Be used to spur economic recovery but first remind folks what the Tax Foundation does and how you do it. The Tax Foundation is an organization that educates the public on tax policy and also assist members of congress in developing tax policy. We do in particular analysis of the cost to the economy and to the government of tax increases or tax decreases, Tax Foundation. Org is a website as. As we look at recovery efforts, its now been four months since america startedon shutting down. Congress congress is appropriatr 2. 5 trillion in response. At what point do we start focusing on longterm recovery as opposed to responding to immediate needs that are happening in the here and now . Guest thats hard to say. I had originally thought when the crisis began that around the end of the summer we would need to make a strong tilt towards longterm growth. We had sort of a threepart approach to this during the immediate crisis we needed to write liquidity for businesses, for households so they could keep the rent payments if they could, key people in payroll. If there are able to. And then once they key phase that sometime around august we would start on our growth projected. Whats called because that is everybody probably knows is that there seems to be a second wave in cases if we dont know what the response to that is going to become whether or not theres going to be a second wave of lockdowns. That happens, we may need to do more on the liquidity in other response again he comes while we can put in a lot of measures to encourage growth, if we have new lockdowns in effect, its something a possible for most businesses to go back on the table without any support or to expand towards the future trend we show to viewers that chart on appropriations for Coronavirus Response took a lot of this on thea cares act and some of the other smaller acts that were passed by congress in response. To add them up and is close to 2. 6 trillion. The entire federal expenditures back in fiscal 2006 was 2. 6 trillion. When did w this level of spendig start to catch up with us, especially if were talking about potential more liquidity to get us do the here and now . Guest the fortunate thing for us right now is that Interest Rates on Government Debt arere very low, and the crisis sent them down even further. People became afraid to invest in anything that had any risks associated with it andk so they put a lot of the money in government bonds. That gives us maybe a year, a couple years of low Interest Rates while the crisis is here, but i would probably think that well see Interest Rates rising again maybe the next two to three years. It will become increasingly important to turn toward some sort of longrunn plan. Host just a note, the u. S. National debt and its use debt clock. Org that sees vendors often see taking in that 26,515,022,000,000 and counting and you can seeee those numbers continue to rise. As they do in real time in u. S. Debt clock. How do we promote a post coronavirus recovery . What issues should be looking to when we finally turn to that . Guest when we do, our focus has been on restructuring the economy. There are a lot of things that will have to change. Number one, unless the complete virus is gone and we have like a vaccine, series of vaccines whatever we need, they are probably going to be new ways of doing business. Still more remote business, Retail Locations are probably going to be larger. We may have less office space at all that require new physical investment. We think its important for congress to look towards what we have called Cost Recovery, which is various methods are preferred method is full expensing of make it easier for business to do like new physical investments, to build new things. They will need to build things to make the economy resilient in the post coronavirus in 500 we will see how much it does happen. We think a lot of companies will at least take a second look at moving some of the operation is the back to the United States or back to north america because the virus has interrupted the flow of tradefl around the worl, has made it so areas that are not under u. S. Jurisdiction or control or even with a strong ally, we dont know exactly what the virus response is going to be, when it will happen, with another crisis like this will happen to measures that would help Companies New investment back. Again what we call full expensing which allows companies to deduct the full cost of the investment up front. Its a very neutral plan, a lot of congressmen like tax credits which they can target for very specific behavior. We are less a fan of that. We think they do work they tend to reward people who have Close Relationships with members of congress and they encourage this kind of jockeying for special interests play, a sort of broad basing as well as anyone who built anything physical in the United States, what were going to do is instead of having to deduct that overtime, we want to deduct that immediately. That will reduce the cost of ofe investment, also give you additional cash flow. If youre having cash flow needs right now to do more investment. We think thats the most evenhanded way to speed things up. Thats our plan for turning the corner on changing the structure of the economy. Its going to w be a lot of difficult thinking i think when it turns to how were going to deal with us in the long run budget cost. In general we have advocated to the extent that you want to look for new revenue sources, that we make them as rod based as possible. Its possible with very broadbased taxes that tax increases that are relatively minor in percentage terms or whatever can raise revenue that will make a Significant Impact on the debt. The more you concentrate the tax increase on any particular segment of the economy or on a particular group of taxpayers, the higher those rates are going to have to be. Thats going to cause a disruption