The WAY to WOW Shows
Taxes Affect You & the Economy
July 24, 2024
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[0:03] hello and welcome to people making money I'm your host Kevin bemel and we're here every Wednesday at 10: a.m. Pacific time this is kind of our original show um that that started out about five years ago so um thank you so much for those of you who started watching us way back when U when we when I turn my uh home in my my living room into a studio and and we um we videoed episodes once a month and then release them once a week after that so um if you're if you really like

[0:40] that format I've brought it back a little bit every other Thursday afternoon at 5:00 pm uh Western time Pacific time um under the name jigger's place and so if you want to come out come and hang out with me there uh um it'll the next show will be next week um which would be I'll tell you here just a second it will be um August 1st at 5:00 pm Pacific time will be our next uh visit at jigger's place so have have an interesting uh topic to talk to you

[1:16] about then for today um I'm going to get into a topic I'm I don't think I've discussed this before it's the topic of taxes now I'm not going to be talking about how to prepare your taxes that's something for an accountant to do what I am going to be talking about is all the Myriad ways that taxes impact our economic well-being and our ability to build wealth or maybe not all of them but several of them and I think it's

[1:53] important for us to address this subject because a lot of what goes on on in the in the taxation sphere is um and I I don't mean this purposely but it's it's somewhat hidden from view so that we don't really see how taxes affect us so yesterday I was listening to a podcast uh about um among other things the the difficulties that are going on in Oakland California um terrible crime Etc

[2:29] and there was a one of the speakers was a man who uh I don't I didn't know him but his his self biography was he had grown up in trouble with the police gangs that kind of stuff and eventually he became a labor activist and a um like a community activist was wasn't the word to use I don't remember what it was now but someone who was helping people in the community in particular lowincome people and the final question the

[3:06] moderator asked was if you could change one thing one law state or federal what would that law be and surprisingly this this man said taxes now that was a coincidence that I planned the show for today because I i i w I didn't know anything about what this particular podcast was going to be about and the moderator asked him to clarify raise taxes lower taxes he said lower

[3:41] taxes lower taxes so his perspective was that the high taxes that are levied here in California Hurt lower income communities the most because it just discourages businesses from being created so and again this is I I I agree with him by the way I think that is the case um but it was interesting that here's someone he was not a businessman he's not someone that

[4:16] you would typically think of as being a low tax advocate but indeed he was I and he was he was sincere he wasn't he was it wasn't a joke it wasn't a joke right so but this is clearly this is he was a a man who had educated himself about how economics works and that's where I think many of us um our education is not as thorough as it as it might be

[4:51] so most of us experience taxes through income taxes so we all have if we if we work or even if we get certain government benefits for example Social Security in some cases we pay federal income taxes now what's interesting is in the early days of the income tax which was created back in I believe 1933 there were there were no payroll deductions that's a that was something

[5:26] that came later so people had to write a check for their taxes and they they felt the impact of the taxes in in paying taxes in a very real way as and and the income tax rate was was very low when it was first started a few percentage points and it only affected people who made you know at the time quite a bit of money so over the decades the per percentage of people who pay in income taxes has grown enormously as as

[6:03] has the money collected and and and the percentage I should say the percentage of taxes levied so even the lowest tax bracket today pays more than what the original income tax payers paid roughly what 90 years ago so as the number of taxpayers increased and as the percentage of their income of their income increased that's why payroll tax deductions came along because otherwise at the end of the year

[6:40] people just didn't have the money to pay their taxes and so the system was set up in so that in essence people didn't really they never saw the money it was taken out of their paycheck before they received their pay and then their employer sent it to the government so unless you're a business owner an Entre you know an entrepreneur a um an independent contractor you're not actually writing taxes for your for your income tax payments your federal income tax payments now many states

[7:17] subsequently uh also passed uh state income taxes and so here in California we pay both a state and a federal income tax now in a state like uh Florida I believe has no no state income tax there's there's quite a number of of states that don't have a state income tax so this is how we normally experience taxation the thing that's interesting and to keep in mind is the deductions made from our pay from our paychecks if if if you're an employee are not just

