Episode 126: Elections & Taxes with Grover Norquist

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

Tom Wheelwright:

Welcome to the Wealth Ability Show. We're always discovering how to make way more money and pay way less taxes. Hi, this is Tom Wheelwright, your host, founder and CEO of Wealth Ability. So taxes are big issue right now. They're big in the news. We've got an election coming up. So what we're going to look at today is how, why are taxes so important in an election and how do they make sometimes make or break a politician like they did George H.W. Bush. We know that that was a major issue for him. And how do we get educated and how do we help people get educated so that they understand the difference between what the burden is that taxes put on people and should we be taxing the rich? Should we be increasing tax? Should we be reducing taxes? What should we be doing? And I have the expert on this, Grover Norquist. Grover's got an amazing background. I'll let him tell you about it. But Grover, welcome to the Wealth Ability Show.

Grover Norquist:

Absolutely. Good to be with you.

Tom Wheelwright:

So if you could, yeah, just give us a little of your background.

Grover Norquist:

Sure. Before I immigrated to the United States, I grew up in Massachusetts and early on during the Reagan administration, the president organized, the White House organized Americans for tax reform, an outside group whose goal would be to enact the President's Tax Reform Act of 1986. And so in 1985, the president asked if I would run it, I'd run American, I'd run the National Taxpayers Union earlier between college and business school. And so I sort of worked the tax issue politically and through legislation. And in 1986 we passed the bill which took the top rate corporate rate down to 34% and the individual rates down to 28 and 15, if you can remember that, 28 and 15, on a bipartisan basis with Ted Kennedy's support. One of the political parties has gone way off bonkers in the different direction than they used to with their new high tax position.

But at one point 15 and 28 were the two issue, the two rates that we were going to have. And then from there we're looking to go to a single rate tax. So to get the bill passed, I created the Taxpayer Protection Pledge, which is a one sentence pledge that congressman, senators and President Reagan all signed. Said I'm not going to vote for or support any effort that raises net taxes or takes tax rates up. So the concern was that if we got tax rates down, broaden the base, over time the politicians would keep raising the rate up and you wouldn't even have the protection of the deductions and credit. So the pledge says no net tax increase and as a result we got about a hundred congressmen, 20 senators to make that written commitment, President of the United States. So the bill that passed was actually a tax reduction, small tax cut, largely revenue neutral, but cut a little bit.

And then of course Bush got elected in 1988 because he took the pledge never to raise taxes in writing and Bob Dole wouldn't. And he beat Bob Dole in New Hampshire, which wasn't supposed to happen. And then he got elected. I said read my lips. In the general he said, “I'm never going to raise your taxes.” Got elected. Then he broke his pledge and lost the election in 92. And it was a result of that in 94, that 98% of all the Republicans in the house and Senate signed the pledge, kept it and we haven't had a Republican vote for a tax increase since that 1990 mistake. Now that they've all taken the pledge, it's the biggest difference between the two parties.

Tom Wheelwright:

So let's talk about that. I mean, a lot has changed. I was actually in Washington DC in the Ernest and Young national tax permit back when it earned some money and was actually was in the middle of all of that 1986 tax Act and remember that very well. And I remember the big concern is you broaden the base, boy, it's sure easy just to raise the rates and sure enough it didn't take very long before those rates went up and now they've gone up more. Of course, Donald Trump reduced them a little bit, but now instead of having two rates we've got forever rates and they just keep going up and up. So you say that taxes are the most important issue in our elections. I would certainly agree the taxes are the most important issue in this election. But why do you say that?

Grover Norquist:

Well, if you go through American history, taxes have been the most important issue in our history. The founding of the country, concern about Britain's ability to tax, concerns domestic, in the United States over tariffs, which at one point where most of taxes were tariffs and that hurts certain regions more than others. So taxes are where the rubber hits the road. It's where the government gets up close and personal in affecting your life, making it more problematic. But you can go through any empire or nation or tribe in the world and taxes what the government or those in power take by force from people not in power is a sensitive issue with serious repercussions. It has led to wars, it has led to revolts, it has led to historic compromises. Taxes are front and center. It's the most important issue in American politics. Always has been short of moments of war.

Tom Wheelwright:

So let me ask you this question. So we're in, I think a very odd place right now. We have, so a few weeks ago, Joe Biden gave $442 billion to people with student loans. There was no tax to offset that. This summer, earlier this summer, there was a semiconductor bill which was 250 to $300 billion, no pay for on that. So clearly the Democrats aren't looking to raise taxes in order to pay for things because clearly they think it's okay to just print money to pay for things because it just this summer they've over 700 billion with no offsetting pay for. So here's my question. And yet they keep saying we need tax the rich, tax the rich tax, tax the rich. Why? What is it that has people saying we need to tax the rich when the Democrats don't even believe you need taxes in order to provide benefits?

