Intelligent Investing #54 - Taxes with Bill Baker

In this episode Bill Baker and Glenn Leest discuss tax subsidies, credits, deductions and how policy shapes behavior. 

•How the Earned Income Tax Credit has impacted our culture
•How college Tax Credits in the late 90’s combined with changes to the student loan program led to a proliferation of college enrollments
•If you want less or something, tax it more
•If you want more of something, tax it less
•Have municipal subsidies to attract businesses been beneficial?
•What are the pros and cons of offering tax subsidies and incentives to corporations?
•How are businesses taxed differently than individuals?

 



Glenn Leest
 Senior Investment Adviser
 WT Wealth Management
928-225-2474 Office
813 North Beaver Street, Flagstaff, AZ
86001
 
 
 Granite Mountain Accounting, LLC
 Bill Baker
 https://granitemtnaccounting.com/portfolio-item/bill-baker/
 https://granitemtnaccounting.com/contact/
 
 CONTACT
 Bill H. Baker, Jr.
 Enrolled Agent
 928-699-6096 – cell
 billbaker@granitemtnaccounting.com
 
 Arizona
 2717 N. Fourth Street, Suite 160
 (Dahl Professional Building)
 Flagstaff, AZ 86004
 928-699-6096 office
 
 
 New Mexico
 2990 N Main St., Suite 2D
 Las Cruces, NM 88001
 575-521-7700 office
 575-521-7702 fax

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Transcript

The following is paid programming brought to you by WT Wealth Management. Nothing we discuss should be considered as investment advice. This conversation is for informational purposes only. Please do your own research and speak to an investment advisor or financial planner before making any investment decisions.

All right. Welcome to Intelligent Investing with Glenn Leest. I'm your host, Jeff Oravits. Uh, Glenn would love to hear from you. Phone number (928) 225-2474. And Glenn, we're continuing with, uh, Bill Baker, who's an accountant. Uh, tax preparation taxes. Yeah, Tax planning taxes. Um, and, and the wonderful subject of taxes.

We decided needed two parts because I think we're going to get more into incentives, subsidies. There's a lot to it. There's, there's, When you talk about taxes, there's like, What do you want to talk about? There's. There's a lot there. There's a big book. I mean, it's, it's like how high is the tax code? Have you ever, have you ever printed it out?

It's No. No. You couldn't . It's not enough in, in the world. I, I think we wanted to hit though more on, um, first, first of all, there's this. Myth, I guess, that most people just inherit their money, inherit their wealth. Oh yeah. Yeah. I think we, we were talking about that before we came on Air Glenn, you want to touch on that a bit and, And Bill?

Yeah. Yeah. So a lot of times, uh, I don't know why there's this misconception, you know, when it comes to wealth or like, I've heard this before, people say, Oh, well the rich people don't pay their fair share. When you look at the tax code, you look college. Progressive and as you make more money, you pay a whole lot more.

You go, Well that doesn't seem to be accurate. Well, people were rich because they inherited all their wealth. And you look at the stats, this majority of people are self-made. You know, millionaires, very few of them actually get wealth. A lot of them made businesses or great investments and had to work hard. So I don't know where that notion of.

Um, you know, people who have it just somehow magically, you know, got money. It's money doesn't grow on trees. Uh, you have to go out and work for it, and it's never easy. I've never had, if you know, shortcut of how to make money easy. Yeah. People been trying to find that food, who trying to find a millennia.

It takes a lot of hard work and discipline, so Well, and, and then a lot of people that inherit the wealth, the second generation, definitely the third generation, they tend to lose. It's been what I've seen. It's, it's pretty rare. It's properly, Yeah. If they, if they just are not educated and helps show how to manage it.

Like the lottery winners, when people win the lottery, if they weren't financially sadly before putting more money into the equation doesn't make it any better. In fact, can blow 50 million. Quicker than you. Yeah. It, it really is, uh, pretty catastrophic watch documentaries on it with people that win, um, the lottery, a lot of them say it's the worst thing that ever happened to them cause it just destroys their life if they're not ready for it.

So anyways, uh, tax misconception one is, uh, you know, the wealthy people don't pay their fair share or I've even heard. Corporations don't pay their fair share. Which, um, is interesting because, uh, Bill and I were talking offline, is that some of the big companies, uh, like I think you were saying majority of them, I get like audited every single year.

There's like an assigned probably IRS agent to them that are just combing through their books. A lot of them have full departments. So what do you think of that? Um, That misconception that corporations don't pay their fair share. Correct. Right. So, so the tech, the, the, the large corporations have the IRS in their office all the time.

