EPISODE 019: ARE TAXES TOO HIGH?

WELL… THEY AREN’T “LOW”… SO…

DRINK INFORMATION

Every episode we drink a different libation – so what are we drinking this episode?

Tom’s Drink – Gordon and MacPhail bottling -13 year old Scapa

– A whiskey whose taste does not match the aroma from a distillery in the Orkneys

Ian’s Drink – Empress Elderflower Rose Gin

– A surprisingly good gin with a distinct red color

*Visit our “Tasting Room

TRANSCRIPT:

Ian Robertson
Hey Tom, so we have been getting feedback from the listeners. And first, I want to talk about the good feedback. Good feedback is somebody said, Hey, on your podcast, can you tell me how to make gin?

Tom Kubiak
Oh, that is good feedback. I like that.

Ian Robertson
Yeah, so I actually made some gin today. And then this came to mind. So if you want to make gin at home, I’m gonna tell tell you, basically the old school method where you basically just soak stuff in your alcohol. Get a bottle of Everclear, it’s like 95% alcohol, it’s clear grain alcohol, water it down a bit. You would think that it’s 50 to 50, you know, 50% that, Everclear and 50% water. It’s not, just kind of eyeball it and taste it a little bit. Get it to where about where you want it.

Tom Kubiak
In your bathtub, right?

Ian Robertson
In your bathtub.

Tom Kubiak
Definitely.

Ian Robertson
80 bottles. That’s also a real. It’s also a really good fish song. But here’s my recipe. Take a big mason jar. You want about half your half your bottles worth in that mason jar of Everclear, juniper berries, fill it up until about a half inch at the top as juniper berries my wife loves the juniper berry taste.

Tom Kubiak
Okay, that’s your classic gin taste.

Ian Robertson
Classic gin. I make variations. And there are variations but that’s juniper berries is technically what makes a gin, you can actually do with vodka or anything else but juniper berries is what makes it gin but typically grain alcoho. Then I take a pinch of orange peel, dehydrated orange peel, pinch of dehydrated lemon peel.

Tom Kubiak
Okay, which you buy in like a powder?

Ian Robertson
Yeah, no, you can dehydrate them yourself or you can buy them on Amazon in these bags and just a pinch, you’re going to be tempted to put in more but you’re just adding acidity, a pinch of both, coriander, and I just grabbed like two three dozen pieces of coriander and chuck them in there, whole coriander and they’re not going to add a ton of flavor. So don’t worry about if you put too much or too little of those in and then exactly three peppercorns.

Tom Kubiak
Three, not four.

Ian Robertson
Three, and you’d be surprised, I experimented with it for a good two years before I figured out exactly three is the right taste for me. Now you..

Tom Kubiak
Really?

Ian Robertson
Yep, so pepper is going to give you the..

Tom Kubiak
And you’re talking about whole peppercorns, not crushed or anything.

Ian Robertson
Whole peppercorns. Don’t, don’t try to substitute any of this stuff because it’s not, I’ve tried it, doesn’t do it. But the peppercorn gives you the back end of everything, so the front end is all this other stuff. Without the peppercorn it just dies in your mouth. And I don’t know why.

Tom Kubiak
Okay.

Ian Robertson
Yeah. So there’s how you make gin, shake it up in the mason jar, leave it in a relatively warm area for two to eight weeks, depending on how long you can wait. And you’ll have gin. It’ll be kind of like this, interesting amber kind of color. But you can you can put in less juniper berries, and throw in some lavender, you can put in..

Tom Kubiak
Okay, yeah, cuz some people like the other herbs in gin.

Ian Robertson
Yep. I’ve seen people take tea bags like, Oh, that’s a good tasting tea and chuck that in there.

Tom Kubiak
Oh, that’s interesting.

Ian Robertson
Yeah. If you, it’s just herbs, but it has to primarily have Juniper berry.

Tom Kubiak
Juniper berries are the base. Interesting. Cool.

Ian Robertson
But we’ve had some angry feedback about something super weird.

Tom Kubiak
It’s an indication of our need to, to know what we’re talking about.

Ian Robertson
Well, we weren’t wrong. But some people got very upset about a quick fact that we had out there that you can’t hum with your nose closed, with nose pinched.

