Episode 119: Inflation Reduction or Business Disruption? with Steve Moore 

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This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Tom Wheelwright:

Welcome to The WealthAbility Show, where we're always discovering how to make way more money and pay way less tax. Hi, this is Tom Wheelwright, your host, founder and CEO of WealthAbility. So the Inflation Reduction Act, this is one with such conflicting narrative. What you're going to discover today, and I have a very special guest with me today, what you'll discover today is that it is not probably what you think. Instead, this is going to be a major change in the tax landscape. It will particularly be a major change for small business owners and for middle income taxpayers. With me today, I have Steve Moore, who is an expert in economics, was with the Trump administration. It's such a pleasure to have you with us today, Steve.

Steve Moore:

Hi, Tom. Great to be with you.

Tom Wheelwright:

So if you would just give a little bit about your background. I think most people know who you are, but if you would, just a little of your background.

Steve Moore:

Well, I was a senior economic advisor to Donald Trump when he was running for president and as when he was president. I was on his Economic Recovery Task Force. I worked for 10 years as a senior economics writer for the Wall Street Journal Editorial Board, which was probably the most fun job I've ever had. Right now, I am a senior fellow at the FreedomWorks. I am a frequent contributor to Fox News. So it is fantastic to be with you.

Tom Wheelwright:

Well, thanks so much for being with us today, Steve. So Inflation Reduction Act, I always believe that whatever the government calls it, it's probably the opposite. But in this case, one of the things that the government's saying, and particularly Joe Manchin, is saying, “Look, this isn't going to hit middle income. This is only going to hit the big businesses. It's only going to hit the tax cheats.” What are your thoughts on that?

Steve Moore:

Well, I mean, the facts are just the facts and the facts show that the government reports find that a large percentage of the money that's going to be raised by these tax increases are going to hit the middle class. I think that the estimate I saw was $17 billion more paid by people who make less than $400,000. Remember that it was Joe Biden said he was not going to raise tax by one penny for people who make less than $400,000. Joe Manchin who's the one who's cut this deal, the Senator from West Virginia, keeps saying it's not going to tax people that make less than $400,000, but the facts are the facts, it will hit middle class folks and it's going to do a lot of damage to the economy and the family finances.

Tom Wheelwright:

So why do you say that? So let's start with, so there's really two outside of the tax credits in this bill. There are really two major provisions in this bill. The one is the corporate minimum tax, which hits multinational corporations with a billion dollars, a minimum of a hundred million, but most of them will be a billion dollars or more of income. Then there's the increase of tax to the IRS. It looks like Kyrsten Sinema is getting rid of the carried interest rules. So with that, let's start with the corporate minimum tax. How does that affect the average taxpayer? I mean, we're talking about corporations making a billion dollars a year.

Steve Moore:

Well, we all know that these costs eventually reach the consumer. Not just the consumer, the worker. I mentioned that I worked for Donald Trump and we cut the corporate tax, not because we love corporations, but because we wanted the United States to be competitive in these global markets. We wanted to bring jobs and capital back from… Our factories had left for Mexico and for China and to India and other countries. When we cut the corporate tax, we brought the money and the businesses and the jobs back to the United States. We brought in a trillion dollars to the United States.

We had predicted that that would mean that workers would be paid more because they would have more capital to work with. That's precisely what happened. So our reduction in the corporate tax rate actually led to more jobs here and higher paying jobs. Now, basically the Biden plan is to reverse that and to raise those rates up again. That will make American companies less competitive if they are based here. So you'll see a lot of those jobs leaving the United States and going back to maybe we should call this the full employment act for China, India and Mexico.

So you're going to see a reduction in wages and salaries for workers, but also a lot of these costs. When you tax a business, the business oftentimes just passes those costs onto the final consumer and those are middle class people. Then the other one that you mentioned is the bigger sort problem for the middle class, which is the [inaudible 00:05:11].

Tom Wheelwright:

That's the IRS, right? So let's get to that. Let's get to that in just a second. But let me ask you one more question on the minimum tax. How do you feel about Congress delegating its tax responsibilities to accountants?

Steve Moore:

Right. This is a full employment act for tax lawyers and tax accountants. They're going to have to figure out what is the taxable income from a company. I should tell you, by the way, that I was one of the people who has really been involved from the beginning on two big tax reform movements, one is the flat tax and the other is something called the fair tax. The fair tax, we would just get rid of all these rules and stuff and we'd just have a straight consumption tax. You wouldn't need armies of consultants. You wouldn't need an IRS with 85,000 plus another 85,000 that they want.

So the solution to our issue of getting the tax revenues we need is to just blow up this tax system. This makes it more complicated. You're going to have all these new tax accountants. The companies I talked to say they're scratching their heads trying to figure out, “I don't even know how to do this. I don't even know what the tax will be. I don't know what they're defining as my income.” So that is a real drag on the economy to have a complicated system with all these loopholes.