Yeah. You can read their annual reports and they, they'll tell you right in there where we have a few things, we're still negotiating over 2000 and whatever. And, uh, so they are always, uh, being audited and, and reviewed that, that just is. Continual for, for large corporations. Uh, for small corporations, it's not necessarily the case.

Yeah. For, for small, small businesses, uh, we have less than small is less than $50 million. I know it sounds like a lot, but that's considered small in the IRS world and, uh, they do not get audited as. These large companies, they, they're always being all the time, huh? Yeah. Also, the notion that they're not, they're somehow cheating the tax code or not paying what's, you know, rightfully that they have to pay according to the taxes.

It's, it's, I think it's incorrect. Wouldn't be a lot harder to, I mean, it be high person, well, public with a publicly traded company. There's so much disclosures and information out there, Glenn, you know this. Yeah. Uh, with WT wealth management dealing with this stuff every day. Yeah. It, it's kind of hard. Um, to, it's kind, it's a lot harder to cheat that those numbers.

Like, I mean, we've seen grand cases like Enron and things like that. They didn't cheat on taxes. They cheated on just cheating. Well, yeah, he just, they brought cheating to on their level. Yeah. I, I think I recall, uh, uh, President Trump when he had said he'd been audited for 15 years in a row or something like that.

And, uh, quite honestly, that's. An unusual statement. Uh, he also mentioned that he was professionally treated and such like that. Uh, so he's a private company. We don't own any shares in, in Trump Towers. And, and I, I think that's common. He, he wasn't, it wasn't personal to him. Uh, that's just where the iris goes.

Normal operating procedure. Yeah, yeah, yeah. So, okay. So corporations, they're, you know, once they get to a certain size, they've got a lot of people with a fine tooth comb looking on. Cause I've actually. Uh, we're going to hire all these new IRS agents and they're going to go after the, the tax sheets, the billionaires or the corporations not paying their fair share.

But if those people are already, have been pretty big targets and are getting a lot of tension by the IRS already, my follow up question is, well, if they're not going to ramp up auditing them more, cause they're already being audited and looked at where all those 87,000, what are they going to do? Yeah, yeah, yeah, exactly.

Yeah. Right. So I, I have a, uh, Uh, a bit of a concern about that. So, so when folks, uh, uh, yeah, get to be fairly of, of any kind of size, they start looking around for people like me to help keep them in the lines and make sure they're, they're, uh, playing by the rules. Mm-hmm.  and, and how do they course, you know, reduce their taxes?

Uh, so, so they have guidance in general and, uh, are, are making as good a decisions as, as they can make, um, So I will tell you my concern over the 87,000 is, uh, over, uh, ordinary folks and it, we talked a little bit about, uh, uh, certain incentives in the tax code. Now you get unintended consequences anytime you have, uh, uh, uh, tax.

tax decisions. And, and, and Congress has attempted to manipulate behavior over the years. Mm-hmm.  through the tax code. So a long time ago, uh, I want to say it was during the second George Bush administration. Now notice we think of tax and the re related to presidents. Yep. And again, it's not the president, but it was during his administration.

We introduced, uh, uh, something called, uh, earned income credit. And I remember at the time saying, Uh, the idea was, hey, we have somebody who's just not earning that much money. They're working, they're just, and, uh, so, so the, the taxpayers are going to give, A break and actually give them money for working and having children.

Yeah. And, uh, and help them out. Well, that has kind of mushroomed into something big surprise. Yeah, yeah. Yeah. It's the biggest area of fraud that the IRS had to deal with. Uh, US taxpayers gave away billions to fraudulent. Earned income credit, uh, claims. But you, we run into a situation in today's society where we have, uh, a a couple who are not married, but they live together, similar to being married, they even have children together.

Mm-hmm. . And what invariably occurs is one of the spouses, it has a pretty good paying job. And, uh, that spouse, uh, files their tax return. They're a single, single person. The other spouse, of course, is raising the kids or with the kids and does not necessarily have so much income, and they've filed their tax return as the head of household and make the most, uh, of, uh, these earned income credits.

And they collect, uh, they collect refundable credits. I did not pay the tax. It's not my own tax money coming back. It's actually my neighbor's tax money coming to me. Hmm. So I get this refund and it's created a, a, a situation where that's what they're used to living on now, and, and it's not correct. The reason it's not correct is in order to get the earned income credit, one of the things you have to do is provide more than 50% of the support for that dependent.

Hmm. Well, it's. Person. Finally, the tax return, it's the other spouse, right, Who's not a spouse. Well, my concern is these 87,000 agents are looking for that person. The wealthy businessman, if you will, has already hired me to keep them in the lines and how to play the rules. Yeah, the uh, uh, uh, this other scenario is wide open and I think this is the speculation on my part because they're looking for enforcement.