Tom Kubiak
And I think it relates to the definition of what is a hum? Right.

Ian Robertson
So people were going off like a hum is just a low pitch noise. Technically, a bees wings make a hum. So they were opening their mouths and making an N sound like in Nigeria, N, because so they pinch your nose.. like see..

Tom Kubiak
Oh, okay. Yeah.

Ian Robertson
And some people were saying I can do it. We’re talking about a traditional hum with your lips together and pinching your nose so no air can pass through. Its basic science that vibration needs to go through air so you can hear it.

Tom Kubiak
Well. We apologize.

Ian Robertson
And they got like 3000 people apparently upset about it like I don’t know. But for all 3000 of you sitting in your living room at three in the morning, pinching your nose and trying to hum, I am so sorry. So sorry.

Tom Kubiak
Sorry. We’re sorry. We’ll fact check ourselves better, especially for our quick facts.

Ian Robertson
Exactly. Quick Facts. We’re going to fact check the definition of a hum and then redefine it for that particular experiment.

Tom Kubiak
Exactly. Yeah, very good.

Ian Robertson
So we’re going to talk about something that you’re an expert at today, taxes.

Tom Kubiak
Well, yeah, thinking about Dunning Kruger, one of our more recent episodes. I would say I know a lot about it, but I don’t know everything about it. So I’m at the far end of Dunning Kruger.

Ian Robertson
So I’m going to take your modesty out of there, because so first of all, you’ve been a tax accountant for over 30 years, you owned the largest private practice in upstate New York for many years.

Tom Kubiak
Tax prep practice. Yeah.

Ian Robertson
Tax practice, you work multi state and internationally.

Tom Kubiak
True.

Ian Robertson
With both small business individual tax returns and ginormous corporation stuff. So if anybody is going to be a tax expert, we literally could not have had anybody else on the show that in my opinion would be a better.

Tom Kubiak
Oh..

Ian Robertson
Yes. Stop it, Tom.

Tom Kubiak
There’s other people out there that have the same perspective, or, or experience I think.

Ian Robertson
Tom’s like at least three, four, maybe?

Tom Kubiak
It’s funny, because I was in a workgroup that was working on, you know, a unique section of the tax code. And even in the workgroup, you know, that there, there just aren’t a lot of experts in these in certain areas in niche fields. And amongst the workgroup, we were saying, like, we probably have five of the most experienced people working on this issue that that, you know, have dealt with this one topic we were considering. So yeah, there are some niche industries. But as far as income tax is concerned, every American has to file an income tax return. So there’s lots of opportunity to learn about it and learn, you know, how it affects you.

Ian Robertson
Yeah. And before we get into the topic, because I really want to talk about this because it’s basically going to be me, this is going to be like actually an average tax season conversation between you and me. I’m like, bank statement what, and then you’re going to explain to me how things work. So what are you drinking?

Tom Kubiak
Well, so yeah, thank you for getting to the most important part of this discussion. So I’m drinking a Scapa. This is Gordon and MacPhail is a bottler. So the way they they do it is they buy casks of Scotch from distilleries and then they bottle it and they stamp it with their, their label, but they often identify the distiller that it’s from so this is a Gordon and MacPhail bottling, 13 year old Scapa, and it’s a distillery in the Orkneys. Which you’re..

Ian Robertson
I’ve been there.

Tom Kubiak
A Scotland.. Yeah, so you know better than I do. But this is an interesting one because when I smell it, it smells almost like honey. It’s got a sweet, a sweet smell to it, which is unusual.

Ian Robertson
Especially for a scotch.

Tom Kubiak
Yeah, so I’m looking forward to trying it.

Ian Robertson
Okay.

Tom Kubiak
And I’m getting a totally different set of tastes different than the aroma so it’s it’s got a little bit of bitterness to it and it’s it has an all the alcohol has a bite even though it’s not a cask strength bottle.

Ian Robertson
That much of a bite, right? Yeah. Oh, that’s a lot of bite, cask cask strength. You have to be like, ready for that. Like it hits you hard.

Tom Kubiak
Yeah, that’s typically stronger. Yeah, but I will say lie like the aroma better than I like the taste.

