Ask Altucher! EP03: Altucher's Hybrid Tax Plan for All Americans

28:54So let's just discuss, I would say the big issue is how to reduce taxes. Oh, wait, Jay, you had a second question. Oh, no, that's the only questions. Oh, okay. That was the only questions. The other one is like a silly, like a throwback because the post office one, the post office issue sort of was in Seinfeld. I don't know if you remember. No. There was a Seinfeld episode where Kramer would just go around and say, let's stop using the post office. And we start using faxes and email instead. And then Newman is like, Kramer, what are you doing here? you know you're making me out of jobs or something like that yeah no it's funny i mean the post office used to be like one of the most reliable uh places for a job like it was total job security you got a great pension by the way great book to read charles buchowski's first novel called post office right about his life as a mailman and it's a great novel all right now based on his life now back to your policy on taxes?

29:58Yes. So first off, how much does the government actually collect from taxes? So right now, like last year, the government collected about four and a half trillion dollars from income taxes, corporate taxes, payroll taxes, and estate taxes. So if you lower this amount, if you lower the amount of taxes that are collected, you have to somehow replace that amount so four and a half trillion keep that money in your mind that's how much we collect from income taxes corporate taxes payroll taxes and estate taxes now how much does the government spend we spend about six trillion dollars per year so we borrow money every year almost every year there are a few years where we don't borrow money because the government's doing very well but in general the government spends about six trillion dollars per year okay uh do you mind explaining how does government borrow money?

30:52Is it the same as printing money? No. The government can print money. We have the power to do that, but we have to be very careful about that because we've printed a lot of money in 2020 and now we have inflation that's higher than it's been in a long time. But the government just, basically the biggest lender to the government, I think, is China. So China lends the US a lot of money. So China has something like$2 trillion of American money in our banks because you can't keep American dollars in other banks. And so China is the biggest holder of US. I think China practically has more dollars than the US has.

31:29So why does China buy dollars is because they're constantly buying American products and they're also buying a lot of oil and you have to buy oil with dollars. And again, demand for the dollar is what keeps inflation down. But again, we spend 6 trillion a year. This is why the debt ceiling has to be raised all the time. Now, how much do consumers spend? Consumers spend, and this is very important. This is very important because it's related to my solution. Consumer spending is about$16 trillion per year, not counting home buying. So look, we buy our iPhones or iPads or Teslas. Because so here's here's what my solution is, is reduce taxes.

32:19Right now, taxes are about 30 to 40 percent, depending on what your income bracket is, depending on how much you make. You pay about 30 to 40 percent in federal taxes and then sometimes up to another 15 or 16 percent in state and city taxes. I think it's the great economist 50 Cent who said that he doesn't earn a dollar of his own money for himself until September or October every year because he pays federal, New York State, and New York City taxes up to like 70 % almost. That's why he only has 50 cents. Yeah, that's why he only has 50 cents. And he is a great economist. Like no other economist just says it as simply as that.

33:00Like Paul Krugman writes all these like 50 ,000 word articles about the economy that I can't understand. And then 50 Cent just says something simple. I think he's called 50 Cent because he is a great economist actually. But he was first a Nobel level economist and then he decided to become a rapper. Yeah. But so here's my solution. You reduce income taxes and I'll say the exact numbers that I think work in a little bit. You reduce income taxes to a flat level. Let's just pretend for a second it's 10%. Some people have proposed reducing it to 0%, but I don't think that's realistic. There's a congressman in Georgia right now who basically is saying, get rid of the IRS, no income taxes at all, and make a 30 % national sales tax.

33:50So when you buy like a newspaper for a dollar, you have to actually spend$1.30 because the sales tax would be 30%. And that would be much easier to collect. There's no loopholes to avoid the sales tax. And everybody just has to send their sales taxes in to the government. And so, but I think that's a little too high, 30 % sales tax. Right. I think that would make the prices of everything go up. It would feel like inflation. I don't think it would work. It seems too much. So my goal is make a very small income tax. Again, let's say 10%. That's just standard for everyone. So it's not complicated to calculate and it could practically eliminate IRS.

34:29If you just simplify, like you don't charge for social security, you don't charge for FICA, all these weird little taxes that you have to pay in your paycheck. You just have one 10 % flat income tax and then make a 10 % national sales tax. Now you just say to yourself, Oh, I already pay sales taxes. Well, no, you don't pay any nationals. There's zero national sales taxes. It's sales taxes are state taxes or state sales taxes. So you might have to pay if your state sales tax was four or 5%. Now you have to pay 14%, but prices wouldn't necessarily rise. It's just, it's small enough. Let's just go over a few things.