[7:52] for income taxes so there's there's a great episode in the TV show uh friends one of the I think it was in the first year of the show where the character the Jennifer Aniston character Rachel has her first job and she gets her first paycheck and she's surprised by how low it is compared to what she thought she was making and she and and she passes it to her friends like oh no this this is pretty good this is pretty good you know because they're used to having taxes deducted from their paychecks and and she says who's this guy F why is he

[8:28] getting all my money right so FICA the federal Insurance contribution Act is what's more commonly known as Social Security so in addition to deducting income taxes from paychecks your employer also has to make a contribution for FICA and Medicare now for many people the deductions made for FICA and Medicare are as much as sometimes if if you're a fairly low wage

[9:04] employer uh employee I mean the the deductions for FICA and Medicare are higher than your income tax deductions so you know it's it's FICA I believe is uh to think about this for a second it's I think it's 6.7% or something like that for for the employee and then Medicare is 1.45% I could be a little bit off on these percentages now your employer for FICA and

[9:40] Medicare matches those payments so total Medicare taxes 2.9% and total um uh so soal total FICA is actually it's 15.3% so f is 7.65 for each for each side now when you're self-employed you pay something called self-employment tax which is basically the full amount of FICA and Medicare right so when people talk about well I'm gonna go to in business I'm

[10:15] gonna go into business for myself and and I'm gonna make more money well maybe I mean you may but but keep in mind that right off the top you need to make an additional uh uh 7.6 89 you need to make over almost 10% more just to cover the additional taxes that you're going to pay okay and then there are other taxes that our employer pays on our behalf that we it doesn't come out of

[10:52] our paycheck but there are still taxes that are due um as you know because we're an employee so employers pay something called feuda federal unemployment tax assessment or something like that but they make a contribution to an unemployment fund that's that's how we get paid that that's how an employee gets paid un unemployment payments if they lose their job the um here in California employers also pay sdl

[11:29] which is a state disability insurance okay and again this doesn't come out of the of an employees paycheck but it's an additional payroll expense that the employer pays when that employer has employees and if you're if you're a a a sole proprietor not a sole proprietor me well yeah sole proprietor if you're a business owner or an independent contractor so you'll have to pay those taxes on top of all the other taxes

[12:04] you'll pay them for your for whatever income you take from your company now those those vary I don't recall what the SDI rate is here in California but the bottom line is if if if you're making let's say $50,000 a year as an employee as an as an independent contractor you're going to make you're going to need to make at least another 15 % so on $50,000 that's $7500 you're going to need to make almost $588,000 a year just to have the same

[12:39] income you had as an employee now I'm not saying this to discourage you from becoming a business owner or an independent contractor but I am pointing this out so that you can understand the the economics of that decision and and plan for it appropriately okay so um this is so you'll see situations and maybe you've had this happen where someone will go from being an employee to an independent contractor for the same company okay and

[13:14] in that case in order to at least come out roughly even again if they were making if the company was paying them $5,000 a year as an employee and now the company is switching them to an independent contractor the person needs to make close to $58,000 or thereabouts just to come out even now the company will say well but now that you're an independent contractor you can deduct X and Y and Z well that that may be the case but that is that is irrelevant to to the

[13:49] situation at at hand um if you want to keep your income stable so they may say to you well you conduct your automobile expense well that's true to a certain extent however if you are you using your car for work okay um the your employer should have been reimbursing you for your mileage Andor you can um I believe and this is something to check with your accountant but you can deduct mileage that you used uh that that that that you you put on

[14:24] your car using it for you know the business that you're working for not for going to and from work but let's let's say you're already at work and you need to go to the office supply store to get something so that mileage is is potentially a tax deduction for you even as an employee and and or it should be something that your employer compensates you for okay so so the idea that you know certain things are going to be deductible um and therefore the you know

[15:01] an employer shouldn't have to pay you more if you're converted to an independent contractor it's it's it's not exactly true and you would have to look at your own specific situation to really know if um you're going to get enough deductible expenses that you can take the same payment as an independent contractor as that you had as an employee I would venture to say it's it's extremely un likely that that would be the casee okay so the you know what you gain may be in flexibility just recognize you're you're