Ian Robertson
Okay, so that may that may not be a win then, would it be something?

Tom Kubiak
I would say it’s not going to be something I drink every day.

Ian Robertson
Okay, so..

Tom Kubiak
Yeah, so this is the first time I’ve had this. I just opened the bottle tonight.

Ian Robertson
Yeah, and I don’t like anything cask strength, so I probably wouldn’t buy something that tastes like it is.

Tom Kubiak
Yeah.

Ian Robertson
Me in celebration of making gin today and talking about gin. I’m actually doing an empress elderflower rose gin. Okay, which is about as girly as gin gets.

Tom Kubiak
Is it pink?

Ian Robertson
It is. It looks like it looks like a rose, like a wine.

Tom Kubiak
A rose. Okay, yeah. You drinking it just over ice or just neat?

Ian Robertson
It’s really interesting looking but it’s good. Juniper berries really low on it like you don’t taste a ton but you can tell it’s still gin. And by the way, if you do to make gin and you decide not to put juniper berry in it, no one’s going to recognize that it’s a gin. So you got to put at least something in there and you could tell they downplayed it but elderflower and Rose, you know, it’s it’s pretty good. And I like Empress like that pink gin that they make. That’s just a nice gin. They just make a good product. So.. No, neat. I’m a neat guy.

Tom Kubiak
Just neat. Okay.

Ian Robertson
That’s how I like it.

Tom Kubiak
Yeah, me too.

Ian Robertson
Yeah, I mean, why my adulterate it? It’s kind of like..

Tom Kubiak
But I don’t drink gin neat, though. I like, I drink gin with like a gin and tonic or a martini. I don’t typically drink gin neat.

Ian Robertson
Yeah, I mean, gin is a good mixing drink. Yeah, you know what I want to try, which I’ve never had as a Negroni.

Tom Kubiak
Oh, yeah, negroni. Yeah, I’m not a huge fan of them because they’re bitter, but you know, people love them.

Ian Robertson
Oh, really? They’re bitter? They look like they’re going to be sweet.

Tom Kubiak
Yeah cuz they have Campari in it. Right? I think a negroni has campari. Yeah. So campari is a bitter, an Aprerol, like.. And it’s so that that transfers over into the Negroni.

Ian Robertson
I’ve never had it. Aperol?

Tom Kubiak
Yeah, it’s like a..

Ian Robertson
Sounds like, it sounds like a specific medical wipe.

Tom Kubiak
It’s a type of a..

Ian Robertson
You need to eat aperol twice a day.

Tom Kubiak
I’m gonna prescribe you aperol, wipe it on the affected area.

Ian Robertson
What the heck..That is the most unappetizing name of anything I’ve ever heard.

Tom Kubiak
It’s like, it’s a similar thing to Campari, which is, it’s like a it’s a class of liquors, or like their herbed liquors, typically, and they all I mean there’s there’s hundreds of different varieties, people drink them as after dinner drinks or aperitifs, digestion aides, typically with a little bit of ice or even straight up, but they go in drinks like Negronis. Or an Americano, I think is another drink you make with with either Aperol or Campari. I can’t remember.

Ian Robertson
But not the coffee kind of Americano.

Tom Kubiak
No, no.

Ian Robertson
Okay. Yeah. So I think we have a couple of good drinks here to talk about the subject. And I think anybody’s gonna say I need a little bit of alcohol to talk about taxes.

Tom Kubiak
Yeah. Sadly.

Ian Robertson
I’m gonna get into it with some questions from dumb Ian. And so you always hear everybody talk about the taxes are too high, I pay too much in taxes. And I’ll be honest, I remember being a young person, about 22, doing my first year in a new business. And I thought I did really well. And I’m like, man, I’m making it on my own. And then I did my taxes. And I’m like, crud, over a quarter of my money, went to taxes. And, um, at the time, you know, I was making a lot of money. I’m like, how is that even possible? So I can see where people are coming from. But what do you think about that statement? Taxes are too high. And we’re probably going to get a lot of flack on this episode, maybe? Because I think I know your answer from my research.