35:10Some people say, well, that hurts the poor and add to the rich because the poor, they spend their entire income on food, shelter, clothing, the things they need. When I say poor, I mean they make below a certain amount, the average salary. So they'll have to spend a bigger portion of their income on sales taxes. But then again, they have to spend less on income taxes. But I have a big solution for them. The solution is that you get a rebate. Basically, the first$20 ,000 you consume, you get a rebate at the end of the year for all your sales taxes. So if the sales tax was 10 % and you spent more than$20 ,000 a year, you would get$2 ,000 back at the end of the year.

35:59So you're not charged any sales tax at all, basically, for the first$20 ,000 you consume. So I think that makes it so that anybody making less than$50 ,000, they'll end up paying much less in taxes than they pay now. Would some people still benefit and some people not benefit? it. Sure. But this, I think that solves 99 % of the problem. The other thing is tourists, people who aren't us citizens, who we can't, we, we get no money from the federal government gets no money from them because they don't pay us income taxes, right? Tourists spend$1.1 trillion per year in the U S. So, so now instead of getting, instead of the federal government getting$0 from tourists, the federal government would get$110 billion from tourists.

36:48So this would remove some of the burden of U.S. taxes to foreigners who visit the U.S. Would this stop people from visiting the U.S.? No, of course not. Maybe more people would visit the U.S. than ever because companies would have more money to spend, so they would create more advantages for tourists to come here and see the United States. Yeah, and 10 % is not that big, to be honest, right? No, I mean, particularly if you're not paying as much income, if your income tax goes from 40 % to 10 you have a lot more disposable income so it's a huge huge huge cut uh the other thing is now this is not a big amount compared to the federal budget of six trillion but the irs budget is about 200 billion dollars they spent 200 billion dollars collecting the four and a half trillion dollars in income taxes because it's hard to collect and so many people there's so many loopholes and tax evasions they have to do you know they're passing a law right now where they want to uh give 80 billion dollars more to the irs to hire more people to collect money 80 billion yeah so my solution is just eliminate the irs and save on all the money that's used to collect income taxes

38:19Don't you still need some sort of body or some sort of some people to go for those still try to avoid taxes or try to escape taxes? If there's a 10 % flat income tax, there's almost no incentive. Okay, right now, about 15 % of taxes in this country are unpaid. People just don't pay or there's tax evasion or whatever. So that's equivalent to$600 billion. So if by reducing the income tax to 10%, people say, ah, screw it. I'm not going to go through the headache of trying to avoid taxes. I'll just pay. It's only 10%. you'll actually end up collecting, potentially collecting almost as much money from income taxes and collecting a lot more from this national sales tax.

39:06So that's why this hybrid tax, maybe you make it a 5 % flat tax and 10 % national sales tax. This would, again, I don't know if it would collect four and a half trillion, we'll get to the numbers in a second, but it would drastically increase the number of dollars. Here's the thing, too, about collecting taxes. It's not like the country has one level of income and then we just collect the same amount every year. You want to do things that grow the economy. It could be the case that doing a strategy like this grows the economy so fast that you end up collecting much more in taxes very quickly. Because, again, what grows faster, the tech industry or government?

39:49The tech industry grows much faster than government. So if you give more, if you let companies that are entrepreneurial and are doing a lot of, like, let's say healthcare companies are doing a lot of good for the world, tech companies doing a lot of good for the world. If you let them keep more of their money, they will hire more people. They will create more medicines. They will create more. I mean, the government doesn't create medicine. The companies create medicines. They'll create more automation, which improves productivity, which creates more industries and more jobs and more companies and so on.

40:24So you want the companies that grow the economy to retain more money because they are smarter at allocating money. Who would you rather allocate money? A smart allocator, well-known allocator like Warren Buffett or Congress, which is, you know, I don't want to call them corrupt, but they do, everybody's got their own political agenda. They all have what's called pork, which is they try to get funding for their own districts. The money is not allocated in a rational way. It's not allocated in a market-driven way. It's allocated in a very political agenda way. And again, a lot of taxes are unpaid.

41:06So it's not like the income tax is that efficient. So personal income is something like$22 trillion. And corporate profits before taxes or something like$3 trillion. So$25 trillion, that's the number we use when we collect the$4.5 trillion in taxes. And that$4.5 trillion is a big number. If society had an extra$4 or$3.5 trillion to spend, so many jobs would be created. So many new things would be invented. So much more would be created every single year, that the economy would grow faster, that ultimately, even if taxes were 10 % or even lower, you'd end up making a lot more money. So a flat tax of 10 % would generate about$2.5 trillion.

