Episode 135
Surprise Effects of Increasing Corporate Taxes
**We are pausing our current series to bring you five timely episodes surrounding suggested new tax policies**
In this new series, we delve into the complexities of corporate taxation and its implications for individual investors. We argue that while raising taxes on corporations may seem like an attractive solution for increasing government revenue, the actual burden often trickles down to shareholders, employees, and consumers.
This episode highlights the intricate flow of money through corporations, emphasizing that corporations are not standalone entities but rather integral components of the economy that directly impact personal finances. By increasing corporate taxes, the ripple effects can lead to reduced dividends, lower capital appreciation, and higher consumer prices.
We stress the importance of understanding these dynamics, as they affect retirement savings and investment returns, making it crucial for listeners to grasp how such policies could impact their personal financial situations.
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About Your Co-Hosts:
Travis Maus has been in financial services for over fifteen years. He is a Senior Wealth Manager and Chief Executive Officer at S.E.E.D. Planning Group. Travis also hosts the Unleashing Leadership Podcast, where he dissects some of his favorite books on leadership and how you can apply it to your business or life.
Steve Campbell has over a decade of industry experience and is the Chief Brand Officer at S.E.E.D. Planning Group. Steve also hosts the One Big Thing Podcast, an interview-style show meant to inspire and encourage 30 and 40-year-olds going through difficult seasons of navigating marriage, raising kids, and growing personally.
Transcript
Welcome to Ditch the Suits podcast, where we share insights nobody in the financial services industry wants you to know about.
Steve Campbell:We're here to help you get the most from your money in life.
Steve Campbell:So buckle up and welcome to ditch the suits.
Steve Campbell:Hey, guys, Steve Campbell from Ditch the suits.
Steve Campbell:Going to interrupt right at the beginning of this episode, because normally, if you've been trekking along with Travis and I, we like to give you multiple episodes as part of a series.
Steve Campbell:And we have been currently through two episodes talking about maybe some misunderstandings, some things you've been tracking when it comes to financial planning.
Steve Campbell:We want to interrupt it because we actually want to release four to five episodes that are more current events right now that have to deal with income taxes and potential proposed legislation for raising taxes on corporations and high net worth individuals.
Steve Campbell:To really help you understand this is currently happening, it's being suggested, how is this going to impact you?
Steve Campbell:So we're sorry to disrupt this series.
Steve Campbell:The two episodes that have been a part of this series will be released later in November.
Steve Campbell:But now, from this episode on, you can expect four to five episodes talking about income taxes, the implications, and how it is going to affect your bottom line, getting the most for your money in life.
Steve Campbell:So thanks for sticking with us and you're going to enjoy this new series.
Steve Campbell:Welcome to ditch the suits.
Steve Campbell:I'm Steve Campbell, chief brand officer with Seed planning group, with my co host, Travis Moss.
Steve Campbell:Travis is our CEO at Seed.
Steve Campbell:For those of you who may not be familiar, Seed is a fee only financial planning advisory firm, and this show is all about us bringing our collective consciousness and years of experience to really help you as the listener get more from your money in life.
Steve Campbell:Brand new series today, current events.
Steve Campbell:Travis, why don't you kind of tee us up as to what this whole series is going to be about for the listener?
Travis Moss:Everybody's favorite thing, I'm sure, taxes.
Steve Campbell:Oh, yeah.
Travis Moss:Or maybe we could think about it like this, how to better understand what's going on with our taxes.
Travis Moss:Or we're actually going to talk more about some proposed tax changes.
Travis Moss:So there's some tax changes we know are going to come down the road.
Travis Moss:For instance, we know the current manner in which most people pay income taxes right now, which predates the first Trump presidency, that sunsets at the end of next year.
Travis Moss:And then you go back to how it was prior, and there's a whole bunch of discussion about whether or not those should be extended or some of the parts of it should be extended.
Travis Moss:You've probably heard something like, if you make less than 400,000.
Travis Moss:Nothing's going to impact your taxes or you won't pay any more taxes.
Travis Moss:But if you make more than that, you will pay.
Travis Moss:So what does that all mean and does it actually affect you?
Travis Moss:And is it true?
Travis Moss:Are there some places there where we need to read a little bit between lines or understand just because you maybe aren't paying the tax doesn't mean you're not paying for the tax.
Travis Moss:And so there's some things there that we want to get into.
Travis Moss:This first one, we really want to talk about the surprise effects of increasing corporate taxes.
Travis Moss:So big discussion, big highlights.
Travis Moss:And I think it's really important.
Travis Moss:If you're listening to this podcast, you're probably investing.
Travis Moss:You probably have some money invested or thinking about investing.
Travis Moss:And if you're doing that, your investments are probably going to be in corporations.
Travis Moss:And so anything that costs a corporation money, you should be particularly interested in.