Tom Wheelwright:

Agreed. Well, two comments on that. First is I certainly agree that the reduction in the corporate tax rate I thought was the most important part of the 2017 act.

Steve Moore:

Oh yes.

Tom Wheelwright:

I think what happened was, the reason people didn't, you didn't see as much immediate, I mean, there was some immediate impact, but I think you saw more impact in 2021 to 2022 because I think everybody's worried that the Democrats would undo it. So it wasn't until I think Kyrsten Sinema basically put the kabash on that once and for all last year that now we are starting to see a lot of international companies actually moving to the U.S. On the corporate minimum tax, my concern is, of course, is that this is book income that's being taxed. So book income is not part of the internal revenue code. Book income is actually developed by the Financial Accounting Standards Board. This is a bunch of accountants that are not elected in New Jersey who set these regulations. I think that it's really bad policy.

But let's get to the other one that you were about to get to which is $80 billion to the IRS. Now, here's what I find interesting. So the IRS currently answers 10% of its phone calls. It has technology that dates back to the 1980s, okay? I was actually in Washington, D.C. during the Reagan years working with the national tax office of Ernst & Young. My next door neighbor was working on the technology for the IRS that they currently use. Only $4 billion goes to technology. $45 billion goes to enforcement. The Joint Committee on Taxation says that 78 to 80% of the revenue raised from the IRS, increase in the IRS enforcement is going to come from people making $200,000 or less. So what do you say about all this?

Steve Moore:

Well, that's not a big surprise, is it? I mean, except for members of Congress, it's a surprise. But Americans understand that when they say they want to expand the IRS. Look, they're not going to get any more money out of Warren Buffett or Bill Gates or Mark Zuckerberg or General Electric or Google. Those very, very rich people and those big corporations have armies and armies of tax people that… So the problem is the people who are defenseless are people like you and me. We don't have armies of tax accountants and lawyers. So they're going to go after people, as that study shows, who make between 75 and $250,000 and they're going to slap you with these tax bills.

I've gone through this by the way, personally, where the IRS, I had a big lien on my income and my property, because they said I owed them $50,000 that I hadn't paid. My wife and I went through the thing and said no the IRS, that we overpaid our tax, we didn't underpay them. But we went to see our tax accountant and our tax lawyer and they said, “You know what, you're right on the facts, but you're probably better off just paying the money because it's going to cost you so much money to challenge this in court.”

Tom Wheelwright:

Exactly.

Steve Moore:

So my point is the little guy is going to get screwed here because they're going to audit you and they're going to say you owe them a lot of money and even if you don't owe it, you're going to probably have to pay it. That's why this is such a sinister thing to do to the… By the way, it's also small businessmen and women. The woman who's running a accounting firm or running a restaurant. Now, she's going to have to figure out the taxes, the IRS practically would be living in the kitchen of her restaurants. That's not the kind of system we want on America.

Tom Wheelwright:

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No, I agree. So here's what I want to make clear to everybody. I can just hear in the back of my mind people going, “Yeah, but I don't cheat on my taxes, so I'm safe.”

Steve Moore:

Yeah.

Tom Wheelwright:

I'm going, “Okay. So let's consider this. I am actually quite familiar with situations right now where the IRS has come in and they've disallowed deductions that are specifically allowed by a section in the internal revenue code. These are not loopholes. These are not things that some tax accountant came up with. These are actual laws on the books that were intentional. They were intentional laws.

Steve Moore:

Yes.

Tom Wheelwright:

So what the IRS did was saying, “Look, we don't like this deduction.” I'll give you a quote. You'll love this. So I was at the National Tax Conference at the AICPA last November. The chief council of the IRS said, “You know what, with any tax deduction, if it's too good to be true, it must be illegal.” She said that in public. So she's going, “We don't care if it's in the law. What we care is we don't like it. So therefore we're going to throw it out.” Literally, there are hundreds of cases in court right now and it costs about a million to $2 million to take a tax case to court, right?

Steve Moore:

Yes.

Tom Wheelwright:

So what's going to happen just like you say is that somebody's going to say, “Well, you know what, I don't like that tax credit you took for sending your kid to college.” The IRA says, “You're not documented well. I don't like it. We're going to just disallow it.” You're going to take them to court, really?

Steve Moore:

So great point. Just, again, from my personal experience, once they put a lien on your… You're guilty until you're proven innocent. That's the thing about tax court. You there's no presumption of innocence like a normal court. You have to prove you're not guilty, which is very difficult in tax court. We actually won our case, but we probably didn't even come out ahead. We had to spend so much money and we finally got this letter from the IRS saying, “Oops, you're right. We owe you money. You don't owe us money.” I'm like, “Well, where do I get my reputation back and my money back?”

