About 24 hours away from the first debate between president ial contenders joe biden and donald trump. It also brings forward the conversation about wealth disparity in the u. S. The wealthy and businesses looking to take advantage of the tax system. Missable budgets are strained amid the pandemic. Just this weekend, asking for low tax, well governed states to give him a call, he is looking to move may be. This whole theme today back in the spotlight. President trump responding to that New York Times report yesterday. Pres. Trump total fake news. Actually, i paid tax. You will see that as soon as my tax returns. It is under audit and they have been under audit for a long time. Predictably, trump calling the report fake news, but not refuting it in any way and, and of course he could by releasing his taxes. That report and more coming. Romaine for all of the ethical and character issues that this may raise, it does not appear that he did anything wrong in terms of the law. The tax code allowing for a lot of these like kind deductions that a lot of Real Estate Investors take advantage of that allows them to mark down investments ways that those of us who are not involved in real estate do not really have the opportunity to this is something joe biden said he would like to visit if he was president. Aine joe joining us with more insight is Harvard BusinessSchool Director chris meyer. Us. K you for being with it is not clear that president did nothing illegal, but then the bigger issue is what is built into the tax code as well. What is most important for folks to understand in terms of how they tilt in favor of our Real Estate Developers . I am not sure i agree that everything here is ok. Homenk looking at a second for example that would be viewed as a family compound and treating it as a Business Investment strikes me as an example of something that it is not clear to me that one would sort of say that seems highly appropriate or even on the border. What i suggest what it suggests, for example, if you take that is one thing, the tax code in 2017 specifically limited individuals in the amount of deductions they get for property taxes and other state and local taxes. There is no limit for someone who owned a property that you would call a business property. Another example is moving family members on the payroll. Getting benefits associated with that. With employing family members. Thats lots of expenses that might also allow you to deduct, that might otherwise allow you to be considered household expenses. But when you blur the lines between what is personal and what is business, you can start to try and deduct things that would otherwise be viewed as personal items. Somene there are no doubt gray areas here that need to be sorted out by whoever is involved, the irs or whoever. Maybe walk us through the real estate side. There a lot of folks Real Estate Investors like trump are able to deduct the losses. Nd get returns on property isi think that some of this specific to real estate. 1031 exchanges. Lets say you invest in the stock market, you say, i will sell my shares of ibm or shares of facebook. S inve decided to buy share ford. If you do that and you have a capital gain on the shares of tax onk, you have to pay that. If you if those were properties, you can sell one of those properties, take the Capital Gains, and as long as you invested in real estate within a period of time, you would not pay Capital Gains tax. As a result, people who own property are able to defer buyers gains taxes where of stocks would not be able to do that. Joe lets say we got rid of that and made it so real estate transactions were more like stock transactions. Would that be wildly disruptive to our real estate operates in america right now . Companiesre are a few and investors that would be affected but i dont think that would wildly change what is going on in real estate. It will not directly raise money in real estate. What it does bring to the fore is that a lot of Real Estate Strategies are about tax deferral the point where they get a step up in basis. The idea particularly for individual Property Owners is that if i can continue to defer the taxes, move my investments around overtime, and not have to realize gains, when i die, my estate could say step up in basis. That would be true also using more leverage, interest deductions, depreciation deductions. The opportunity not just to deferred the capital gain but eliminate it altogether. Romaine the idea is that a lot of these tax maneuvers survey legitimate purpose, at least in the minds of those who benefit from them. There is a sense that i am curious, if you were to see those provisions rolled back or eliminated, would there be any discernible effect i guess on some of the profitability of these legitimate users. It might well reduce the profitability of users of these businesses. The same thing is true of the Capital Gains tax for me as an investor. If i am locked into an investment because i dont want to realize that investment, that is also a reduction in my profits. An ability to reinvest the proceeds and something else. The issue in a sense is, is there something specific to real estate . It is hard to think that you have family farms, which is where some of this originated from. This idea. But, in general, i think it is hard to make the case that some of these things should exist just in this domain alone. Romaine a very complicated topic but one that is front and center. That is chris mayer, columbia Business School professor. Coming up, we will continue on this topic, our focus on the tax system, and discuss how hedge funds and others are extending are expanding their presence in states like florida. This is bloomberg. Are focuseday, we on the u. S. Tax system and how the wealthy find ways to avoid it. Billionaire investor jeffrey dunlach tweeted joe one way to avoid taxes is to move to a state where they are very simple. A bond manager complaining about california, saying realtors in low tax, low governance states should give me a call. Romaine you have states like california where he is based out of, states like new jersey raising or trying to raise income taxes. If you look at what the proposal is herein california, going up to 70 . New jersey up to 11 . You compare that to a state like florida, there is a reason people move there. Zero. You are not moving there. Joe i am staying here. Andy, fund managers, all you have to do is click some buttons on a computer. They are always threatening to move to different states and some have. How significant has this exodus been. You think a lot of realtors will call . Eff gundlach a i dont know how many are calling him now but it is entirely possible they saw that. This has been a real theme we have seen playing out in the Hedge Fund Industry especially. Funds seenhad hedge funds looking at florida, and other states where there is no income tax. California, new jersey, even possibly new york eyeing higher income tax levels. Romaine on the surface, it makes sense. You go from 11 tax rate to 0 . There is also the broader issue that states need to finance their services. Need to do that through taxation. Florida has been able to skirt this in a lot of ways. Is there a sense that states will now be in this competition to