Grover Norquist:

Well, they need the money to pay the constituents that bring them to power. So they have a lot of debts from labor unions and trial lawyers and special interests industries. A good chunk of the energy industry only exists because of subsidies. You need cash to subsidize otherwise non-performing assets and-

Tom Wheelwright:

Right, but why have the American people bought into this? Because there's a large swath of American people that do believe that the rich need to pay more tax and that this is, that they're good with this policy. Why do you think that is?

Grover Norquist:

Well, because the advocates of larger government spend a great deal of time and energy and smarts trying to figure out how to sneak past the American people to get their money. So they'll say, “Oh this, you won't pay this. Only the top 2% will pay this.” That is what Clinton said and then he taxed everybody on energy and other taxes. That's what Obama said, no taxes on anyone earning less than $250,000 a year. There were eight taxes that hit middle income people directly for Obamacare alone. And Biden says nobody who makes less than $400,000. They keep moving the number up because they want to convince people it's not you, it's not you. They want to divide the American people into different groups so they can mug them one at a time.

If they say, I'm not going to tax you, you might want to step out of the room, this isn't going to be pleasant, but it's only Mary and Joe over here, it's just 2%. It may be unpleasant, may be a little loud, so you might want to close the door, but it's not you. And some people will go, “Okay, it's not me.” Not you yet. It's not you now, maybe you next. When you divide people into different groups and mug them one at a time, it's easier to do. This is why I'm a big advocate of single rate taxes in Massachusetts. We have by constitution a single rate tax. About nine states in the United States have a requirement. The tax has to be single rate because then when you want to raise taxes you have to look everybody in the state in the eye. You're all paying for this, we're all listening, tell us about it. Well, it wasn't that good idea. But if you have a graduated income tax, you can say just some of you are paying for it, the Kennedy kids this time, then you next time.

Tom Wheelwright:

So let's look back at this. So that's how we got the 16th amendment right. That's how we got it because it was only going to be a tax on the rich. It was only the top very small portion. I think you had to, in today's dollars, you had to be making well over $7 million in order to be subject to the tax at all. It was-

Grover Norquist:

It was as much as $11 million to be subject to the tax. Top rate was 7%.

Tom Wheelwright:

Hey, if you like financial education the way I do, you're going to love Buck Joffrey's podcast. Buck's a friend of mine, he's a client of mine, he's a former board certified surgeon and he's turned into a real estate professional. So he has this podcast that is geared towards high paid professionals. That's who he is geared towards. So if you're a high paid professional, you're going, “Look, I'd like to do something different with my money than what I'm doing. I'd like to get financial educated. I'd like to take control of my money and my life and my taxes.” I would love to recommend Buck Joffrey's podcast, which is called Wealth Formula Podcast with Buck Joffrey. I hope you join Buck on this adventure of a lifetime.

Grover Norquist:

Now the bottom rate's 15.

Tom Wheelwright:

Right, there you go. So we always have this, we always have this creep. Now lets kind of turn to if we can, inflation as a tax because back when you and I were back in Washington in the early and mid eighties, we had high inflation and we had the same thing going on. We had super high inflation, we had the Federal Reserve increasing rates. But one of the things that I've been talking about that I've noticed that is different today is to me you have to be increasing. You need to be putting a damper on demand, but also you need to be increasing supply, which is an investment side. So I look at what Ronald Reagan did, because he started this in 1981. He didn't start in 86, that was just the final piece. But he started in 81 with providing incentives for investment. And so while Volker was raising interest rates, Reagan was actually lowering taxes on investment.

So today it seems like we got the opposite. We have, what Biden has been doing is he's been giving money to the people who spend it and then what he wants to do is take money away from people who invest it. So can you just talk about that phenomenon a little bit? Because I do think that's something, it's not being discussed. People are saying, “Well wait a minute, Reagan and Volker, and they did this. We can do it the same way.” But I don't think people understand the difference between reducing taxes or giving money to people who spend up versus money to invest.

Grover Norquist:

Yeah. At the same time that the money supply was not increased as rapidly as it was under Carter to slow the supply of money. The president, as you said, cut the capital gains tax, cut taxes on businesses, gave you faster depreciation for new business investment to make it new business investment less expensive. And then add to that the complete deregulation of trains, rail, automobile, it was planes and trucks as well. So you had the trucking industry deregulated, rail lines. It dropped the cost of transportation about 20%. The cost of all goods, not in terms of, not just fiddling with dollars, but the actual cost of delivering them. The transportation dropped dramatically. Transportation was a good chunk of the economy, the good piece of the cost of everything that people buy. Those things together meant you had a short recession when they stopped printing so much money, we cut taxes.