So here's the other thing about this. I'm kind of a civil libertarian. I don't want the government in my bedroom and my boardroom and I don't want the government knowing everything about me and my financial institutions. It's so interesting when I got into this business maybe 35 years ago, there was a very, very strong civil libertarian left. You had the American Civil Liberties Union. Now, I didn't always agree with them, but they cared about the civil liberties and the abuses of governmental power. But what has changed so dramatically in the last 25 years, there is no civil libertarian left anymore. Have you heard anybody on the left objecting to the kind of abuses that the IRS is going to engage?

Tom Wheelwright:

No.

Steve Moore:

They don't care. All they want is the money. That pains me to say this, by the way. So that's why they want to do with the IRS what they've done with the Justice Department and with the FBI. They are going to weaponize the IRS to go after what groups? Conservative donors and Republican donors. Now, you may say, “Oh, I'm just being paranoid here.” No, I'm not. That happened under the Obama administration.

Tom Wheelwright:

It did.

Steve Moore:

I mean, it happened.

Tom Wheelwright:

That was the-

Steve Moore:

The left likes to pretend it didn't happen, but it did. If you don't know what I'm talking about, folks, just Google the name Lois Lerner.

Tom Wheelwright:

Lois Lerner.

Steve Moore:

Yeah. She basically targeted conservative groups and conservative donors. Why would we want to give this agency that has abused its power back since the Nixon era more power? It's because the left wants all this money so they can spend it.

Tom Wheelwright:

So here's an interesting part of this bill. So included in that $45 billion directive that's an increase in what they already have, so that's the $45 billion increase in enforcement, is a little phrase in there that says that the IRS will be responsible for overseeing and enforcing the new digital currency that Biden did by executive order last spring. So now the IRS, so let's think about this, so you have digital currency, that tracks you everywhere, right? The IRS, not Treasury, okay, not the people who should be looking at this, but the IRS will actually be in your business, every transaction you do, every single dollar you spend, as directed under this bill in this provision.

Steve Moore:

They're going to get to know you really well. They even had a program at the IRS about getting to know where you eat your meals, how often you go on vacations. For anyone who believes in a limited government and is worried about government intruding into your lives, this is something that's very scary. I doubt that they're going to get the money that they claim they will. Why don't we just simplify the tax system? Because look, almost every IRS director since the income tax was invented back about a hundred years ago has said the backbone of our tax system is voluntary compliance, right? As you said, most people pay their taxes and they want to be honest and do their duty to pay their taxes.

But the studies show that when you make it complicated and when you put people with similar incomes in different positions where everybody feels like everybody else is gaming the system, then we all try to game the system. My point is this bill doesn't make the income tax system more comprehensible. It makes it less comprehensible. So what's going to happen to tax fraud? It's going to go up. This does exactly the opposite of what we would all like. We want a simple and fair system where everybody pays their fair share, but you don't have to be a lawyer to figure out how much taxes you owe.

Tom Wheelwright:

Yeah. I don't disagree at all with that a hundred percent. For this bill itself though, so what can taxpayers do? I mean, most of our listeners, they're small business owners, they're entrepreneurs, they're investors. Every one of them, literally everyone's going to be impacted by this bill.

Steve Moore:

Yeah. You're going to get-

Tom Wheelwright:

There are people… I was on a podcast yesterday, Steve, and I asked 50 people. I said, “How many of you had an IRS audit ever?” Only one raised their hand. I'm going, “Okay, just understand. Under this bill, four years from now, half of you will raise your hand because now what you have is you have basically unlimited funds going to the IRS and not for customer service, not for technology, for hiring accountants and lawyers to come after small business.”

Steve Moore:

Now, this is a really important point you just made because if you read this bill, and I haven't read the whole thing. By the way, how many members of Congress do you think have read this bill? Zero have read it. They're going to vote on a $700 billion bill they don't even know what's in it. But I read the IRS section of the bill and I'm not joking, the first 20 pages about how wonderful this can be for everybody, because it makes it so much simpler and you're going to have all this help filling out your taxes and now you're not going to have to wait on the 1-800 number to get help.

I'm like, “They're not doing this to help the taxpayer. They're here to fleece us.” It's the old joke about the tax system that what the government wants to do is pluck the most feathers from the goose with the least amount of squawking. So they're going to be plucking us all to get more money out of us to fund all these crazy government programs.

Tom Wheelwright:

Well, yeah. I don't think there's any question. I, for one, I actually think the IRS does need a little more money. They don't have good customer service. They need to have better customer service. I just like-

Steve Moore:

But this isn't going to be used for customer service. That's my point.