Travis Moss:And there's a big push here saying, well, jeez, those dirty corporations, they don't pay any taxes.
Travis Moss:We need them to pay their fair share.
Travis Moss:What we want to do is talk about that a little bit.
Travis Moss:And at least if you understand a little bit more how corporations work and kind of the pass through of taxes through corporations and those types of things, how it all works, then maybe you can have a better, you can articulate this argument a little bit better, whether you're for it or against it.
Travis Moss:But I do think that people need to understand it in general because they need to understand if you're going to be for against something, understand how it's going to impact you or if it's not going to impact you, understand how it might impact other people so that you can kind of have that to balance things out in your mind.
Travis Moss:So when we think about factors that impact our financial health, we're really considering one of those factors being income taxes.
Travis Moss:And not just the income taxes that we pay, but also the income taxes, Steve, that your children will pay someday or if you leave them an inheritance that they would pay on that inheritance.
Travis Moss:I think that that's important for a lot of people that listen, I know we have people who are, you know, more advanced at life to getting near retirement.
Travis Moss:They've been retired, thinking about their estate plan.
Travis Moss:It's not just your taxes that are important, it's the tax bill.
Travis Moss:You leave behind all those ious in your retirement accounts and capital gains and that type of stuff.
Travis Moss:How are they handled by that next generation that we're talking about?
Travis Moss:So it's not just us.
Travis Moss:It's not just about our heirs, the amount of taxes that other people pay, and also the role of corporations in the financial system.
Travis Moss:And we're going to make a really interesting argument today about how the government creates money, essentially.
Travis Moss:But the first thing that money does is pass through corporations.
Travis Moss:It goes through something, whether they're nonprofit corporations or for profit corporations, the money's passing through things to get into the economy.
Travis Moss:And then as individuals, when we get that money, what do we do?
Travis Moss:We go out and we buy services or buy things or save money or invest things.
Travis Moss:Well, what's all that done with?
Travis Moss:It's done with corporations.
Travis Moss:So corporations are really, if you want to think about it, the heartbeat of the economy.
Travis Moss:Because all, you know, if you want to think about the lifeblood of the economy, which is kind of the money flowing around it, it's all going through the corporations kind of at the middle.
Travis Moss:So anything that you do to increase the flow of money into or out of corporations is going to impact how they operate and how the rest of the system operates.
Travis Moss:So if you think about your body, if you're having a heart attack, obviously that's going to impact your body, or if you're, if you have a lot of cholesterol and your arteries are closing and it's going to be harder for you to catch your breath.
Travis Moss:Same thing that we're talking about as far as how corporations work in the economy.
Travis Moss:So we're going to talk a lot about that.
Steve Campbell:And what a setup.
Steve Campbell:I mean, for those that are brand new.
Steve Campbell:Welcome to ditch the suits.
Steve Campbell:Just so that you guys know, Travis and I style, we are not going to give you a three hour dissertation about proposals or tax changes, because that's too long.
Steve Campbell:But I will tell you that there's enough content here over four or five episodes, that's going to be 3 hours worth of content.
Steve Campbell:But we need to be able to stack these ideas so that you really understand it.
Steve Campbell:If we just fire hose shooting out everything that's happening, it's too hard for your day to day, or if you're in the car listening this to really take it in.
Steve Campbell:So this whole series, if you're new to ditch the suits, we usually introduce an idea and then have multiple episodes to kind of give you our experience, what we're seeing, and then give you some real practical takeaways.
Steve Campbell:Whether you use them or not, that's up to you.
Steve Campbell:But this is all about income taxes, how you need to make sense of what's going on, as Travis said, not just in your life, but the life of those dependent upon maybe even the companies you work for.
Steve Campbell:How does this all factor into it?
Steve Campbell:So I think this might be four, it might be five episodes, but it's really going to cover a broad spectrum to help you understand the role of it.
Steve Campbell:And as you said in this first one, we wanted to talk about really the role of corporations.
Steve Campbell:So you kind of go ahead before.
Travis Moss:You go beyond that, though, the role of corporations.
Travis Moss:But the payoff of that is once I think you understand what we're talking about today, you're going to have a different, probably a different perspective because we're going to talk about the real effects of increasing the taxes on corporations.
Travis Moss:So you're going to walk away understanding that when you take money from a corporation, what happens is the corporation now has less money to work with, which means less money coming back to the shareholders.
Travis Moss:So you're going to get less dividends.
Travis Moss:So people who love dividends in their portfolio, that's going to be impacted, most likely lower capital appreciation of your stock investment.
Travis Moss:So when you like looking at your four hundred one k and seeing the balance go up, that's going to be challenged because the corporations won't have as much money to reinvest to make that happen.
Travis Moss:Higher cost of goods.
Travis Moss:So the funny thing about corporations is they're designed to make a profit.
Travis Moss:So if their input costs more and taxes are part of that, they're going to pass on more of the expense of the consumers.