41:59I mentioned there was$2.5 trillion in profits and income. So a flat tax of 10 % would generate$2.5 trillion. A national sales tax, I've called it 12.5%. Okay. It would create 2 trillion. So if you did that, it would completely replace the four and a half trillion dollars. Now I know I said 12 and a half percent for a national sales tax. Okay. Make it 10%. And my assumption is the economy would grow so fast that you can either lower the national sales tax pretty quickly, or you could lower the national income tax pretty quickly because the the first benefit of reducing taxes is that people and companies would have more money but then the second benefit is that they would spend more money and when they spend money that means businesses grow faster now don't be anti-business because anti-business is what hires all the jobs that everybody has so there are more jobs would be created the economy would grow faster than inflation and all would be good instantly.

43:03So again, and again, by the way, we would put some of the burden on the tourists that visit the U S so that relieves the burden somewhat. Now here again, let's say the lower tax rate plus a rebate. If you have a 12 and a half sales tax and you're letting people get money back for the first$20 ,000 they consume, that means the one purpose of a new IRS would be to give back$2 ,500 per year to a family of four that needs the money to survive. So on average, people making up to from zero to$200 ,000 per year would make more money, significantly more money under this plan. There would be less headaches and stress and suicides and anxiety around tax season, which is happening right now.

43:53Everybody just paid their taxes April 15th. Corporations would hire more people. The economy would grow much faster. And if the economy grows faster, we could then reduce income taxes and sales taxes much more. So would this encourage people to spend less since prices paid would go up because of the sales tax? I don't think so because there would be higher take-home pay. Yeah, people will spend more, right? I know if that happens, I would definitely spend more because there's a lot of stuff that I want to buy. Or I might want a healthier food. Because it's crazy because it's so much more expensive to be healthy than go to a McDonald's or go to Little Caesars to buy pizza.

44:35Is that what you do? You go to Little Caesars? That's a very particular pizza place. It is. Because when I was in New York, right? New York's expensive, right? So when I was in New York in Florida, I used to live across the street from Little Caesars. And I had no money. I have no money even though my rent was like$600. But I still like, you know, I just graduated. I have no income whatsoever. I will go to Little Scissors, get a$10 pizza bundle. For$10, give you a large pizza, breadsticks, and a bottle of Pepsi. You know, I will rations my pizza for three days. So$10 for six meals, I would just eat pizza.

45:11Two pizza per meal and some breadsticks. So two pizza per meal and one breadsticks. Yeah, well, it's definitely like you see this in poor neighborhoods. the rates of diabetes and obesity are much higher because A, it's hard to get healthy food. Like they don't have whole foods or health food stores in, in poor neighborhoods. You know, I think this, I think this was a lot of, a lot of those issues as well. And again, speaking about areas with lower income, the first$20 ,000 gets rebated to you anyway. So you're not being charged at all anyway. The first$20 ,000 for anybody, including you, me, Jeff Bezos, and somebody who makes no income, the first$20 ,000 of consumption of your sales tax gets rebated to you.

45:57So again, right now, there's a bill going through Congress, which would eliminate all income taxes and put a national sales tax of 30%, which also, by the way, would replace the$4.5 trillion completely. But my gut tells me that 30 % is too high. It just feels high. Yeah. A low flat income tax does we're, we're used to income taxes. We don't mind. We were, we'd be happy. We, we do a dance in the streets. If you made an income tax of 10 % instead of 30 or 40%. And because this is designed to make the economy grow, if the economy grows, you need to have fewer taxes. So you could reduce that sales tax or income tax as you decide eventually anyway, maybe even in just a year or two.

46:44Now, the other thing you can do, the economy can either make more money or the government could spend less. So the other thing I would do is spend less. Now, the two biggest expenditures of the US government are social security and defense. Now, we need Social Security and we need defense, but let's just take a look for a second. Social Security kicks in. You can opt to kick in your Social Security at the age of 62 years old, and 65 is usually when it starts. But when Social Security was developed in 1935, the average life expectancy was eight years less, eight years lower than it is now. So it makes sense that the age, and this is gonna be a very unpopular opinion, so it's probably why it's never been proposed.

47:38So maybe there's a way to do this. Maybe there isn't a way, or I'll get to that in a second. But the initial proposal is don't let social security kick in at 62, started at the age of 70. Life expectancy has increased eight years. So add eight years to when Social Security kicks in. Isn't that what happened in Paris? Isn't that why the protests happened in Paris? Maybe. That makes sense. See, that's the thing. It's a very unpopular decision. But here's how I would do it. So there's no protests. Is A, don't kick it in immediately. Have it phase in. So anybody who's like 50 years old right now, you know, you can argue I'm saying this because I'm over 50, but whatever.