Tom Wheelwright:

That's the problem. That's the problem. Only less than 10% like seven… Hang on. So less than 5% of the money is going to customer service, less than 5%. The number one issue if you ask the average taxpayer who's ever called the IRS what's the most important issue, they wouldn't say, “Well, the rich people aren't paying enough taxes.” They would say, “The number one issue is I can't get ahold of anybody at the IRS.”

Steve Moore:

I know. Yeah.

Tom Wheelwright:

That is the number one issue. By the way, why is it that the government is the only place where if you do a bad job, you get a raise?

Steve Moore:

I know. I mean, the worse their service is, the more money we give them. That's precisely what we're doing here. Again, it's not necessary. We need to make the tax system simpler and fairer with… I'm a flat tax, one rate, everybody pays it, get rid of all the special interest loopholes and you're done with it. You could literally have a postcard tax return under that system. Instead of April 15th being a day where everybody's trying to figure out how much they owe, it'd be just another spring day, so.

Tom Wheelwright:

It'd be more like Estonia when their-

Steve Moore:

That's right.

Tom Wheelwright:

Tax system crashes on January 1st at midnight every year, their system crashes because everybody just goes in. They click their numbers basically and their tax returns done. They got whatever refund they have, whatever. But literally, I have friends in Estonia and they say the problem is that sometimes the system crashes, otherwise it's all done by January 1st. It's so simple.

Steve Moore:

That's what we need in America. We're moving away from that. In fact, this bill creates all sorts of new tax loopholes.

Tom Wheelwright:

Oh yeah.

Steve Moore:

And special car [inaudible 00:21:05], especially for the wind and solar industry and for electric vehicles.

Tom Wheelwright:

And for unions.

Steve Moore:

We're practically buying the cars for people now. They're giving so many tax subsidies to the industry. So we should not be in the business in Washington of picking winners and losers. That's what this bill does.

Tom Wheelwright:

For sure.

Steve Moore:

It says if you're Tesla and you make electric vehicles, every time somebody buys one of your cars, we're going to chip in $7,500 and another $4,500 when you resell the car. It's just crazy. We don't need all those. Most Americans don't want an electric vehicle. Yet, the purpose of this bill is to almost they want to get every gas car off the road, that's their agenda. Then ultimately, they'd like people not to have cars at all, right? Just the rich and powerful and politically connected than the rest of us. I'm not making this up. You should read their stuff. They say, “We got to get everybody into mass transit, buses and rail cars.”

Tom Wheelwright:

Yeah. So-

Steve Moore:

They call that progress.

Tom Wheelwright:

You'll own nothing and you'll be happy, right?

Steve Moore:

Yeah.

Tom Wheelwright:

So final thought here. What can people do? I mean, this podcast going out right away. What can people do about this?

Steve Moore:

I think you can always stop something. They're trying to pass a bill with 50 votes in the Senate, because not a single Republican will vote for this trash bill. Then they only have a four seat majority or some four or five seats in the House. So there's no margin for error. But these Democrats, they remind me of those Korean soldiers that are marching, lockstep, and they're just taking our economy right over a cliff. So contact your Congress and Senator. Tell them how much you hate this bill. This is at a time we should be cutting our taxes and radically cutting the government spending, because don't forget, we've already had $3 trillion of new debt and spending under Biden.

This bill does just the opposite. What this bill does is it's like taking a forest fire and dousing it with gasoline. It's going to make inflation worse. It's make our deficit worse. It's going to make our economy worse. For them to call this the Inflation Reduction Act, they should be thrown in jail for false and misleading advertising.

Tom Wheelwright:

Yeah. I call it the Inflation Enhancement Act.

Steve Moore:

Exactly.

Tom Wheelwright:

So with that, thank you, Steve Moore. Steve, if we want to connect with you and your organization, where would we go?

Steve Moore:

Well, go to FreedomWorks because I do a lot of work with them. If you want to get activated and active in stopping this assault on freedom, it's not just an assault on our money, it's assault on our basic freedoms as Americans, then go to freedomworks.org and you can get involved. We have a lot of great material. At the very least we have to get rid of these people who are doing this damage to our country.

Tom Wheelwright:

Awesome. Thank you so much, Steve Moore. Thanks everybody for listening. Just remember, despite what you hear in the media, this bill does affect you. It affects every single middle class American, whether or not, whether or not you cheat on your taxes. Even if you're completely legitimate in everything you do on your taxes, just like Steve said, I had the same situation with a tax lien that was completely bogus. Took me eight years to get rid of it. IRS tax lien and I'd done nothing. So don't believe that just because you do what you're supposed to do, that you're safe. This is something where we do need to take action. So I would encourage you take a little action, contact your Senator, contact your whoever your representative is in Congress because only when you do that will you be able to make way more money and pay way less tax. We'll see you next time.

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