worker strike we've been mentioning for weeks might finally happen.