And matter of fact, June, January 1st of 1983, when the final trench of the tax cuts took effect, that's when you started having growth. 4 million jobs created that first year and then we had seven years of strong economic growth as a result. The challenge for Biden is he's going to slow the money supply, bring it down, contract the economy and have massive new regulatory burdens, massive new burdens on energy production forcing the price of energy up. Some of which because you don't have pipelines, because you don't let people explore for it and you're going to have new taxes and they put taxes on energy, they put taxes on small businesses, they put taxes on your 401k, your IRA. It's not pleasant. Some of the bleeding can stop if in the election in November the Republicans have the house in the Senate or the house, then much of what Biden wants to do can stop.

Tom Wheelwright:

Yeah. So let's talk about that real quick because I've talked about this several times. There's a little complacency I think going on, particularly among people who don't want tax increases. Well, the Republicans going to take the house, everything's going to be fine. What happens if the Republicans don't take the house and on top of that they lose the Senate by let's say the Democrats actually gain Senate seats. What happens then?

Grover Norquist:

Well, then the Democrats would turn around if they had two extra votes and the filibuster so that with the simple majority they could do anything. And at that point Katy, bar the door. There's no limit to what the government in Washington DC could do to the American people. They could decide to add 27 left wingers to the Supreme Court. Na-na-na-na-na, they could do it. And that would reduce all the barriers that our constitution was set up to make sure that no one faction could go crazy. The Democrats understand that if they don't change the rules, they will lose power permanently over time.

They look at a Supreme Court, which is undoing all of the bad decisions of the last 30 years, which gave the government all this power that nobody would ever vote them. The court said, “Oh, you got it.” And you've got the situation where the Democrats simply wish to be able to spend more money with the simple majority, not 60%. And of course at the state level you've got 30 states with a Republican house and Senate. Most states are Republican. They want to stop the states from having a real autonomy, run everything out of DC.

Tom Wheelwright:

Yeah, I do think that when I look at it from a tax standpoint, I look at my 40 years in the tax field, I've never seen an election where taxes did have such an important, where it was such an important election from a tax standpoint because now you've got basically an open checkbook at that point and an open, especially if you eliminate the filibuster. I think that is very serious. Just for a second, can we talk about inflation as a tax? Because I think people are so focused on taxes and actually most people don't pay much tax. I mean the reality is the average person right now, somebody making $200,000 a year is not paying a whole lot of tax compared to historical, some historical tax rates. And so given that's the case, but inflation on the other hand hits actually poor and middle class more than it hits the rich because the rich they've got excess money. So can you talk about inflation as a tax because to me it's the most heinous tax we've got?

Grover Norquist:

Sure. Inflation is the government prints more money and they basically confiscate the value of every dollar bill in your wallet and in assets that you have. They make your paycheck worth less. Average pay increase over the last year was about five and a half percent and the average unemployment was about eight and a half percent. All Americans on average, Americans got poorer. They had lower incomes over the course of the last 12 months, the last year because Biden, because Biden, because the Democrat majority in the House and the Senate. That is a huge confiscation. I mean you can imagine Tiller the hun and others that we're trying to figure out how do we confiscate property from these countries that we've overrun. Well, inflating the currency is a lot easier to do than going house to house and stealing stuff. But it is going house to house to stealing value out of the pockets of a conquered people.

Tom Wheelwright:

So I know what your efforts are doing, but what does the average person do to deal with this? Because it's like, I mean, okay, we can go the polls, but the average person isn't making tax policy. The average person isn't directly affecting inflation. And a lot of our listeners are entrepreneurs, they're investors. What can the average person do here?

Grover Norquist:

Sure. Don't underestimate the importance of voting, getting your relatives to vote, your kids to vote, your neighbors to vote because there're going to be a lot of close elections and this could really be decided by a handful of congressional districts or one or two states and small numbers of votes in those states. The other one is just look at how you save and invest in ways that minimize the damage done by inflation. Minimize the damage done by taxation. And I think we have a real opportunity. And then think about where you want to live. There are 50 states and eight of those states have zero personal income tax, zero personal income tax. California about 13 and a half. Minnesota about 10, New York 10, North Carolina, but I'm sorry, not North Carolina, New Jersey. But there are eight that are at zero. There are another nine that are at or about to go to single rate taxes.