Tom Kubiak
So the, the sad truth of it is, you know, there’s probably nobody who wants to pay more tax, like that, that’s just not a standard that people want. They, so most times when someone’s confronted with a tax bill, they’re going to complain about it. Like it’s not normal for someone to say oh, I’m happy with the amount of taxes I’m paying. And that translates across the board. Because you, when we think about taxes, you typically think about income tax, but there are taxes on everything, sales tax, telecommunications tax, gas tax, real estate tax, you know, Social Security tax, there’s all kinds of different different taxes. So by the time you add those up, Americans are burdened with a lot of different taxes. And, you know, the common refrain is taxes are too high. In fact, not that far from our house, there’s a guy who has a like a landscaping business, and he’s got a sign right on it, that’s a New York State license plate that says taxes, the number two high. And then he’s got another one that says vampire state, you know, because New York is the Empire State, that’s the nickname of it when he calls it the vampire state, but they’re sucking the blood out of people. So you know, there’s probably like I said, there’s probably nobody there, there are some prominent billionaires who say that the tax code needs to be changed, because they should be paying more taxes, like Warren Buffett has consistently said that he pays a lower tax rate than his secretary. And that’s all just due to the, you know, to the lobbying changes that have happened to the tax code over the years, you know, but, you know, unfortunately, it is what it is. But like I said, nobody wants to do their taxes and end up paying more or look at their tax bill and say, Oh, I you know, I don’t think I’m paying enough tax.

Ian Robertson
You know, it. It’s funny, because there there is a mass sentiment about it, because so do you know, Oliver Anthony? No. So he’s that guy with the red beard who sings, look it up after the podcast. He’s one of the biggest internet sensations ever. Like, in just a few weeks, he went from playing, you know, whatever, not being really anybody to being on the Joe Rogan show and playing concerts. Yeah, he’s famous.

Tom Kubiak
He went viral.

Ian Robertson
He went beyond viral. But he sings a song about living in the New World, I don’t know remember exactly what it’s called. But one of the lines in the songs is about taxes. And he brings out how, this sounds terrible. Like, if you’re five foot three and 300 pounds, taxes ought not pay for your fudge rounds. So I think some of the discontent about taxes actually comes not from the tax rate, but from how taxes are actually perceived or actually are used by government agencies.

Tom Kubiak
Yeah. And that is very true. So I think there is a common understanding that people would feel comfortable paying taxes if they felt that the tax money was being put to good use. And you know that that is probably a very reasonable argument. And I think it’s relatively easy to see that government doesn’t seem to spend money well, they collect it well, and actually, that’s not even really true. They don’t they don’t collect it well.

Ian Robertson
Eh, yeah they don’t, yeah.

Tom Kubiak
They, they seem to have a lot of it, and they, and they spend it really poorly. And they also, in addition to just spending it poorly, they don’t monitor what’s getting spent. So they basically just pour money down the drain constantly. And as you know, an unfortunate thing, you know, to change the tax code requires changing likely both sides of that equation, not only do they have to change how they collect it, but they also have to change how they spend it. And anytime those changes are proposed, an enormous amount of resistance comes up. So even little changes, bring people out of the woodwork complaining about it. And a simple example of that is the argument for providing help for installing solar panels. So, you know, that benefits people who want to put solar panels on and it benefits then the electrical grid in the sense that it reduces the demand on the electrical grid, but it costs an enormous amount of money. And that money goes to in some cases, companies that are not even in the United States. So you know, if they were to change that little piece of the tax code, sure, it would, it would change the budget, but it would affect the people who want to put solar in, and that would affect the companies that are selling the solar. So it’s a it’s a cascading effect.

Ian Robertson
So let me ask you this, in my perception, I feel like there is a dwindling I mean, this is my perception. This is what they talk about all the time dwindling, middle class, but there’s a middleman, so to speak, that seems to just take the brunt of it to the face.

Tom Kubiak
Yeah. And there’s, there’s reasons for that. And there’s reasons for the perception of it, too.

Ian Robertson
So my perception is you have lower income people. And I’m not talking about justifiably or not, we’re not talking about any of that, but lower income people that seem to get, you know, everything that they need, and then richer people that just seem to be able to hang on to ridiculous amounts of money. Yeah. And then there’s just some dude in the middle, going working his butt from seven to seven, and can barely make his bills. Yeah, it seems like he’s taking it to, taking the punch right to the face.