Travis Moss:So I can say, geez, I'm going to make those corporations pay.
Travis Moss:But at the same time, by making them pay really means that they're going to charge me more to cover what they have to pay.
Travis Moss:So it's not the corporations that are going to eat the bill on this.
Travis Moss:They may pay the actual tax, but I'm going to pay for the tax through inflation, basically.
Travis Moss:And it's not the good kind of inflation, which is just kind of like sometimes things are high and sometimes things are low because lots of people want something.
Travis Moss:It's the bad kind of inflation, which is it's forced.
Travis Moss:There's no way out of it.
Travis Moss:It has to go up because there's more cost that's, there's, you know, maybe there's not good inflation or bad inflation, but it's, it's certainly on the bad end of inflation, being that there's no way to, there's no way for a corporation to control it.
Travis Moss:If they owe a tax, they just owe the tax, right.
Steve Campbell:Well, and I think Travis, to that.
Travis Moss:Point, final thing though, is optimization.
Travis Moss:You got, I didn't mean to interrupt you there, but you're the optimization of.
Travis Moss:Anybody who's ever worked at a big corporation knows the term optimization.
Travis Moss:That means layoffs or that means less jobs or that means less promotions.
Travis Moss:So if I take money away from a corporation, corporation is going to optimize.
Travis Moss:They're going to cut costs.
Travis Moss:And normally the costs come in people.
Travis Moss:I'm sorry.
Travis Moss:So go ahead.
Steve Campbell:Oh, no, no, you're good.
Steve Campbell:I think this whole series, as we were preparing for it, too, is when you hear things that are introduced at a governmental level or during an election cycle, like how do you make sense of it for your own life and what things mean, because it's easy to say things like greedy corporation should pay more or the wealthiest should pay more.
Steve Campbell:And it's, yeah, that sounds good.
Steve Campbell:I mean, people making a lot of money should pay more.
Steve Campbell:But how does that affect you once you actually unwind it and understand it?
Steve Campbell:So our whole goal with this is to just really talk about these things and what could happen if some of these things are introduced.
Steve Campbell:How you make a judgment is completely up to you.
Steve Campbell:But I think for setting the stage for corporations, like you said, anybody that's going to have, you know, their dividends impacted or their 401k, that's important to you and your lifestyle.
Steve Campbell:So let's unwind debt.
Steve Campbell:So, Travis, then we're talking a lot about corporations.
Steve Campbell:You kind of mentioned at the beginning, talk to us from a high level.
Steve Campbell:What is the role then of corporations and how does it impact us as individuals?
Travis Moss:Yeah, so I kind of, I mentioned this already.
Travis Moss:The government creates money.
Travis Moss:They say, hey, here's money, and we're going to do stuff with this money.
Travis Moss:And they do that in a lot of different ways.
Travis Moss:But basically when they create money and they want to get money into the economy, it's going to come through corporations, it's going to come through institutions, and they're going to spend the money, they're going to give the money to employees, they're going to use the money to buy assets, they're going to go out and invest in different ways or whatever, but the corporations use the money and it gets to the personal level to me and you via the corporations, through paying our salaries and stuff like that.
Travis Moss:And you could say even the act of lowering interest rates may allow corporations to have more money.
Travis Moss:And then that gets into the economy through, I can pay people more and I can expand and buy assets and that type of stuff.
Travis Moss:So government policy impacts how money, how fast money is going to move through the corporations to the individuals.
Travis Moss:Well, and then one of the things that happens is that the individuals then take it and spend and it goes back to the corporations.
Travis Moss:The government takes a piece every time you spend.
Travis Moss:A little bit of corporations get in our chunk and then they redistribute it again.
Travis Moss:So these corporations are naturally redistributing.
Travis Moss:They're, they're, and anybody can participate with it.
Travis Moss:When people say, well it's not fair that the corporations get the money, well, you buy stuff from the corporations.
Travis Moss:You work for the corporations, you invest in the corporations.
Travis Moss:And people say, I don't invest in corporations.
Travis Moss:If you have a 401K or a pension and you buy mutual funds in your 401k or pension, chances are you are investing or your, the value of your assets are going to be backed by corporations or in some ways backed by corporations.
Travis Moss:Right.
Travis Moss:Unless you're completely in just government bonds or something like that.
Travis Moss:And so, you know, these corporations that everybody's saying, okay, they need to pay more in taxes, but number one, there's real world ramifications.
Travis Moss:But number two, you are participating with the fact that they're doing well.
Travis Moss:You're, you're, you're getting money for the fact that they're doing well.
Travis Moss:And you can, you know, you could make the argument that, geez, that CEO gets paid way more than I do for working for the company, but that's a different argument.
Travis Moss:That's more of a, that's a much more complex argument.
Travis Moss:The reality is though, anybody in America can take advantage of what's happening with corporations.