[15:38] going to lose at least somewhat in larger tax payments if you make that conversion okay now you may be willing to do that and that's if if that's a decision you want to make it's perfectly appropriate but it should be a decision that you make going in the other issue and this is not strictly a tax issue but I'm going to talk about this here just for a moment because it it it is something that's become increasingly expensive and it's something I think sometimes we we don't have in mind when we're working these things out

[16:13] is if you're getting employer paid health insurance when you become an independent contractor almost for sure you're not going to get that insurance anymore so you're going to have to pay for your own insurance often times Insurance health insurance as an independent contractor is more expensive than the cost of insurance when you're an employee for a company so that's another source uh that that's another way that your compensation as an independent contractor will need to be enhanced okay

[16:49] now as an independent contractor your health insurance payments uh may be tax deductible again you need to talk to your accountant about that but nonetheless that's still an expense and even if it's reduced by some tax savings so let's say you know you have to pay I'm just going to use a round number $1,000 doll a month and it is tax deductible so you know out of that $ thousand uh deduction you're going to save maybe $200 in taxes still there's $800 there that you weren't paying

[17:25] before that you're going to have to pay now and and and you can see so there's $800 additional expense a month that's $10,000 a year so now instead of making 58 having to make $58,000 a year to stay even you need to make $68,000 a year to stay even you see that so this is why it's it's critically important to understand these these things and and not be fooled by uh someone saying oh no no look yeah you have to pay for your

[18:01] own heal that's true you have to pay for your own heal but it's It's deductible so you don't have to worry about it well yes it it 100% of the cost may be deductible but that doesn't translate into not having not having to bear that cost at all those are not the same thing the fact that something is deductible does not mean that there's no cost to you it just means that it will reduce your taxes by whatever percentage you're paying taxes okay even even if we say at the marginal rate so if you if you're at a marginal rate of let's say

[18:37] 20% okay so all right so $1,000 uh expense that's deductible saves you $200 in taxes that's where I got that calculation just a moment ago fine okay but you still bore the other $800 expense that still came out of your pocket whether it came out of your business's pocket or your own is immaterial because if you didn't have to pay that $800 expense for insurance you would have had another $800 in income that you could use to pay for whatever it is you want to pay for rent uh clothes you know food a vacation

[19:13] whatever it is $800 a month so these are things to keep in mind as we look more broadly at how taxes affect you okay so I've talked about income taxes which is the most common way that we pay taxes um the other one that's also very common and and arguably more common because even if you don't pay income taxes you're buying stuff and if so if you live in a state that has a sales tax so

[19:49] then that's another way that we pay taxes so here in Los Angeles sales taxes are pretty close to 10% between the state of California the County of Los Angeles and the city of Los Angeles okay so when when I buy something if I pay $50 for it I'm GNA pay another almost $5 in taxes on that item okay so if in a year let's say I spend $50,000 buying things

[20:26] clothing uh you know hair care products um the types of foods that that are taxable at restaurants for example okay so if I spent $50,000 of that $50,000 actually a little over $45,000 of it was paying for what I got and the rest the other $ 4700 or whatever well 4545 $500 is taxes now if I didn't have to

[21:03] pay those sales taxes I'd be able to buy more stuff or have more money to put in a savings account or something like that okay so even if you pay zero income taxes if you are buying anything uh you know you're you're paying sales tax in in Most states I'm I'm I'm I'm not aware may be there may be a state out there that has no sales tax now clearly some states have lower sales taxes than others so just to to give you an example I'm GNA

[21:38] open up a spreadsheet I did here just recently so the sales tax uh in uh Asheville North Carolina for example is 7% oh okay here is a state Billings Montana okay the sales tax is zero there is no no sales tax evidently in Montana in Cheyenne Wyoming the sales tax is 6% so you can see that that those are significantly lower than here in California now interestingly enough if I

[22:15] go next door to Beverly Hills okay I actually pay a lower sales tax rate because although in Beverly Hills I pay the state and County rate there is no Beverly Hill City sales tax and so I save I think it's three4 of a percent or something like that okay and and Beverly Hills did that on purpose to encourage people to come shop in Beverly Hills right so this is another way that taxes impact us okay and and and you may be saying well governments need tax money to to