Tom Kubiak
Yeah, as a percentage of his disposable income, he’s paying the highest rates, because the lower income taxes, the lower income range, pay very little tax, if anything at all, you know, like, likely they’re getting credits that offset their income tax, they may be paying Social Security and Medicare, but those standards are paid by everybody, or anybody who’s a wage earner, at least. So you know, for the most part, they’re not, they’re not paying nearly as much tax. But on the other hand, to the higher income people, they’re making so much more that even with a lower amount of, even with higher potentially tax rates, it’s not biting into their disposable income, whereas the middle classes is just getting clobbered. Yeah. Because they don’t have the ability to change how they make their income. So they can’t shift income to, for instance, lower income that is taxed at a lower rate, like dividends or capital gains, and their living costs are eating up their income. So what’s leftover, they’re losing a disproportionately high amount of it to tax.

Ian Robertson
So I want to tie that in with another point. Because, again, I’m not the expert at this, you are that seems to be the problem that people have with the tax system is that if you abuse the tax system on the high end, or the low end, you make out like a bandit. And then if you do the right thing, you end up paying for rich people’s vacations and everybody else’s health care.

Tom Kubiak
Yeah. So that goes to the type of tax system that we have the United States, we have what many people call a voluntary compliance tax system, where..

Ian Robertson
Wait, I can volunteer to comply with this?

Tom Kubiak
You’re voluntarily filing a tax return.

Ian Robertson
Podcast over. Wow.

Tom Kubiak
Voluntary compliance in the sense that you you choose what you put on your tax return. In some countries, the government fills your tax return out for you. Yeah, in the United States, that doesn’t happen. You put your income and your expenses on the tax return. Now, the IRS has and the government has authorized checking of that, you know, through means that the IRS has where they take the reports that your employer or the people who have paid you sent in and they match that with your tax return. But that system is unfortunately not as accurate as it should be. So the majority of income that’s put on a tax return that’s not verifiable is voluntary. You’re choosing to put it down. Now, if the IRS catches you, they audit you and they and they, you know, say okay, well, you didn’t put this information down. There’s no voluntary defense. I’m volunteering not to put this information on, you’re required by law to do it. But the reality is catching the person who doesn’t do it is not easy for the IRS, especially when we’re talking about income that’s not reported. So that’s one of the things that has been suggested many times to include in the tax return is more stringent reporting of payments. So that forces the income to be to be put on the tax return. But there’s been so much obstacle, so many obstacles to that it hasn’t worked yet. But if it did, the burden might be spread a little bit more, more evenly, and not fall on people who are are stuck with reported income that they can’t get around.

Ian Robertson
Like Sweden. Yeah, and I mean, taxes provide necessary services, like we drive on drive on the road, taxes paid for that even with potholes, infrastructure, so I have people that I work with that are in other countries. And, you know, one of my employees actually works in South Africa. And he’s like, hey, Ian, I can’t work today, because it’s a scheduled power outage, we have these three times a month, and they let us know, the day before I’m like, okay, you know, or like, in South Africa, they had a, he couldn’t do anything on the internet, because they had these cables that run along the seaboard. And they got severed. And, you know, so there’s a lot that we have here in the US that..

Tom Kubiak
Definitely..

Ian Robertson
That taxes pay for but..

Tom Kubiak
And you want somebody to respond when your house is on fire, and you want the hospital to be there, when you have a heart attack. And, you know, you want social security to pay your your Social Security benefit when you get to 66. You know, like, all these things are there, and they are paid for in different ways through the tax system. So the argument is, I paid too much tax. I’m sympathetic to that. But what of those things are you willing to give up? And that’s where the politicians have an enormous problem, because they know changes need to happen. But which one of those things do they, do they reduce? You know, like, we often have heard the statement about Social Security is the third rail in politics. If you say you’re going to change Social Security, you might as well, you might as well give up your political campaign, because the the populace will not will not elect you. But the reality is, something needs to be done, the Social Security system is going to go broke, the Medicare system is going to go broke first. So, but people are not willing to tolerate they’ve become accustomed to the level of benefit that they that they derive. And that’s all they want to do is pay less tax. And the, I don’t, one more point is the tax laws that have been passed recently that have dropped the income tax have been detrimental to the overall economy, budget, because they didn’t change the level of benefits that are being paid. So as a result of that, that they’re just dooming themselves for, you know, fiscal damage in the future.