Travis Moss:They can both make money and lose money because of how healthy the corporate community is.
Steve Campbell:Yeah.
Steve Campbell:And I think you might have piqued some people's interests that may not have realized kind of the role that they may play when you talk about corporations.
Steve Campbell:So that's a great start.
Steve Campbell:So then maybe then start to talk to us about, you know, within corporations, what, what happens along some of these lines if you introduce higher taxes or things come about, like what, what begins to unwind?
Travis Moss:Well, let's, let's continue to maybe lay the framework and get to there.
Travis Moss:So you work for a corporation, you get paid when you get paid, what do you do?
Travis Moss:You pay income taxes, right?
Travis Moss:Yep.
Travis Moss:Now part of your tax is that Social Security and FICA that they take right off the top.
Travis Moss:The business also pays a part of that too.
Travis Moss:They pay essentially pretty close to the equivalent of what you pay on the other side.
Travis Moss:You don't necessarily see it, but they're paying it as well.
Travis Moss:So the first thing that happens, corporation gets money.
Travis Moss:They pay you and government gets taxes on the money that they paid and they get a little extra tax as you don't see it, but the business sends it in on behalf of you to help cover your future social securities and those types of things.
Travis Moss:We then take that money, we buy things and we pay sales tax now.
Travis Moss:So when you buy, you go out and you buy, you know, soda or beer or clothes or shoes or a car, you know, you're going to pay taxes on those types of things.
Travis Moss:So you pay sales taxes and then depending on what you buy.
Travis Moss:So let's say you buy a house.
Travis Moss:What do you pay when you buy a house?
Travis Moss:Now you get to pay taxes for having the house.
Travis Moss:Right now you're going to pay property taxes and local fees and all that kind of stuff.
Travis Moss:Same thing with cars and stuff like that.
Travis Moss:So now you paid this tax for the privilege of owning that.
Travis Moss:So money that's flowing out of a corporation and then back into the cycle.
Travis Moss:Think of the government as kind of like having toll booths.
Travis Moss:And every time it passes through from basically one street to the next.
Travis Moss:So one street being you, one street being the business, and then the business back to you every time it passes that intersection.
Travis Moss:Governments, cha ching, cha ching, cha ching.
Travis Moss:They're getting a cut of that.
Travis Moss:You're throwing quarters in on the way through, or sometimes you're throwing big dollars in on the way through.
Travis Moss:But there's, there's a toll booth type of mechanism.
Travis Moss:And you know, when the company, when a corporation, when money flows through a corporation, they're using that to hire people or to buy materials or to hire other services that they then use to produce more stuff to sell to people, you know, whether again, services or products.
Travis Moss:So these are what we're going to call costs.
Travis Moss:So we're going to talk a lot about costs today.
Travis Moss:But costs are what it costs the business to actually make money.
Travis Moss:And there's a winner to every cost.
Travis Moss:If there's payroll, that cost, the winner is the employee.
Travis Moss:If there's, you know, oh, geez, we have to buy computers.
Travis Moss:Guess who's the winner is?
Travis Moss:The corporation that sells the computers and the guy who does the tech service on the computers.
Travis Moss:Right?
Travis Moss:So there's winners.
Travis Moss:Every cost.
Travis Moss:There's a winner to somebody outside of it or possibly even inside that corporation other than the corporation.
Travis Moss:They're spending their money, which then props up the entire system.
Travis Moss:So that money is going through there as costs, and costs are generally going to be deducted against profit.
Travis Moss:So if I have a million dollar profit, but it cost me $800,000 to make that profit.
Travis Moss:I actually don't have a million dollars profit.
Travis Moss:I have 200,000 because I'm going to subtract my expenses out of my income, and so I'm going to get my net profit at $200,000.
Travis Moss:And that's just a simple way to calculate that.
Travis Moss:But then a company ends up with this profit and they say, hey, I got extra $200,000.
Travis Moss:What should I do with it?
Travis Moss:They may reinvest it.
Travis Moss:They might say, you know what?
Travis Moss:Let's go out and let's buy new trucks, because our older trucks are wearing out and we're having to spend a lot of maintenance, and we have these delivery things that we do, and we need to better do that.
Travis Moss:We may need new kitchen equipment for the restaurant or new printing equipment in the warehouse or something like that.
Travis Moss:Or they save it for a rainy day.
Travis Moss:They go, you know what?
Travis Moss:This was a good year.
Travis Moss:All years are not good.
Travis Moss:Sometimes we have a minus.
Travis Moss:Let's put this away and let's have savings for it.
Travis Moss:Or they say, you know what?
Travis Moss:We got so much money already, there's nothing left to buy.
Travis Moss:There's nothing left to save.
Travis Moss:We're going to give it back to our investors through what's called dividends or share buybacks or something like that.
Travis Moss:So they distribute it back to the shareholders.