[22:51] provide services etc etc yes that's that's true I'm not I'm not I'm not arguing the case for or against taxes per se all I'm saying is we need to look at how taxes affect us more broadly so if we make you know $50,000 a year I'm just using that number and if we pay let's say 10% of that in income taxes so that's income taxes FICA that whatever all that stuff is so that's $5,000 there and let's say during the course of the

[23:26] year we we spent about $220,000 on consumer goods and we pay 5% on that that's another $1,000 in taxes so now our taxes are up to $66,000 okay just just for those two types of taxes okay another tax that is um common if especially if you're a property owner is property taxes okay so here in California we the this is going back to the late 70s I believe we had a

[24:02] proposition called Prop 13 that capped property tax the property tax rate at 1% plus another maximum of a quarter percent for what are called special assessments so special assessments are taxes that are levied to pay for specific improvements it may be to for sewer lines it may be for Road improvements um these types of Civic improvements so a local government can um impose a special assessment on

[24:37] property owners in that area typically they'll issue bonds and then they'll Levy a special assessment and the money from that special assessment is used to pay off the bonds okay so um the maximum rate here in California is one and a quarter percent okay so if you own a house that's worth $500,000 okay you're going to pay $5,000 in property taxes I should say by the way let me be precise with my terms if you own a house assessed at

[25:13] $500,000 okay then you'll pay $5,000 a year in property taxes okay and a maximum of another $1,250 a year in special assessments now not everybody pays the top rate but some people do okay and then in certain areas they've gotten around that cap through something called melus which is a a a fee imposed on property owners residential property owners for the infrastructure

[25:48] improvements that were made in order to build that subdivision of homes so for those homeowners it actually looks like they're paying more than one and a qu% % in property taxes and special assessments what it really is is they're also paying a melus fee but in any event it would not be at all unusual if you had a a home that was assessed at $500,000 to pay another $66,000 in property taxes okay so if you're that $50,000 wage earner we're

[26:23] already up to uh what do we say uh $6,000 income taxes and sales taxes and now another $6,000 in property taxes okay so now you're up to $122,000 out of your $50,000 for taxes okay now you know how did you afford a $500,000 house well maybe you have you know you got a really low mortgage two and a half percent you know a few years ago before the rates went up and so you know there there you are so your mortgage payments are low but your you knowx taxes are are

[26:59] relatively high now renters typically think well I'm renting so I don't pay property taxes well that's that's true you're not writing a check to the County tax assessor however part of the rent you pay goes to pay the property taxes for that building okay it's it's you could say well but that's coming out of the landlord's pocket well well that's true however if property taxes were

[27:35] lower okay that would tend to lower rents okay now people say well no the the the landlord would just take the savings and put it in his pocket well that may be true if it's a very tight rental market and there's a strong demand for apartments but right now for example here in the southwest vacancies are increasing and rents are tapering off and in some cases declining so if property taxes were to

[28:12] drop owners who are anxious to fill their building will compete for tenants by dropping their rents even more because they don't have to worry about paying as much in property taxes okay so by by doing that tenants are paying a lower rent at least in part because the property tax expense that the owner is paying have dropped okay so this is another way that taxes affect us even when

[28:47] we're renters now it's it's indirect but nonetheless higher property taxes will over time lead to higher rents just like the increase of any expense okay so if maintenance expenses go up landlords are going to push rents higher in order to compensate for the higher maintenance costs okay if interest rates on loans go up landlords are going to look for ways

[29:25] to collect additional income in order to pay the additional interest on those loans now in this respect it sometimes takes time for the rents to to increase after the expenses increase because um depending on what kind of Market you're in if you're in a rent control Market the owner can't just increase rent or if you have a lease the owner can't just increase your rent Midway through the lease he has to to we wait for the lease to be over okay but at the point where

[30:04] either the lease is ended and your month-to-month or if there's rent control um and and then you know and and the anniversary of your tency has come the owner is going to seek to increase the rents and I can tell you this as having you know had a property management company when expenses are going up often times landlords are more aggressive in seeking rent increases even though it's riskier because the tenant may move out but in