Ian Robertson
Yeah. And so I want to throw some facts at you, because..

Tom Kubiak
Quick facts.

Ian Robertson
Well, not quick facts. And they may not actually be facts here, you’re the tax expert, so I want to throw these out at you because I did some research, because what was said to me one time, was that we in America pay right now, one of the lowest tax rates that we’ve ever paid.

Tom Kubiak
I agree with that. Yeah.

Ian Robertson
Well, I wanted to see if it was true. So I actually did a little bit of research and on multiple government and organization websites, I couldn’t believe this. Because usually you look up facts and you’re like, Okay, here’s five different versions of it.

Tom Kubiak
Yeah.

Ian Robertson
But people would say it different ways. But it would all be the same. The United States tax burden as a share of GDP is 26%. It’s the lowest in the entire industrialized world. Save Turkey, Ireland, Chile and Mexico. Yeah, we have the fifth lowest tax rate as tax burden as a share of GDP. Yeah. So and you can make the argument that those four other countries have a much smaller economy than the US.

Tom Kubiak
Yeah. And also less provided for their citizens.

Ian Robertson
Less provided for the citizens. So if you took that into account, some make the argument we actually have out of the industrialized nations in the world, the lowest tax rate. So I wanted to point that out to what what those organizations said, including the government organizations. Now, if you go to Tax Policy Center, I’ve never heard of them. But they actually took some numbers that I was able to look up and verify to an extent. They’re obviously rounded numbers. They didn’t do exact, I say rounded to point 10 is what they were rounded to. So right now, historic, highest marginal income tax rate so that we are actually started doing income tax only 100 to 150 years ago, right? It really wasn’t the thing was actually..

Tom Kubiak
1913, right?

Ian Robertson
Yeah. 1913. They did something that was a little bit before that. And then they abolished it right after they got rid of it. So beginning in 1913 to 1916, the top marginal income tax rate was 7%. And then the highest was 15%. Then again, in the 20s, it went down to 24 to 25%. In the late 80s, starting in 1988, all the way to 1992. It was 28 to 31%. And then a little bit in the early 2000s. It was at 35%. Right now, from 2018 to 2023. We’re at 37%. So besides those points that I mentioned, the past 110 years, besides those, what is that, 15 to 20 years, we pay the lowest of that top marginal tax rate in all of income tax history in the US. Yeah, and there were times when that top tax rate was, like 80%, or something like that. It was super high. No, yeah, there was even higher, there was a time period where it was 92% in 1952, and 1953. How did people even function at that point?

Tom Kubiak
Well, that’s because that was, you know, for extremely exaggerated amounts of income. Yeah. You know, so maybe, you know, if you look at that number today, I’m not sure what the threshold was, or the bracket that hit that 92%. But it would be like, similar to a billionaire.

Ian Robertson
Yeah. So billionaires apparently paid the least amount of tax for the most part now than they then they have for a very long time.

Tom Kubiak
Yeah, well, and that’s due to the structure of the tax code. So the common misunderstanding of the tax code is, is that your tax is based upon your gross income, you know, so if I make a lot of money, I pay a lot of tax. And there’s truth to that. But the rates that you pay are dependent upon the type of income that you have. So when you have wages, when you work as an employee, you are paying the highest tax rate. So there’s no there’s no discounts from it. If you derive your income from investments, like long term capital gains, something that’s that you’ve bought and hold for a year or longer, or if you derive income from dividends, or other types of investment income, you pay lower rates, and in some cases, those rates are zero, even though you have income. So that’s why you you know, that’s why Warren Buffett says, I pay lower rates than my secretary, my secretary has all wage income, I have capital gains. And as a result of that, I, I pay lower rates.