They've said that these 87,000 agents will. Force. Mm-hmm. And, and that's a huge area. Makes it, makes sense because you were already telling us that the corporations are already heavily looked at. Yeah. Small businesses are going through, uh, people like you. And, and just to remind everyone, Bill, uh, Baker's with us, he's with Granite Mountain Accounting, um, and they're so people like Lynn have hired you, for example mm-hmm.

to keep him in the lane. So, but then someone else who does their taxes maybe on the online fill-in, And then does the kind of, the tricks you're talking about might be going after them? So the interesting story is I have met people, and I know them from growing up, that are doing that specific arrangement so they can get more tax refund.

They have, you know, they, they're not married, but they've been together for 15 years. They've got three kids live together, but one of them is a single mom with three kids. Then the other one is just, you know, working as a. You know, single filing, you know, uh, as taxes. And so it is, for me, I, I always think of like just, uh, I don't know anyone that would go along with that arrangement.

Say, Oh, you know, we're going to, you know, I want you to have, uh, marry me and have ki or, you know, have kids and, you know, play, you know, live together and everything, but I'm not actually going to marry you, you know, for tax purposes. I, I, I find that, um, challenging that anyone would want to do that, but there are people that are doing that for those tax incentives, right.

You talk about unintended consequences. And so it's shaping their behavior. And one of the problems we've had in our nation, frankly, is, um, you know, broken homes. So people not having a mom and a dad together and not married, that's a, that's an issue. That's a lot of, um, behavioral issues have happened from that, uh, phenomenon in our, in our country even, you know, last 40 years.

They've incentivized, you know, from a good place to say, Hey, we want single mothers and people that are, you know, don't have, that aren't. Kids to be able to get more help, but then it's also created this scenario where they don't want to get married and keep having more kids to keep getting more help and they keep, they get stuck in this loop almost.

So. Right. I think it's very important when you look at taxes, um, to, to look at what could the unintended consequences be in this un this, uh, You know, the earned income tax credit, I think there's a lot of people that maybe aren't being 100% truthful with their situation, and I think those, what you're saying is those agents are probably going to be looking at that with a more of a fine tooth comb.

Yeah. It causes you to, to ask the question, did the tax code destroy the nuclear family in America? Huh? It That's interesting. Yeah. Yeah, yeah, yeah. Did it cause a large percentage of households are this arrangement today? Mm-hmm.  and, and, uh, they, they may.  started out from high school that way, right? Yeah.

Your high school sweetheart. But at some point later in life they've met and now they've continued on this arrangement and have. Created a nuclear family. Well, what what I think we should do is when we come back from, from our break talk about tax policy as far as not only shaping behavior like you've been talking about, but also when it comes to companies and, and activity mm-hmm.

I mean, we hear a lot about, Oh, we're going to offer all these incentives, for example, uh, the electric cars or this solar, or this or that. But that's nothing new because there's always been a push to inten. The direction that I guess the government wants you to go. Yep. Right. Is that a fair assessment bill?

That's a fair. Okay, So let's come back with that and, uh, remember Glenn would love to hear from you. Give him a call anytime. Uh uh, you can call Glenn at nine two eight. Let me get this out, Glenn. 9 2 8 2 2 5 24 74. That's 9 2 8 2 2 5 24 74. And don't forget about the podcast. Look up Intelligent Investing with Glenn Leest, uh, on any of your favorite podcast providers.

I know you put a lot of extra stuff out there as well. Yeah, a lot of extra content on there beyond what we do here. Every week. We'll be back in just a minute.

You're listening to Intelligent Investing with Glenn. Least. Give Glenn a call right now at (928) 225-2474. That's 9 2 8 2 2 5 24 74. More intelligent investing with Glenn Leestd when we come back.

You're listening to Intelligent Investing with Glenn Leest. Give Glenn a call at (928) 225-2474. Glenn is here with uh, Bill Baker, who's an accountant, tax planner, tax profess. Uh, we've been, we've covered a lot of ground. If you miss last week's, uh, podcast, you can look that up by looking up the, the looking up intelligent investing with Glenn least on your favorite podcast provider.

Yep. Um, I think the irs, that, that's one of the scarier words, Glenn, I think for a lot of people is, is the irs, especially top, top life fears, it's snakes and, uh, public speaking and IRS and I especially, Nobody ever wants to get audited. Yeah. Um, but we were going to talk about though, with the incentives that, I guess the tax code is written in a way, as you mentioned, Congress creates the tax.