48:21make it any age, an arbitrary age, pick an age where anybody above that age, there's no changes to when they can get social security. But if you're 25 years old now, okay, now you have to wait till 70 before you can get social security. Remember, you're not paying social security tax anymore in my plan. It's just a flat income tax. So someone who's 25 will say, okay, I'd rather have money, make the money and save the money now than keep contributing to something for when I'm 70 years old. So younger people are going to be more okay with this and won't protest. So we just have to phase in and we don't punish the people who've already been contributing so much to social security.

49:01If you do this, if you just raise the age by which people could take social security, you would save$800 billion. That's a huge number. So you go from 6 trillion to 5.2 trillion in spending. Now let's talk about defense. Reduce manpower. Like we're in, we're in like a hundred countries. We have military bases and obviously there are a lot of wars we could avoid. And maybe we need to think a little bit more about what wars we get involved in. Like we were in Iraq for 18 years and Afghanistan for 18 years and it was just a disaster. Yeah. If you have a baby, then your kids would probably grown up as a teenager.

49:40Actually, that's true. Molly was born the month we invaded Iraq and now she's an adult. But anyway, if you reduce manpower by 20%, and again, all those people could easily find jobs in the private sector, particularly if the economy is growing, but you would basically, or if you force our allies, which depend on our military budget, you know, like NATO is largely funded by the United States. If you force allies to put some in the bill, the U S could save about a trillion a year. So that gets us that actually don't just doing those two things. And by the way, I'm just picking those things because they're the largest expenses, but you can start going line by line through the department of education, the department of agriculture, the department of, you know, housing and urban development and on and on each, each area has huge expenses that could be cut, but I'm just talking about those two things would reduce the federal budget enough that, that the tax plan I'm proposing would completely feed the, you know, you would, you would not have a, a deficit every year like we have now.

50:57Now a deficit is not so bad. If you could borrow money and print money. In fact, there's so much demand for us dollars. We don't mind lending money at zero percent interest rates particularly if there's a little bit of inflation that means when people have to pay us back or that means when we have to pay back sorry when the us has to pay back the money is worth less than when we borrowed it so it's not so bad to have debt by the way if you're a country it's different than individual debt where it's much more painful country is is better to have long-term debt so it means the government could actually spend more money in this plan and spend it more wisely and allocate it better.

51:34So again, but just those two initiatives, defense and social security, you could balance the budget and in the tax plan with a 10 % flat income tax and then a 10 to 12 and a half percent national sales tax with the plan to bring it down as the economy grows, this would, more people would have money in their pocket. There would be more jobs, more inventions, the economy would grow faster, the budget would be balanced, people would trust the U.S. more as a reserve currency, you know, so that would keep inflation down, all these things. And this is the problem that is biggest on people's minds. If you ask anybody, a third of people say the money in their bank account and their wallet is their biggest problem, you know, and then next is immigration at 11 % compared to 33%.

52:21So this is, this is the biggest problem facing this country. And yet we do nothing every single year. We do nothing at all to solve it. We spend more money. We tax more people, poor rich, the rich, by the way, don't get taxed. Like, yes, Elon Musk says he's paid the most taxes of any individual in history, but in general, like someone like Warren Buffett, he doesn't really make an income. He keeps his money in stocks. You only get taxed when you sell the stocks. Now, someone like AOC, who has the worst knowledge of the economy of anybody on the planet, and by the way, she is perhaps the greatest politician on the planet because she's used her voice so powerfully at such a young age.

53:05She's so talented at that, but she is literally the worst person in the planet for understanding the economy. She thinks you could tax when unrealized gains, meaning let's say, Jay, you own Apple stock and it goes up. Even if you don't sell it, you should get taxed. Well, what if it goes down next year? You don't get your money back. So that's why they only tax when you sell the stock. But people like AOC are proposing you tax unrealized gains. That's called unrealized gains when you don't sell it and you're still taxed. That's ridiculous. That would destroy the economy because nobody would then be interested in funding.

53:40The whole reason for the stock market is not for gamblers to make money, but it's for companies to, to have incentive and potentially raise money to fund more, hiring more people, uh, starting new companies, inventing new products and online. That's the reason for a stock exchange, uh, hedging risk and so on. So, so you can't just use everything. People, people are trying to hire more people and invent more things because there's incentives to do that. And you can't do that if you're constantly fighting with people who want to tax every single little thing you do. So the system I propose, A, it would keep more money in people's pocket.