Travis Moss:So if it's reinvested, that's normally going to be a cost.
Travis Moss:They're going to get to deduct that in some way, probably.
Travis Moss:So that's where the business goes out and buys a new warehouse or buys new trucks or hires more employees or something like that.
Travis Moss:So that's part of, that's essentially a cost, right?
Travis Moss:So we're back to that cost thing.
Travis Moss:And then what happens, though, when the company reinvests its money, you're the shareholder, right?
Travis Moss:So if you, if you own this company and you know, it's a, your 401k through a mutual fund, or maybe you own it, an IRA outright, you, then when that company reinvests that money, that money is now, whatever that money bought is an asset of the company.
Travis Moss:Now, the, theoretically, what happens is the value of that company goes up, which is why your 401k balance would go up.
Travis Moss:So you're actually getting the reinvestment of that money.
Travis Moss:So if there's less money to reinvest, if a corporation is, let's say, not allowed to reinvest that money, or if they take away the tax deductions on that or if, yeah, so just if there's less money to reinvest you're getting less.
Travis Moss:There's less appreciation on that.
Travis Moss:But more importantly, what happens when you decide, okay, that's been great company.
Travis Moss:You've been reinvesting this money, but I'm ready to retire.
Travis Moss:Give me my money back.
Travis Moss:So you go out to the stock market and you sell your investment.
Travis Moss:You now get money back.
Travis Moss:Well, that's profit to you.
Travis Moss:Now.
Travis Moss:You put in $100, you're getting $150.
Travis Moss:That $50 difference, that is now going to be taxed.
Travis Moss:So you are going to tax.
Travis Moss:So even though the business was able to deduct it and grow, because it was able to deduct that expense, because it was able to deduct it, it had more money to invest.
Travis Moss:So it had more money to cover costs.
Travis Moss:The value of that went up.
Travis Moss:Yep.
Travis Moss:Nobody's paid taxes on that yet.
Travis Moss:But when you sell that for retirement, now you're going to pay taxes on it.
Travis Moss:So one of the issues with saying, hey, these corporations, we should just tax them more.
Travis Moss:There's already somebody paying the taxes on what they're making.
Steve Campbell:Let's take a quick break to hear a word from your sponsor.
Steve Campbell:This episode is brought to you by seed planning group.
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Steve Campbell:Yep.
Steve Campbell:When I think you had a really nice distinction a few minutes ago as you led into a very different conversation.
Steve Campbell:If you are frustrated at the CEO's making crazy amounts of money, we're talking about corporations.
Steve Campbell:And so I think there's a lot of listeners that probably work for great companies that have shareholder buybacks, dividends, they love the place that they work.
Steve Campbell:So it's not that every single company is corrupt or evil, but it's this notion that we should just be taxing corporations more to put money, more money back into the system.
Steve Campbell:And so I think that was a really nice explanation of how corporations work and the benefit that you as a listener are getting from.
Steve Campbell:As companies grow, you're potentially growing with them.
Steve Campbell:So if you tax corporations more, that in tunes means that you may have less in your overall 401k or in your investment.
Steve Campbell:So it is impacting you.
Steve Campbell:Even though we're pointing the finger over here and saying this must be done, you are on the end of that other stick that's getting affected by it.
Steve Campbell:So that's really important.
Steve Campbell:So then, you know, you talked a little bit about the stock buyback.
Steve Campbell:If there's anything there you still want to say, talk about it.
Steve Campbell:But I think also then segueing into this idea of how corporations pass through income, I think is a really cool example for individuals to understand how that works, too.
Travis Moss:Yeah.
Travis Moss:So like you mentioned there, though, there's ways that corporations are going to distribute money back to shareholders.
Travis Moss:There's, there's.
Travis Moss:And a lot of this is under fire, too.
Travis Moss:They're trying to.
Travis Moss:One of the things that they're trying, that they're talking about is requiring companies to pay a certain amount of dividend back to shareholders.
Travis Moss:That immediately makes money taxable, and it reduces money that's going to be available for reinvestment.
Travis Moss:And it forces not only the corporation to pay more income taxes, but it also is going to force the individual to pay more income taxes, possibly much sooner than you just have less control over forced dividends.
Travis Moss:But there's two ways that the company typically is going to give you money back.
Travis Moss:One way is that they're going to give you a dividend, and the other way is that they're going to do something called a stock buyback.
Travis Moss:And so people have heard this.
Travis Moss:All those greedy companies, they just keep doing stock buybacks, and that's the only reason why the market's up.
Travis Moss:Well, what stock is, is a company issues stock when it needs to raise money.
Travis Moss:So if I don't need to raise money, I could own 100% of the company.
Travis Moss:But if I want to raise money so that I can get bigger, I might say, hey, Steve, would you like to buy some stock?
Travis Moss:I'll issue you some shares and you could maybe own 1% of the company.