Code Correct. And the tax rates and all that. Although the president can help push that policy. He's a big, obviously. Yeah, sure. Yeah. Um, but there's a lot of incentives and subsidies and pushes to get kind of people and companies to go to direction the government wants. Yeah. Yeah. We see it all the time.

We see it with the agricultural industry. We see that with solar panels. We see that with electronic vehicles. We even see it with, uh, municipalities and states trying to incentivize. Businesses, companies, big companies, to have their headquarters located in their, in their towns. And, and for me, I've seen sometimes.

This thing happened with politicians where maybe a big company wants to come into their city and, and the city's going to offer them some tax rebates or tax incentives for a period of time. And the politician goes, Oh, we don't want to give them a free ride. We don't want to give them these tax credits. Go, go take your business somewhere else.

And the companies do, They go somewhere else. And to me that shows maybe some shortsightedness because you have to look at, say this is happening down in uh, Phoenix, where. The, they, these companies, big companies are moving in and creating big, you know, manufacturing plans for chips and they've rightfully got a lot of incentive from the state and from the cities to say, Hey, we'll give you a break on some of our taxes, you know, for property taxes or whatever it may be for a period of time.

But what about how many jobs it's going to bring in? So if you have a big, uh, facility and brings in 50,000 new jobs, well those people are going to pay, uh, city tax and they're going to pay. Tax are also going to be buying more goods and services. So I think a lot of times when you look at those subsidies, um, they can actually be a really good thing if done correctly.

They can also be just completely catastrophic. I mean, if you give too many subsidies for a terrible idea, you know, you get more terrible ideas. Like, and sometimes in the farming industry, you have, certain crops are just overproduced because of weird subsidies that have been in place that just never wanted, might be cheaper to buy people condo.

Not grow certain things, maybe . Exactly, yeah. They have all these things happening. So yeah. So down in Phoenix they, they, and in the Phoenix area, they're doing more, uh, the, is it, it's the chip manufacturer that's building a big plant. And what are some of the other different, uh, impacts? So say a big plant like that moves in, what are some of the economic, um, impacts that will have from a positive perspective?

Oh goodness sakes. You're going to bring in, you know, thousands of, of people. So people generate, Gold doesn't generate wealth. It just sits there. It looks pretty silver doesn't generate wealth, people generate wealth, and you're going to bring in thousands of folks. Uh, Arizona has a lot of things going for it.

Uh, we, we have room, we have space, and it's inexpensive land comparatively, uh, to other, other areas. Uh, we have infrastructure in place, uh, where you can deliver electricity, uh, that that's going to become a commodity probably. Somewhat near future anyway, we can deliver, uh, uh, electricity. We have, uh, ed education, good education here, and it's easy to get around and get in and out, airports, trains and freeways and such.

Uh, uh, so that just exactly what you had said, Glenn, is, is you're going to have, let's just say 5,000 people and economists know these numbers. I'm not an economist, but it's, it's gone to 5,000 new jobs and it's probably 50,000. I noticed that they're building. East side, north side. Huge, huge place. Yeah, it's kind of fun.

You see all those giant cranes when you drive past there, uh, there's going to be 50,000 people come here to go to work. 50,000 people will, uh, to go to work are going to create another. 200,000 jobs probably. Uh, to, to support that. Well, they need houses. They need haircuts. They need insurance. They need groceries.

They need tax guys, They need taxi guys. They need financial planners. . Yeah. Yeah. They're going to, they're going to, your, the, the value of your, your, uh, local radio show is going to go up because you have more people listening to it. Uh, there's a, there's tons of, of, uh, benefits from that. So it's, it's people, right?

You, you, you. People. Uh, the other thing Arizona has going forward is, uh, climate. We've got great climate. Yeah. We've never, I've never lived in the um, uh, back east where it's cold and wet all the time, but, uh, I've noticed folks have a tendency to come this direction, not go that direction. , Yeah. So. So in order to incentivize or attract some of these businesses, the states and, uh, cities may say, Hey, we're going to offer you some concession, some tax breaks, or whatever it may be for a period of time.

Um, and, and yeah, they may not get tax revenue on that particular area, but they're going to be making up for everywhere else. Like I've even heard, um, this, this phenomena philosophy to say, Hey, if you actually just lower the overall tax rate, but make it simpler, you'll actually generate more revenue because more people will want to be productive.

And so, Or the other side of the coin is people will say, Well, I'll just raise a bunch of taxes. And then that stifles economic output. So sometimes some of these policies, you got to be very careful with how they're structured because they can really work quite well or they can be completely destructive. Um, you got states like California that just tax and tax and tax and tax and businesses finally just cry uncle and then they move next door to us and you know, greener pastures and still close by.