to growth especially difficult and time were trying to rebuild the economy. Host karl smith and his group acceptation advises members of cox on tax policy. If you have a question on the topic note be a great time to call in. Phone lines as usual, 2027488002 for democrats. Mo8 we we do still of our text messaging line. We will look for your questions as well. You can go ahead and start texting us and calling us. Karl. Karl smith, you laid out your recovery plan. What are the tax hurdles that would keep that planur from beig implemented . How much are we talking about changing tax policy and legislation to do so . Guest i think our plan or the things that we are putting forward are not that legislatively complex. Congress in the tax cuts and jobs act had a temporary provision h to allow some formsf this type of expensing for equipment. What we are suggesting is that in the covid and five at whats at least as important is the structures. So buildings, Office Buildings, a new factory that might be built so were asking for this kind of treatment to be used to bear. In terms of Real Estate Investment for very longlived buildings, there are some concerns about the way i dont know how much interest this is to be used but weve explained or laid out for congress will recall neutral Cost Recovery which allows businesses to index their deductions over time. It gives them the same economic treatment as full expensing, but a residential building especially or brandnew Office Building can be an enormous onetime expense if the company attempted to deduct that all the ones they would create what we call net operating loss that he would have to Carry Forward over time. They can also encourage Companies Like hedge funds other wall street firms to attempt to buy a building, get the nol and use it as a deduction on what would otherwise be a very large tax bill that that that anything do with real estate. We dont want to encourage that kind of thing so we push for this program called full expensing. And to a lot of other citizens around the country and i know this is not about tax policy change. I think its almost impossible but im in favor of a consumption tax. We know it does away with the underground economy, all the 1099s go away and under the present system Business Owners can buy nice trucks and cars and having a magnetic sign and depreciate them and use them on the weekends, they can buy a boat if they work in waterways on piers and docks in the name of the company and use them for recreation and i know the consumption tax obviously rich people pay more taxes because they buy edgar dollar cost items that are going to be pay more taxes at as they consume and people who make less pay less taxes. It seems like a common sense idea to level the Playing Field for all income levels and id like your thoughts on that. Carl smith. When we think about what were going to have to do to repay some of the costs from the virus and in particular if congress doesnt change its trajectory of entitlements or as ofmany argue about expanding entitlements we made the point that consumption taxes are the only viable way to even attempt to afford some of this stuff. A lot of times members of congress especially ones who want to expand the title entitlements point to the size of entitlements they have in europe and one of the points that weve made is overtime europe has actually been lowering some of their taxes on business and theyve been increasing their already relatively large reliance on consumption taxes, in particular public value added tax. Its like the sales tax but its levied prior to the sale rather than on the consumer at the pointofsale and its for essentially the reasons that the color outlined. The larger and larger tax rates get the more incentive there is to play games with the tax t system, to try to avoidtaxes. Even especially for businesses to leave the country or go somewhere else altogether to get out from underneath taxes consumption taxes because theyre so broadbased and because they had everything tend to have less of that impact and also because their broadbased the rates can be lower. So to the extent we need to raise revenue , i think thats probably where we have to go especially in this environment. The other alternative would just be very very large income tax increases or business tax increases especially if theyre trying to concentrate it at the higher end. They want to do that to spare people the lower rates but the more concentrated it gets , the higher the rates get and the more intense and gets so it becomes more and more difficult to shield the economy from the effects of raising this revenue. More broadbased it is the lighter the overall impact can be and that helps us keep growth going even if we need to raise revenues. Es we talked aboutconsumption tax, value added tax and james on twitter says the fair tax makes too much sense and would take too much power out of the swamp. What do we mean by fair tax . Guest usually people mean a National Sales tax. The national replacing at least all of regular federal income and maybe Social Security with a National Sales tax, from an economic standpoint theres a sense to a total consumption tax model. There are two issues with i think the fair tax system. One is if you put a very large twentysomething percent tax it would have to be on the end consumer. Theres an enormous incentive for the retailer to try to get out from underneath that. So if you did Something Like that it would probably be a value added tax instead of a retail sales tax or the fair tax as usually structured. The second thing youd have to note is if youre putting the entire burden of the federal tax code on a consumption tax, that would result in fairly large increases for people at the lower end. We usually havent advocated that or endorsed a proposal that goes that far. Or to be honest once we show most people in congress the numbers