Travis Moss:But what you pay for that is going to go to the company so the company can go out and buy stuff.
Travis Moss:What happens on the flip side, though, now the company has lots of business.
Travis Moss:And I go, hey, Steve, you know, you had invested in us a long time ago.
Travis Moss:Would you like us to buy that stock back from you?
Travis Moss:And a lot of times you might even pay a little bit of a premium for it.
Travis Moss:You might be like, we'll give you an extra dollar or so a share than we otherwise might have for what the market is currently going for, to take those shares off your hands, which is how it pushes the price up.
Travis Moss:And you would say, hey, that's great.
Travis Moss:When times are good, companies shrink the shareholders that they have or the amount of outstanding shares.
Travis Moss:And when times are bad, they expand it.
Travis Moss:So if they never shrink it, then what happens when they actually need to go out and raise money?
Travis Moss:Because times are bad.
Travis Moss:They've got this bloated shareholder base and everybody's already full, so they want to shrink it when times are good.
Travis Moss:Now, the interesting thing, though, is when a company gives you a dividend or they do a stock buyback, they don't deduct that money.
Travis Moss:They do pay income taxes on that money, or it is, it does go through their claimable income.
Travis Moss:Whether or not they actually end up paying has to do with a lot of other things like depreciation and other things that are going on.
Travis Moss:Do they have losses from someplace else that's offsetting that income?
Travis Moss:But it is taxable income to them.
Travis Moss:So they're not getting a tax break to give you money, they're paying taxes on it.
Travis Moss:And then when you receive it, you're going to get a tax bill with it, whether it's a tax bill for today or whether it's a deferred tax bill.
Travis Moss:So they're not getting away with anything.
Travis Moss:Right?
Travis Moss:When they give you that money, they're paying taxes and then you're paying taxes.
Travis Moss:So think about that as almost like double taxation.
Travis Moss:Yep.
Travis Moss:So, yeah, if you buy a company and it goes up in price and it comes back down and maybe it crashes, you can sell and get a loss.
Travis Moss:But most people when they buy a company on a long term, they're going to end up with some kind of, not only dividends or, yeah, some kind of dividends that they're paying as they go, or they're going to get some kind of capital appreciation, they're like, I guess just to hammer the point, you're the owner of the companies are going to pay the taxes.
Travis Moss: mutual fund or a Russell: Travis Moss:They need to be paying more taxes and you need to be thinking about, but I'm going to pay taxes when I use the money anyway.
Travis Moss:So we're really talking about taxing money that's already been taxed.
Travis Moss:And what we're talking about right now is taxing it even more.
Steve Campbell:Hey, guys, Steve Campbell with digital suits.
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Steve Campbell:So let's get right back to the episode.
Steve Campbell:And thanks for listening to ditch the Suits podcast.
Steve Campbell:Yeah, and I think you had a great point in here, too, is really the brunt is being paid by the investor.
Steve Campbell:So even though we want to be potentially taxing these corporations more from that story that you just kind of walked us through an analogy as an investor with these shares or dividends too, they're also paying part of the tax too, as well, so it's not just affecting the corporation.
Steve Campbell:And so anything else in that section that you want to go over that you think would be helpful?
Steve Campbell:Because I know we have some big takeaways here.
Travis Moss:Yeah, I think I would just kind of maybe bring all that because I know we had tons of notes in this section and I kind of sliced and diced them.
Travis Moss:But you're doing great.
Travis Moss:Basically, the more taxes that the corporation pays, the less capital appreciation you're getting, the less dividends you're getting, less dividend buybacks you're getting.
Travis Moss:Right.
Travis Moss:What you're doing is you're restricting what the corporation can do.
Travis Moss:That's money, which is going to impact how much money you ultimately end up with from your investment.
Travis Moss:Or if you work for the corporation, it might impact whether or not you're getting raises.
Travis Moss:You know, if CEO is getting paid a million dollars and you're getting paid $50,000 and we create extra taxes on the CEO, CEO is probably not going to be, geez, I guess I should take a pay cut and pay my employees more and pay more income taxes.
Travis Moss:They're probably going to say, I need to figure out a way to make more money so I can pay the taxes.
Travis Moss:And one of that, one of those issues might be, I can't pay people more.
Travis Moss:So there's a dynamic here that we have to, there's a cause and effect that I do think that we have to understand.
Travis Moss:And again, CEO compensation, I think is a completely different discussion, but I think it's relevant across all industries, nonprofit academia, everything, to have that conversation about how much are the people at the top versus people at the bottom getting paid.
Travis Moss:I think that's a.
Travis Moss:But it's a totally different discussion.
Travis Moss:But ultimately, the less money or the more taxes that a corporation pays, the less money that shareholders get and shareholders are already paying taxes once they get that money.