[30:40] order to be able to meet those higher expenses the L you know landlords will oftentimes take that risk okay so taxes being an expense that an owner pays property taxes being an expense that the owner pays it essentially gets passed through to the tenants not directly typically in the case of an apartment okay but but indirectly through how rents rise and fall okay now I'm gonna move over onto

[31:16] the business side of things for just a minute I talked a few weeks ago about different types of leases in particular I talked about gross leases and net leases so so in an in a gross lease the ten I'm just going to real quickly review the tenant pays whatever the rent is $4,000 a month and the landlord pays all the expenses from op for operating the building in a net lease the tenant pays their rent $4,000 a month in this example but they also pay for the expenses for operating the building

[31:53] their rent is a net number means meaning it's net of expenses and expenses are paid on top of it so if property taxes go up for a tenant who has a net lease that tenant will right away pay more in taxes because of the higher property taxes now the way it typically works is the tenant reimburses the owner and the own the owner pays the property taxes and the Tenant reimburses the owner still the the higher cost for renting

[32:28] that space in the case of property taxes going up is an increase in in in your expenses due to taxes so this is another way that that taxes impact us financially that we don't necessarily think about now let me take this one step further I talked about the indirect impact of higher property taxes on an apartment rent apartment R are usually gross rents so it doesn't mean that the tenant will directly pay more in rent

[33:05] but the landlord is going to seek to increase the rent okay because of the higher property taxes well even for a commercial tenant who has a gross lease if property taxes go up when the landlord has the opportunity he will try to increase rent to compensate for those higher property taxes so he's not he's not losing ground in terms of his cash flow from the property okay so let's say an owner at

[33:42] the end of the year basically gets $10,000 cash flow out of a property he's paid he's paid his expenses he's paid his loan payments right he has $110,000 left over and he gets his assessment for the following year for property taxes and his property taxes are going to go up by ,000 okay he has two choices he can just accept that next year he's only going to make $99,000 instead of

[34:17] 10,000 or he can seek to increase the income for the property by at least $1,000 so he's still making $10,000 okay okay and now the tenants if there's one or or more collectively are paying an additional $1,000 in rent or in the case of net leases reimbursements but in the case of a gross lease they're going to look to pay it he's going to look to have them pay an additional $1,000 in rent so that he can at least stay even at his $10,000 cash

[34:53] flow okay so let's let's say it's a you know a a retail shopping center okay and let's say there's four tenants so and they all have the same amount of space a quarter of the space in the shopping center so he's going to seek to pass on $250 of that ,000 property tax increase to each of the tenants okay and and you say well he shouldn't do that he should just accept making only $99,000 well but if he's living off the income from that property

[35:29] that property is essentially his business right he probably doesn't want to take a salary cut or an income cut any more than you know you or I would want to um if our you know our employer came to us and said well um you know my costs of operating the business have gone up so I need you to take a salary cut um we would be pretty ins sensed if the the owner did that right I mean by the way we might have to um if if it meant the difference between the business closing and US losing our jobs or or not okay so I'm not saying it

[36:05] never happens but in general we would be pretty unhappy if a business if if our employer expenses went up and he turned to us and he said so I need you I'm I'm G to be taking less income and you need to take less income for the coming year because our expenses are going to go up that's not how we expect things to happen what we would expect is the business somehow has to generate more income so at least we can get the same salary in the coming year that we had in in the previous year right so again this is another way that taxes affect things

[36:41] okay and so since we're since we're on the business side of The Ledger now I want to talk about how taxes on businesses affect us even if we don't own a business Okay so I've talked about how if a tenant in a in a let's say a retail Center has a gross lease even if I I mean I should say even if the tenant has a gross lease if the property taxes for that uh property go up the landlord is

[37:17] going to seek to increase the rent to compensate for the higher property taxes okay so now I'm you know I'm the business owner right and I I get a rent increase from my landlord of um you know $100 a month okay uh or $1,200 a year so I have a couple of choices right I can either you know eat that that additional cost and take take less money out of the business for myself that's one thing I can do the

[37:52] second thing I can do is I can turn to my employees and say I'm going to pay you less money okay and I mean I don't think it would be right for me to keep the same money and pay my employees less but I think you know it may be justified for me to say look I'm G to have to take more money so I have to ask you to take I mean say I'm gonna take less I'm taking less money so I'm gonna have to ask you to take less money okay that may be another possibility okay uh a third possibility is