54:22It's the biggest problem in the country, and nobody is trying to solve it except in these ridiculous ways, like a 30 % national sales tax, which is going in the right direction, but just is a weird, crazy way to do it. And they know it's not going to pass anyway, so that's why they're proposing it. My system is more rational, It keeps an income tax and introduces a sales tax. And it has rebates. It's not a regressive tax. It doesn't hurt just the lower income versus higher income. And if on top of it, you reduce spending in these very obvious ways, but might not be politically satisfying, you would balance the budget.

54:57And again, I describe the Social Security in a way that would be politically satisfying. Just don't hurt people who have already paid Social Security taxes because they're expecting it at 62. Pick an age. I don't care what age. Anyway, that is the first and most important issue. I would deal with it. I don't think anyone's ever proposed a hybrid sales income tax like I'm doing. Like, why not? I'm just curious, why not? Because people take extremes. And also because I would say a good 30 % of the country is probably like has the economic knowledge of an AOC. She represents the worst of the worst in terms of economic knowledge.

55:35And then there's a whole group of people who think higher taxes are good because the government is good. But you have to ask yourself, how is the government spending the money? Do you approve of how the government is spending the money? Like Jeff Bezos is not everyone's favorite billionaire, but he created the largest store in the world that all of us use every day. And it helped the world so much during the pandemic. and it's created so many jobs. And it's also created side hustles and more income for tens of millions of people. Like forget about Jeff Bezos. Don't be, don't, somebody very smart told me, don't ever look at what's in someone else's wallet.

56:16Look at what's in your wallet. And let's just focus on making your wallet fatter and bigger. And don't worry so much about the people who are inventing the new economy. and every year is a new economy. So don't hurt those people and just ask yourself, would you rather smart, creative, entrepreneurial people allocate the money? And of course we would keep all the law enforcement, no corruption, nothing illegal, regulate industries if you need to, but don't inhibit the most creative people in the economy and give the money to the post office. Nothing against the post office, I'm just using it as an example, But don't give it to the least creative bureaucrats in the country.

57:01Give it to the creatives to figure out how to grow the economy. And it'll work. This plan will just work. And every dollar that the government doesn't spend is spent in private industry. And that's what keeps people alive. So that's it. That's policy number one. Probably the most important. It's so important. You don't even need practically any other policy. Okay. Now, you know, you can look at immigration in the context of will it help grow the economy or not? Now you have to also be, you know, humanitarian and help people who work hard in this country and, you know, who came in legally. You have to really think about all the nuances on the illegal immigration.

57:40It's a very complicated issue. You know, there's a lot of issues that are much smaller in people's minds that are very complicated and very nuanced. This one is so big and so important and yet nobody deals with it. And that's what's disturbing to me. And that's why this country could fail is because no one's dealing with it. Like right now, we're solving higher inflation by raising interest rates so much that it's going to cause a recession. That's not the way to solve this problem. But anyway, that's all I have to say about this issue. Altature 2024. Let's go. Make it not a joke. Make it real.

58:18But, you know, for now it's a joke. But the issues are real. And if anyone has more questions to ask James, go to jamesaltatureshow.com slash askaltature. You will greet it by a Google form and then just, you know, input your questions and then we will answer it. Or you could tweet it. Just tweet to at Jay Altucher. Follow me and then tweet to at Jay Altucher and I'll be able to see it. This is a good one. I can't hold any government positions. Can I? Yeah, you could hold everything except president and vice president. Oh, maybe I would be a speaker of house or whatever. You could. Or that's hard because you have to get elected.

58:59I'll just appoint you like a Supreme Court justice. You don't even have to be a lawyer. You don't have to be a lawyer to be a Supreme Court justice. Is there any Asian Supreme Court justice? I don't think so. Because they're there. I don't think there's ever been an Asian Supreme Court justice. I think you need to be on the Supreme Court, Jay. You're a very fair person. I'm pretty fair. I'm, you know, if I have a dollar, I would give someone a 50 cents, another one 50 cents. Yeah, even on the federal judges on the U.S. Court of Appeals, only 10 are Asian Americans. and there's no Asian who's ever been...

59:35Supreme Court. Why not? People are like, hey, you know, we have to have diversity and equality. And also, there's so many good benefit to have an Asian Supreme Court justice, right? Like the great comedian Ronnie Chang said one time, if you have an Asian president, we work for you guys on Christmas. We even cook for you guys on Christmas. Yeah, Ronnie Chang, very funny. C-H-I-E-N-G. I highly recommend. Everybody listen to his stuff. So, all right, Jay, thanks so much for organizing this podcast. And until next time, there's a lot of great questions that are left to be answered by on the Ask Altucher Q.

1:00:16Thank you so much, James, and have a wonderful day.

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