Travis Moss:So, and just to clarify that, too, if you have a retirement account, yes, you're not paying taxes when you get that, those dividends or that capital appreciation on the stock when you sell it, but you do when you take it out of the account.
Steve Campbell:Yep.
Travis Moss:And so it is directly impacting you because all the money that the corporation makes that comes to you in the form of dividends or share appreciation is going to be taxed to you.
Travis Moss:When you take it out of your account or your kids or somebody, it's going to be taxed.
Travis Moss:So it ultimately ends up in your lap.
Travis Moss:You are the one paying the tax.
Steve Campbell:So if we're out there shaking our fists saying, yeah, you know, corporations should be paying more in taxes, just realize, folks, then you're also going to be paying more in taxes too because you participate in that so great setup for the importance of corporations and how it works with taxes.
Steve Campbell:So then you have being thrown around some different tax proposals and kind of what's being implemented.
Steve Campbell:So then, Travis, talk to us about what is the tax policy being recommended around corporations at this point?
Travis Moss:Basically, there's a lot of them.
Travis Moss:This one that we're talking about today, and we'll get into more in the following episodes, but the ones that we're specifically talking about today is they want to increase taxes to the corporations.
Travis Moss:They want the corporations to pay a higher rate and they want some minimum taxes.
Travis Moss:So like, corporations can't pay zero.
Travis Moss:They want to make sure that they're paying a certain amount of taxes no matter what, which really gets to, you know, there's a lot of other tax laws.
Travis Moss:And the way that a corporation can be profitable but still pay zero in taxes has to do with real estate and carry forward losses and all kinds of other things that they do, right.
Travis Moss:So it's not so much the corporation doesn't pay taxes because they're greedy.
Travis Moss:It's because of how tax law is created that allows them to use deductions at certain times and roll income into other times.
Travis Moss:So it's a lot more complicated than that.
Travis Moss:But what they're really saying, if you wanted to change the, take the politics out of this, if you wanted it to make it less of a political statement of those greedy corporations should be paying their fair share, what you would really be saying is shareholders should pay higher taxes.
Travis Moss:Shareholders include anyone that owns, like I said, the mutual funds, investments in the stock market or pension because it's the shareholders that are going to get less returns because of the taxes.
Travis Moss:So it's the shareholders that are paying this and it's the customers that are paying this.
Travis Moss:It's the people who go to the grocery store and now we'll have to pay more because the corporation has to pay higher taxes and it has to somehow cover those taxes so the customers pay more.
Travis Moss:You can call those shareholders as well because a business is nothing without customers.
Travis Moss:Right.
Travis Moss:So ultimately it's the shareholders that are going to pay for higher corporate taxes, not the corporations.
Steve Campbell:And we've all been in situations where you're pointing your finger at somebody else and then you realize that the finger is also pointing back at you.
Steve Campbell:That this is a hard reality for people that just don't understand how income taxes work.
Steve Campbell:And the tax on corporations to realize it's you, the shareholder, that are ultimately going to be paying higher taxes.
Steve Campbell:That's a really harsh reality for people that might have said, Travis, I didn't understand that.
Steve Campbell:So thank you.
Steve Campbell:So then as we hit on a couple of these points, I think this is really good just to kind of walk back through, regardless of how people feel, what happens when corporate taxes get raised?
Travis Moss:Corporations, like we've talked about, corporations have less money to pay shareholders and dividends.
Travis Moss:So your dividends are going to go down.
Travis Moss:Corporations have less money to buy back shares.
Travis Moss:Yep.
Travis Moss:So, so you're going to get less capital appreciation.
Travis Moss:I think you mentioned a little bit right before this last segment here, you know, corporations pay higher taxes, you'll pay higher tax.
Travis Moss:I think what you were saying there is not that both sides are going to pay higher taxes, although there are some situations with some of these law changes they're talking about where that could happen.
Travis Moss:I think really what you were saying is corporations will pay higher taxes and that's going to cost you the equivalents of those taxes.
Travis Moss:Correct.
Travis Moss:So I just wanted to kind of clean that up.
Travis Moss:But corporations have less money to pay shareholders.
Travis Moss:Corporations have less money to buy back shares.
Travis Moss:Corporations pass on the higher taxes to consumers, which creates a rising cost of inflation.
Travis Moss:Remember the bad inflation?
Travis Moss:The inflation, you don't have control over corporate.
Travis Moss:And then of course we'll blame it on corporations.
Travis Moss:But corporations just passing through a government tax.
Travis Moss:Corporations will optimize.
Travis Moss:So optimizing their operations normally means laying people off, cutting jobs, closing facilities, you know, you see destroyed communities all the time because a corporation pulled out.
Travis Moss:Guess what happens if you create super high tax environments, which is what we're talking about.
Travis Moss:We're talking about around the world, this being a very, very high tax environment for corporations.
Travis Moss:Corporations leave and so if corporations leave, what happens to your community?