[38:28] just cutting back on expenses somewhere else okay so maybe I was providing I don't know free lunch once a week maybe I'll get rid of that okay uh maybe I was providing free snacks water and chips or whatever okay and I get rid of that okay maybe I fire an employee to reduce my overall labor cost so instead of having you know five people working at the business now I have four okay and and

[39:04] not having to pay that maybe that salary was a part-time salary okay and and so okay good so I I've got one big expense gone so I'm not going to lose any ground there however what's gonna happen with the the tasks that that fired employee used to do okay I may have to do them or I may assign them to one of the employees that I kept on and so now they're having to do more work okay maybe they're maybe they're paid hourly so they they you know they don't they don't mind because

[39:39] they're going to make more money um but um you know and and still net net you know I'll I'll I'll save on on labor cost by getting rid of an employee but now there's one fewer job right so you know they they say you know a recession is when this other person loses his job a depression is when I lose my job right so um you know the business is going through a recession but for the person who got you know laid off or fired that's a depression for him because he's got to go find a new job now right so uh

[40:15] and and by the way it's not just taxes of course that can cause this it can cause any increase in expense but we we tend not to think about taxes as being an expense to a business that has an impact on the employees and the compensation level at the business okay minimally if taxes go up there's going to be pressure on the business owner to keep wages steady and not increase them because he's already paying these other higher costs okay now where

[40:51] eventually does the money come for the business to pay its taxes think think about this for a minute right the money comes from selling the goods and services of the building so this is the next option that the the business owner has in order to pay for those higher taxes he can increase the costs of the goods and services that he's selling and bring in more income which then will pay for the higher

[41:26] taxes okay as consumers though part of the price we pay for each product or service we buy from a business is paying is is helping pay the taxes for that business now this is aside from sales taxes because the sales taxes are levied on top of the price we pay for goods and in some cases services but embedded in the price of goods and Services is the taxes the expense for

[42:01] taxes that that business pays so when people talk about raising corporate taxes raising taxes on businesses okay businesses are essentially pass through entities meaning that just like the little business I was talking about if their taxes go up one of several things is going to happen either compensation for the business owners and the employees are going to go

[42:37] down or the number of people the company employs are going to drop or other expenses are going to be reduced which of course will cost cause a drop of income at other businesses that Supply those things I mentioned like snacks right if the business gets rid of free snacks for its employees it's not just the employees who are losing out it's also the business that was that was supplying the free snacks that are losing out because they're no longer getting that business so you see

[43:14] the ripple effect okay or the business is going to raise its prices okay and and you say well let the owner of the business just accept less money well same same issue we were talking about a few minutes ago let's take let's take a publicly traded Corporation okay that's you know making billions of dollars okay and let's say that their that their taxes go up by a billion dollars well let's not make it

[43:50] that high their taxes go up by a100 million okay and let's say that company has 100 million shareholders who previously were getting dividends of $2 a year one thing that company could do is cut its dividend by 50% so instead of paying out $200 million a year in dividends to its shareholders it could just pay out a hundred million in dividends and then pay that other hundred million take that

[44:25] other hund million and use it to pay the higher taxes okay now if you're a shareholder in that company is that going to make you happy and the answer is no right because let's say you owned 5,000 shares so previously you were getting 5,000 times $2 a share in dividends or $10,000 a year in dividends now you're only getting $5,000 a year in dividends you're taking a pay cut okay now you say well but people who

[45:01] have dividends they're rich well sometimes yes other times though dividends I mean shareholders are Pension funds who hold shares on behalf of the plan beneficiaries who are just you know your average blue collar employee okay they're not some you know Big Rich you know 100 Mill ion dollar net worth individual they're people like you know you and me right and so it is in the end either the

[45:39] shareholders or the employees right another thing that that publicly traded company could do to make up the hund million is they could lower compensation to its employees including Executives now one of the gripes is the executive pay seems to keep going up whereas sort of rank and file pay doesn't obviously a problem okay however look to a certain extent that that's that's how it works okay so instead of giving employees a pay increase the company may