there a little skeptical of that kind of increase but we have said to the extent you need to make raise more revenue to pay back some of the costs were enduring now or if there are going to be more entitlement spending that the increase beyond this should probably be focused in some type of consumption tax but National Consumption tax. Host philly, this is michael, a republican. Youre on with carl smith of the Tax Foundation. Caller good morningand i wanted to know does the cares act , what effects do you think it will have on the economy as a whole and i wanted to know really a twopart question. Since one of the things ive heard of was the coronavirus which came from another country could 1, could china reimburse our country for the financial effects that its had on us and i looked at the cares act legislation and here in pennsylvania, theyve been bragging i think 100,000 applicants citing either fraud or not following the rules relating to the cares act but they changed the program midstream and im confused because if the house and Senate Passed a requirement of the cares act, how can states then go against federal law that was passed by the congress and signed by the president and changed midstream which if i change a program midstream after youve already applied, of course i would have people flagged. Yes, so the cares act had a number of different provisions. The broadest was a rebate check check that went out to most households. One thing, i dont know if this is what the caller is referring to. One of the things weve seen our state have decided that the rebate checks that went out to households will be taxable under state income. The original concept under the cares act is it wouldnt be taxable so thats him difficulty for some taxpayers. People who filed their taxes and didnt claim the cares act payment as part of their taxes may have seen their file flagged. The program thats much larger that we are seeing more difficulties is the Paycheck Protection Program. That program essentially gives out loans to businesses if theyre going to keep people on payroll. We had some administrative difficulties with that program and its so large, there are so many businesses in different situations and i think when we think about what going to do next, congress what were hearing if theres going to be some additional sort of rebate. In response to the increase in caseloads and expectation that were going to be shut down at least larger than expected but theres more intense debate about what to do about the Paycheck Protection Program andwhether or not it should be extended or whether a simpler program should be put in its place. That on the one hand didnt have as many detailed requirements but on the other hand functioned more as a pure loan. One of the features of the Paycheck Protection Program is if you completed a bunch of steps and you had 90 percent of people on your payroll maintain throughout the entire period , if you follow the other guidelines u that are more complex you would get the loan thatyou took out for you. So the structure of the program is focused on the forgiveness and making sure to many people didnt get the complicated for everyone and some businesses dont meet the forgiveness, they just need liquidity so there is some talk of turning more into a pure loan that would be available for company and sensitive pure loan we dont have to be as specific about requirements that you would have to go through , the basic requirement is that you pay it back. So that might make things a little bit easier and the next round of care so those are part of the two programs that have the most implementation difficulty. From the last cares act and that congress thinks about in this next round that will come out in july. From companies to om individual a lot of individuals in an effort to work up from home have made a lot of investments try to allow themselves to have the technology to work from home. Is there any tax relief for those individual investments and in addition theres also workers who have to go in and some workers are getting hazard pay for going in and working during the pandemic. There tax provisions that those workers know about. So being able to deduct the expenses that you have or your work at home, that is covered under cares and actually under the original pga legislation. It would include that. For workers that are going hazard pay, theres talk about Congress Funding hazard g pay itself. Im not sure there is a legislation that specifically addresses hazard pay that hasnt been administered by congress. Inthe last cares act that came through. I havent heard about that in this one. I may have missed it but i dont recall that. This is john, an independent, good morning. Mister smith, do awaywith the federal tax return. This is the 21st century, use the cloud and algorithms to track peoples income. This is crazy. The way it cost the taxpayers and federal government to implement the tax returns. They already know what youve made so and the second question is i have a 401 k or a 457 and the first 20,000 new york state nontax bill, stimulate the economy do it for the Senior Citizens retirement. 401 k is the first 20,000 would not be taxable, thank you. So i think im not exactly sure, theres a burden in terms of 20,000 if you mean, you take out of your 401 k everyyear . There are proposals to do Something Like that. What we are generally discouraged is sometimes its really targeted so take this particular program and reduce the taxes on, originally there was going to be a program that would allow people to put away taxfree extra savings during the recovery under usa so the universal savingsaccounts. That kind of stuff i think we can think about as were Going Forward maybe how to simplify the entire retirement system and roll all 401 k s rock traditional iras into a single more simplified savings system and that makes a lot of sense. Coming