Travis Moss:So you wanted them to pay more?
Travis Moss:Well, so they left and they took all the jobs with them.
Travis Moss:What happens then?
Steve Campbell:So I think the big part is you just nailed those points.
Steve Campbell:We always want to leave listeners with solutions for each of these.
Steve Campbell:So hit us with what would be kind of a solution.
Travis Moss:So we've raised your award is what you're talking about.
Travis Moss:Just people, I think in general need an opportunity to learn what the role of corporations are.
Travis Moss:You know, we love to vilify corporations and there are some bad corporations out there, right, where a corporation itself is never bad or good.
Travis Moss:It's the people running the corporation who do bad or good things, right.
Travis Moss:So it's easy to vilify them and blame them for our problems.
Travis Moss:But we need to understand the role of corporations and corporate governance.
Travis Moss:And that's when you can get into whether or not people are getting overpaid.
Travis Moss:But there's a role for corporations and then we need to understand that the value of a corporation represents whether or not you can afford to retire as an individual citizen.
Travis Moss:So you might think it's got, you know, it has nothing to do with me.
Travis Moss:If that corporation has to pay more taxes.
Travis Moss:It absolutely does.
Travis Moss:If you, if you come down heavy handed on the corporations, you're going to challenge your, whether or not your pension plan is solventhe, whether or not you, you know, inflation goes out of control and that pension plan can keep up with the cost of goods, whether or not your 401k grows.
Travis Moss:The more you take out of corporations, the less that stuff is going to be positive.
Travis Moss:Let's see here.
Travis Moss:Understand that you already have to claim the gains on corporations.
Travis Moss:The corporation makes money, you make money.
Travis Moss:When you make money, you pay taxes.
Travis Moss:So any increase on the tax rate of the corporation is ultimately going to be an increase on your tax rate.
Travis Moss:So there's, there's just no way out of this to say, hey, it's just them, it's not me, you know, the only way out of it is to say, I don't have any investments.
Travis Moss:I don't believe in investments, I don't have a job.
Travis Moss:I don't believe in working.
Travis Moss:I'm just going to live off of whatever the government gives me.
Travis Moss:Those are the people that are not going to be affected by this.
Travis Moss:Everybody else is going to be affected by this.
Travis Moss:And even those people who don't have a job and don't have investments and just want to survive off the government, they still want to buy stuff.
Steve Campbell:Sure.
Travis Moss:Right.
Travis Moss:So it is going to kind of trickle down into them.
Travis Moss:And just consider that corporations are not the reason we have a debt problem.
Travis Moss:We're blaming them on the debt by saying we should tax them more.
Travis Moss:They're not the problem.
Travis Moss:The problem is we spend irresponsibly.
Steve Campbell:Boom.
Travis Moss:It's not that corporations made us go into debt, it's that we went into debt because we're not responsible.
Travis Moss:And then we want to come back and we want to fix the problem or make it look like we're fixing the problem.
Travis Moss:And really what we're talking about, when they're talking about taxing corporations more, they're not talking about paying off the debt.
Travis Moss:They're talking about creating new tax credits and subsidies and stuff like that.
Travis Moss:They're basically going to spend the extra money, not save it.
Travis Moss:So when we look at this and we say those greedy corporations and we get our pitchforks out, we really need to stop for a second and say it's not the corporations that we should be frustrated with.
Travis Moss:It's the people controlling the purse strings that aren't using what is actually given to them in the trillions and trillions of dollars a year in taxes.
Travis Moss:They're not properly managing that money.
Travis Moss:Let's work on managing the money better and let's think about how we can be involved in that process more so than why don't we go and place blame on somebody and try to take more from them, which ultimately takes more from us so that people can continue to be irresponsible.
Steve Campbell:Man, some of the best nuggets are the last few moments of a ditch the suits episode.
Steve Campbell:Travis, nice job.
Steve Campbell:I think that was a really good explanation.
Steve Campbell:Hey, if this is your first episode of Ditch of Suits, or you've been with us for the last few years, smash that like, button drop a comment below.
Steve Campbell:Let us know if you learned something in this episode because that's our whole point, right?
Steve Campbell:We want to help you get more from your money in life.
Steve Campbell:We're going to have a number of more episodes in this, talking about what happens if you tax unrealized capital gains.
Steve Campbell:That's our next episode.
Steve Campbell:We're going to get into it like what's being proposed and how is that going to affect you?
Steve Campbell:So I think for a first overall episode, this was a great start.
Steve Campbell:Don't forget you can watch along with us on our YouTube channel, which is at NQR Media that's not quite right.
Steve Campbell:Media or on every podcast channel channel.
Steve Campbell:So stay tuned.
Steve Campbell:Subscribe, follow us.
Steve Campbell:If you got any questions, reach out to Travis and I.
Steve Campbell:But as always, thanks for being our guest on ditch the suits.