[46:16] decide to use the additional income they have to pay the higher taxes so that they can keep their dividend to the shareholders the same and they can keep compensation for every everybody the same but nobody gets a pay increase so in that case the higher taxes are paid for by employees not getting a pay increase okay so that's another way that taxes can affect you is is by in essence a foregone salary increase okay you say well that's not

[46:53] fair okay it may not be fair but that that is how the economics work words the business can't conjure up the additional taxes from nowhere they're going to find the business is going to find a way to pay for those taxes that does the least damage to the business now when we say damage to the business what do we mean well the business will probably try to resist increasing prices for its products or services so that it doesn't lose

[47:30] customers okay the business is probably going to resist cutting dividends because if the business Cuts dividends that could lead to a drop in the value of the shares traded for the company now why is that a problematic thing well often times especially for senior Executives part of their compensation is tied to what happens to the value of the shares of the company I.E if the shares go up their compensation goes up okay

[48:06] because in general we look at it as a good thing if you're Building Wealth for stockholders so that's a good thing and so you've done a good job so you should get paid more okay so that's so that's another thing they're going to resist doing is cutting dividends okay so most likely what the business is going to look to do if taxes go up is to cut expenses and expenses you know come into a few basic categories there's the cost of goods sold which is acquiring the raw

[48:43] materials to make its product there's labor which is the cost of employees right there's General administrative which is like office supplies that kind of stuff there's rent or or the cost of having the facility where the business operates that may include maintenance okay and and and maybe some other maybe there's other expenses including taxes okay so you can now for typically for a business one of the B biggest expenses it has is labor so where is a business

[49:19] going to look to cut expenses labor okay and this is why often times you'll see businesses lay people off when their expenses increase so here in California this is not direct this is not a direct tax issue but here in California the minimum wage for fast food workers increased as of June 1st or July 1 we've already seen a drop in employment among fast food workers as a result okay

[49:56] that's how the the the owners of these fast food restaurants are dealing with the higher labor costs they're essentially looking to do more with fewer people okay by the way the other thing that happens is when costs go up businesses look to substitute technology for people because although there may be a big upfront cost to acquiring new technology over time that technology tends to get cheaper okay so that's one way of of

[50:33] controlling labor cost is to invest in technology that's why like when I was in Israel for example you go to the McDonald's there they have a kiosk that you order from because it means they need less employees in order to run that McDonald's and the employees cook the food and bag it and you you go to your you go to the kiosk you order it up you pay for it and you get your ticket and then the I forget if they call the number whatever they do you walk up and you get your food right as opposed to now that was a that was a kosher McDonald's that's why I was able to eat there as opposed to how a McDonald's

[51:08] here Works which I think you still walk up and you order from a person etc etc that that's how it worked when I was a kid right so going back to this issue of higher taxes for a business this ultimately the people who use the business end up paying for those higher taxes okay either or the people who work for the business end up paying for those higher taxes either in wage increases

[51:43] they didn't get or in employees being laid off or in in some cases in wages being dropped okay or the consumers pay for it because the company decides they do have to raise their price okay and so now we're paying more for the same amount of goods or services that we were getting before okay so like any expense that's what taxes do so this is another indirect impact indirect effect of taxes

[52:19] on us okay and and this is why by the way I think that this this fellow who I was listening to on the podcast y yesterday who was an advocate for low-income people was saying he would lower taxes that would be his number one change in the law people think well lower taxes only benefits the wealthy that's that's not really true in fact taxes in general are regressive meaning that they impact lower income people more than higher

[52:54] income people so if there is a flat tax rate okay sales tax rates are a perfect example sales tax rates are regressive why because lower income people spend a higher percentage of their money on taxable Goods okay so a higher percentage of their income goes to pay sales taxes than someone who's wealthier who you know there's a certain point at which

[53:29] you you you don't use your money to buy more stuff you start investing you put it in a savings account you put it in a 401k you buy some stocks or bonds or you invest in another business or something like that none of those those expenditures Investments you don't pay taxes on them when you make the expenditure you may pay taxes when you get the money back in terms of capital gains taxes which we didn't talk about today you know for another time perhaps but you don't pay a so-called consumption tax which is what a sales