There's a movement in this country at the state level, so you may not have to move. 10 states are marching towards zero. Kentucky passed a law in the next 12 years. They're going to go down to zero. Louisiana, 15 years down to zero. North Carolina's been doing this for 12 years, four years from now they have no corporate income tax, four years no corporate income tax and about six, seven no personal income tax. You're looking at West Virginia, the governor in both houses are committed to going to zero income tax. Iowa down from 8.6 down to 3.9 over a three and a half year period and then they're going the rest of the way to zero. Iowa, who knew it was that high to begin with, but it was. You have Georgia going to a single rate tax, Mississippi's on its way to zero. Our friends in Arizona, four and a half down to two and a half in January, two and a half percent in January and from there to zero.

If you talk to the leadership of the house, the Senate and the incoming governor there, the incoming governor of Arkansas is committed to going to zero as well is the legislature there. Governor of Oklahoma is committed to go to zero. Our friends in North Carolina going to go to a single rate of one and a half. The governor was just emailing with the governor, going down to one and a half percent and then I think they're going to go to zero from one and a half percent. Watch our friends in Idaho. Two significant tax cuts down to a flat rate tax in Idaho. So at the state level, the red states are getting less taxed. The blue states are slowing down their tax increases, California, New York. The governors are going, “Guys, let's not be crazy. Everyone will leave.” So the best thing you can do to help your friends who live in blue states is cut your taxes in red states. It stops the blue state politicians from being too abusive.

Tom Wheelwright:

Got it. So big vote coming up in a few weeks and it's going to be interesting. Anything you think we should be watching for?

Grover Norquist:

Well, there's a measure on the ballot in Arizona to require a 60% vote. If anyone wants to put something on the ballot to raise taxes, not a simple majority, but 60%, takes two thirds of the legislature to raise taxes in Arizona. Should it take two thirds through the initiative process as well [inaudible 00:23:02] 60%, but that's kind of close to two thirds. So there are a number of, there's across the board tax cut in Colorado, just a small tax cut, but they're doing it each year. Over time that will begin to add up. So there are some measures to protect taxpayers on the ballot and mostly their politicians ask your elected official has he or she written, put in writing their commitment to never raise taxes?

That's the taxpayer protection pledge that Americans for tax reform shares with people. If you go to our website at atr.org and look up tax pledge federal state, you can find out whether your state legislative candidate or incumbent has signed the pledge never to raise your taxes or your congressman or senator, have they made that commitment? Or as I just learned from the lady who's running for governor, Democrat running for governor of Arizona, she has no plans at present to raise taxes. That's not much of a commitment there. This is the Democrat. I have no plans to raise tax. If my neighbor told me they had no plans to eat my cat I'd keep the cat inside.

Tom Wheelwright:

That's a good point. And of course, in our last election in Arizona, I'm in Arizona, there was a 85% tax increase that was voted on by proposition, which is where the 60% vote comes from and fortunately the Supreme Court threw it out, but we may not get that lucky next time. So we do have to be careful about tax increases. We do have to be careful about voting and remember that there are good things that come out of some of the tax incentives in the tax law. Ronald Reagan was particularly instrumental in saying, “Look, we'd like just flat lower taxes, but if we can't have flat lower taxes, we do need to provide incentives so that people will invest in those places that need to stimulate investment as opposed to just stimulate spending.” So thank you Grover Norquist. Again, the website is atr.org. Lots of great information there. Any final words for us, Grover?

Grover Norquist:

Yes. Next step, index the cost basis of capital gains for capital gains taxes. We should no longer be taxing inflation as part of capital gains. That is a bill.

Tom Wheelwright:

Agreed.

Grover Norquist:

It's been introduced by the Republicans back in 1978, passed the house, didn't make it through the Senate. We need to go back and fix that because inflation gets awfully expensive for investment on capital gains. Already today, normally it's 40% of what you pay on your capital, 40% of your capital gains is inflation. Even with low inflation hold onto something long enough. But imagine in periods of high inflation it becomes devastating.

Tom Wheelwright:

Yep. Thank you for that and thank you everybody. This is such an important topic right now. I just cannot say right now, this is such an important election. Please remember that taxes always come back to the average person no matter what they may say. No matter what people say, the average person is always going to end up paying the taxes because that's how it always happens. It's the way it's happened from day one. Yes, 2000 in 1913 people weren't paying a lot of taxes if they were making average, but then pretty soon, 1944 we started having taxes on wages, then we started having taxes, and now we've got a complete flip. So wages are taxed higher than business income, wages are taxed higher than a lot of types of income that are investment type income.

And so when you remember that taxes eventually are going to end up on you no matter what, just remember that when you certainly go the polls, and I'm not political, I just don't like this idea that this lie that's out there, that the rich don't pay taxes, they do pay taxes. They pay most of the taxes. And I don't like this lie that somehow you're not going to pay the taxes. So what you do find out is you get more financial education like this. Go to atr.org, get more financial education. You're always going to make way more money and pay way less tax. We'll see you next time.

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