see who they can attract at the expense of funding broader services. Dgundlachposal that was tweeting about in california is to raise the highest tax rate to almost 70 from just over 13 , which is already high relative to the rest of the country. What you have in this covid19 year is a real shakeup in terms of people can work from home. They dont necessarily need to have an office building. They have been reimagining where they want to go. You have that layered on with some of these tax proposals. The combination has kind of inspired a lot of people to move. Romaine joe california is great. If people leave and go to florida, wont people take advantage of all the sheep abandoned houses in california and move there. Annie it is entirely possible that you could see a shift in the entire direction at some point. Of course, it bears mentioning that budgets have been impacted in a huge way by the changes of behavior of covid19 lockdowns, with spiking unemployment. State budgets are cramped as well. This is part of the reason that states are considering higher taxes on the wealthiest. Romaine i guess that raises the question, you gamble on which state here. We keep talking about florida not having income tax. There is always taxation no matter where you go. With regards to whether they will be able to get by without raising significantly any of their taxes, is this something that is realistic . Beie it seems like it would difficult for every state to try to compete on that front. One reason that this might be a phenomenon we are seeing play outcome at hedge funds specifically, you tend to have a leaner workforce, not as many employees that would not need to be going into an office anyway. Industry by industry. And person by person, you are going to see differences for sure. Joe ultimately with people threatening to move or wanting to move, it is one thing to move to florida but another thing to move lots of different people and an entire operation. Annie exactly. It depends on the kind of business you of operation. You may be able to do a lot of it from home and got banned move that home from somewhere else. That is what Jeff Gundlach threatened to do on twitter. Romaine and as joe said, all they do is push buttons all day. Coming up, we will bring in the university of texas professor, to talk to us about the significance of the way that the tax code has benefited the wealthy. This is bloomberg. This is bloomberg. Romaine today we are focused on the u. S. Tax system. Of course, in election season, we have to talk about some of the politics. Former Vice President joe biden and his tax policy, and of course trumps tax policy. We are going to get into our guest who will talk about taxes and the way that certain taxes have contributed to growing inequality over the years. Professor of government at the university of texas at austin. We started the conversation with the revelations about trump, but where in your view does the sort of tilt of the tax code come from . When did we sort of get the beginnings of a tax code that allowed people to accumulate so much capital without having to pay very much. There was a major transformation of tax laws beginning in the late 1970s and continuing in the first years of the reagan administration. The cut in Capital Gains taxes, then major cuts in marginal tax rates in 1981. All of that greatly advantaged wealthy individuals as compared to business firms and lower income people. Also, Social Security taxes went up the gift tax was greatly weakened. So you basically got a tax system that fostered the rise of extraordinarily wealthy haveiduals, and they effectively taken over the country in 40 years. When we talk about that shift in the 1970s and 1980s, the general argument was, by lowering taxes or giving the wealthy more options to sort of lower their tax burden, the idea is that it would create more opportunities for them to reinvest the weather through jobs or other types of investments in the economy. That would create additional growth and in turn additional tax revenue down the road. Is that not what happened . James it is not what happened. Up until that time of a corporations did most of the investment, and did it out of retained earnings. The tax laws give them incentives to transfer earnings and capital values to themselves. It was discouraged. The result, you have a different pattern of investment. Much more in housing, much less in business. Of course, the industrial firms of other countries. Germany, japan, korea, and ultimately china, rose compared to the united states. The tax changes had a great deal to do with it. Joe expand on that last Point Investment more being associated with housing and equipment rather than what we would call productive investment. We have a little bit of a housing boom right now. The prefinancial crisis era was characterized by housing. What specifically in the tax code changed . Say, when you lower the individual tax rates, you tie Corporate Executives compensation to their stock values. You gave them an enormous incentive basically to manipulate stock market values in order to raise their own incomes. Ofo, you shifted the balance what people were investing in. American industrial corporations work investing mainly in their lines of work. Afterwards, you had a shift of investment. You have the example of our president , mr. Trump. Investing in golf courses. Not exactly an industrial activity. You have a change in the thecture and composition of economy. The dollar made other countries more competitive. By shifting essentially the control of investment essentially from corporate organizations. Theine did the change in u. S. Tax code make the u. S. More competitive internationally as a place for investment . It made it more attractive for financial investment. A bipolar economy where you have very Strong Financial sector and on the east coast, very strong technologybased sector. The Scientific Community a chance to create their own firms, which then became the technology sector. Prior to that, they were andcally located in labs Large Industrial corporations. You have got that. Then, what hollowed out what had previously been the industrial core of the country in the midwest. Joe suppose we get a new administration. There will only be so much Political Capital to spend. What would be the first thing that you would advise a theoretical lighted distraction to do a theoretical Biden Administration to do . James a gift tax, which would prevent people who accumulate wealth from passing it on and creating dynasties. This is very unamerican. We set up a system a century ago to deal with it. We have allowed that to erode. We should restore it. More progressive income tax rates and tax on Capital Gains. Basically, if you want to restore a broadbased middleclass economy, you have to make sure the tax system is conducive to that. It was free period in the 20th century. It certainly is not now. Romaine faster, we will have to leave it there. Galbraith,mes professor at the university of texas at austin. For whatd you miss . Technology is next. Romaine this is bloomberg. Tiktok safe. Blocked president trumps attempts to ban the organization for now. Apple versus epic. The battle royal heads to court today. Have the judges weighing the future of fortnite