[54:05] tax is or a vat a value added tax that's a consumption tax so sales taxes and value added taxes are are regressive in that they they impact lower income people more than higher income people so in a state like California where where sales taxes are quite High okay so they actually Hurt lower income people more they also discourage businesses from starting okay

[54:40] so if you have a high tax cost in a in a state like California it's much more difficult not not more difficult to start a business per se but to make that business successful and again that's why this fellow I think was saying well he would lower taxes because he knows that one of the solutions to Poverty is the ability for people to start businesses and and make them a success more easily even if it's just a little side business that's that's good so so for example you

[55:16] know cutting hair on the side or you know selling um you know things that you make on Etsy or something like that all those little side businesses can can be very helpful for people on the lower end of the income range because they can make some extra money but if taxes are high so that by the time they pay all their taxes they get very little money out of their side gig it doesn't make sense for them to do it right they can't better their situation by doing that okay so um we're actually we're coming up on on on the end of the show but I I

[55:53] I you know was because we're we're in an election year and uh as you know I don't do politics but I do do economics and taxes are an important economic concept and so when people talk about raising taxes or lowering taxes or taxing this group or this other group or whatever what's important is that we understand what are the impacts of those policy proposals how will they impact us as individuals

[56:29] how will they impact our community how will they impact other people okay how will they impact our local economy our state economy our national economy our standing in the world okay because tax rates are competitive across National borders as well so I've talked about both the direct and the indirect impact of taxes hopefully you have a better understanding now of how each of us are impacted by them now I this I kept the discussion pretty basic okay there's I

[57:05] could we could add lots more complexity to it and maybe we'll readdress this subject down the road and get into some more complexity talking about things like I mentioned very briefly capital gains taxes right there are there are things like excise taxes tariffs were really which are really just another form of Taxation all of those have impacts as well well didn't have time to get to them today but there they are things that we should we should understand so may you know for another time right this is a an almost endless topic especially since um you know the

[57:41] old the old adage nothing is is sure but death and taxes um and and we're I think we're making more ground with death than we are with taxes these days thank goodness but uh um I I you know I invite your your thoughts your comments your perspective on this the uh links to our social to my social media will be in the show notes after this episode posts on YouTube and so feel free to click through and leave a comment good or bad I'm brilliant I'm stupid it's fine you know I take no offense um but but we can certainly have a discussion I i' i' you

[58:17] know really truly love to hear uh what what you think now if it's something personal or private that you don't want to share with other people my email address will be there as well you can send me a a private email or you can DM me through social media just I I always give this caveat uh if if the question you ask me is something outside of the realm of my expertise I'm I won't be able to answer the question but I will do my best to refer you to someone who can so try and help you out in that way so I thank you very much for watching today hope you enjoyed it this wraps it

[58:53] up for us for this week next week at 10:00 a.m. Monday Pacific time these are all going to be pacific time is my show trust in Estates weekly on Tuesday is business lessons from the military also at 10: a.m. Pacific a week from today on Wednesday at 10: a. Pacific is the next edition of people making money and I'm gonna I'm gonna uh prompt my my guest my guest is Adam wisman who is is an entertainment lawyer

[59:28] in New York and Adam is going to talk about being involved in the media and entertainment businesses realm I I don't think I've had someone talk about that before you would think being so close to Hollywood I would um but I you know went all the way to New York to get to get a guess I I know you will enjoy hearing Adam speak very clear thinking articulate individual so so please do consider joining us next Wednesday at 10:00 a.m. Pacific time and then Thursday of next week at 5 PM Pacific

[60:05] time is the next edition of jigger's place for those of you who have seen um the first episode or saw the introductory one I did a couple weeks ago you know that that jiggers was my my dog he holds a very special place in my heart and and having a show named after him is is just a it gives me you know kind of warm all over feeling so I'd love for you to come and relax on Thursday afternoon for a half an hour enjoy a cocktail with me while we talk about all kinds of things that aren't related to our business and professional

[60:42] lives so once again thank you so much for joining me I really appreciate your watching the show supporting it and signing off as I always do Marie darling you are my bell