And so you really want to. When you're talking about manipulating behavior with tax codes, that could be one positive thing that the government and municipalities are able to do is, is, is incentivize. Oh, yeah. Yeah. I think every, uh, economics professor will tell you if you want less of something, then tax it.

So, Obviously if you, if you reduce the tax, you'll get more of something which would be development, right? Uh, we, you get the chip factory being developed. Uh, and so let's say you give up those real estate taxes. I, I don't know what the deals are, but let's say you give up the real estate tax and you bring in 50,000, uh, employees.

Well, they all have to live somewhere. Let's just go with that alone. All your, your, your developers will go out and are going to improve the value of that desert out there, and they're going to put in curbs and all that, and those 50,000 people are going to buy homes or rent homes and pay real estate taxes and make the county healthier.

What the, And then Glenn, you spend a lot of time on so many past episodes and podcasts and shows. How do people further themselves, how do the people get themselves in a better situation? I think that's maybe what we want to leave here at the end of this two part series we've done on taxes with Bill is we've talked about the incentives that businesses have and stuff, but I mean, what can the average person do now, I guess when it comes to.

Tax planning and, and, and trying to figure out how maybe they can take advantage of some of these incentives. Yeah. Uh, different examples other than not getting married and doing what you said earlier, . Yeah. Legal, legal examples here. Um, really educating, helping the more that people understand about.

Taxes and money and investing, the more they're going to be successful at it. Because half some of the battle is just knowledge, right? Understanding it. And the other part is behavior. Um, you can know everything about money, but if you can't ever save any money and spend every dollar you have, then you're not going to be successful.

So I think with taxes, just starting to understand the basics of how they work. Um, and if you don't want to be your own tax person, then hire a professional who can and does. That part of it for you and can help guide you in the right direction. Um, Bill and I have worked together for years and I know enough about what we do to feel comfortable with the game plan, but I by no means, you know, want to be filing my own taxes.

I, you know, I want to make sure I've got a professional and expert in that era that could help me dial in. So that's one thing people can do is educate themselves and look at maybe hiring a professional. Um, and there's lots of different great CPAs that I work with in town D Professionals. Um, Bill's the one that we have on the show, uh, now, but, you know, some of my other contacts that I.

Great people. So, um, I'd say, you know, reach out and talk to the professional to help you in that area, and they're going to be worth every penny they pay. You know, you pay them, Yeah, you're going to, you know, pay a little bit of money for their time and energy. Um, but what, just one mistake or one issue or one missed thing could cost you, you know, thousands and thousands of dollars or, you know, so it is worth it to have someone in your corner that can really help.

It's a complex thing that most people can't go. It's like being your own. Well, yeah, you don't want to be your lawyer. As soon as they say I'll be representing myself, they're like, the judges is like, I highly just, you can't get a mistrial here. So, so the uh, uh, what you want to do as an individual person is enterprise.

You want to add to your w2 your regular wage, buy a piece of real estate and start enterprising with a rental. Start some kind of small side business and, and you'll then be able to use more of these, uh, Tax advantages, if you will, to lower your tax bill income and build wealth ultimately. Yeah. Yeah. It's a great, All right.

And, and, uh, I know that you work with Bill Baker and, um, people can get in touch with you Glenn, give out all the different ways you want them to get in touch with you and, and plus, uh, maybe in the podcast notes, you put Bill's number there as well. Yeah. Maybe speak someone's interest. Yeah, absolutely. Get ahold of me.

Uh, Glenn Leest at, uh, nine 20. 2, 2 5, 2 4, 7 4. Or you can email me at intelligent investing wt wealth management.com. And uh, Bill, how do people get ahold of you? Well, the best way is to call our Las Cruces office at 5 7 5 5 2 1 7 7 0 0. And they have some way, I don't know how it is, but they find me, they track me down.

Bill's got two offices, one here in, uh, Flex seven and one in, uh, New Mexico. Right. There's no way to hide anymore. No way. They'll find you, right? Yeah. All right. And remember to look up intelligent investing with Glenn least on your favorite podcast provider, Bill Glenn. We'll be back next week. Same time. Yep, same time.

New topics, never short of things to talk about. Everybody. Have a great day. We'll see you soon. Thanks Jeff.

The following has been paid programming brought to you by WT Wealth Management. Nothing we've discussed should be considered as investment advice. This conversation was for informational purposes only. PLeest do your own research and speak to an investment advisor, financial planner before making any investment decisions.