Ian Robertson
Well, and there’s other things too, like S Corps. So that was an interesting change to the law. So but that didn’t tell me if I’m explaining this, right. But basically a pass through entity with an S corp. So basically, if I file as an S corp as an LLC, the file is as an S corp, I can pay myself some income, do some things, understand, and then basically, I just end up paying less taxes.

Tom Kubiak
Yes, that’s correct. It’s a, it’s a way of escaping some of the supplementary taxes that come, not income taxes. So income taxes on S corp income that passed through to your personal return or your wage income are the same, they’re not going to be given any kind of preference. But what S corp income doesn’t have to pay is the Social Security and Medicare tax, which for an employee is about seven and a half, 7.65%. But if you’re a self employed person, it’s 15.3%. So that’s a pretty significant bump. And so again, apply this to Warren Buffett, if you take the secretary, and she makes $100,000, she pays federal income tax that will say about 22%, she pays FICA taxes at seven and a half percent. So and then, you know, depending on what state she’s in, but we won’t even take into consideration the state, just the federal side is 30%. Between those two, if $100,000, in dividends are paid, the majority of it is zero. And then the rest of it might be 10%. So we’re going from 30% to 10% on the exact same amount of income, it’s not really fair.

Ian Robertson
Money makes money, so you have to have it to make it. It doesn’t, so those kinds of laws, they benefit like a business owner like me, I’m like, oh, yeah, you cool, but it doesn’t benefit again, the average guy in the middle and again, I was in that middle for a long time, kicking every April like, what in the world?

Tom Kubiak
Yeah, it’s that’s what it is. And, and then that especially is costly to the small business owner who’s self employed who is not taking advantage of corporate structures or, or other ways of sheltering his money. And then that’s really where, you know, as people get more income, you know, one of the questions they oftentimes ask their accountant is how can I save taxes? Like how can I avoid paying all this and there are ways to take it, there are things that even employees can do to take advantage of tax savings. But when you’re in the next round up, the person who’s making a million dollars or more a year and has some ability to be able to structure how they get their income, they can actually take advantage of some provisions and save themselves quite a bit.

Ian Robertson
So, the upper echelon is that a word, echelon? Am I pronouncing it right?

Tom Kubiak
I think so. Yeah.

Ian Robertson
I hear it on shows.

Tom Kubiak
Yeah. Sounds like a science fiction term.

Ian Robertson
No, I hear it, I hear people talk about on TV.

Tom Kubiak
I shot him with the echelon.

Ian Robertson
You have to remove your echelon, sir, it was infected.

Tom Kubiak
The echelon has been malfunctioning, please change it out.

Ian Robertson
Give me my hyper spanner and an echelon. But the upper class income people. I forget, now I got hyper spanner in my mind.

Tom Kubiak
They, they can adjust their income. Yeah. And that’s one of the things the hedge fund managers are constantly called out for. And there was a presidential candidate few years ago that that, you know, was very, very wealthy didn’t end up winning the presidency. But you know, he took a lot of slack for being in you know, very high income brackets, and he accumulated in his traditional IRA, something like $5 million, or something like that? I don’t know. And what people would say is, how did you get that much money in your traditional IRA, you can only put in $5,000 at a time or $4,000 at a time. And one of the things that these these high net worth individuals can do is they can structure their income such that it’s front loaded to the future. So what they get right now is set at very low basis or treated as deferred income. And as a result of that they can use they can take advantage of sheltering things that other people normally wouldn’t be able to do. So in order to benefit from the tax code, you have to either be very low income, or very high income.

Ian Robertson
Okay, so the rich people pay the one of the lowest tax rates that they’ve ever paid in US history. What about middle income people and lower income people? Do they pay one of the lowest in history?

Tom Kubiak
I think the current round of tax cuts, the tax cut Jobs Act that was passed during the Trump administration did lower the rates and expanded the brackets a little bit so that the most people think they’re paying a little bit less tax. One of the complications of that is, you know, that law also removed the ability to be able to deduct itemized deductions. So most people who were in states that had high percentages of people itemizing their deductions, felt that law a little bit more costly, felt that that law was a little bit more costly than other states. And, you know, frankly, again, we try to stay out of politics, but that law was kind of geared to stick it to the states that have, you know, higher democratic populations like California and New Jersey, New York, they have typically higher real estate taxes and mortgage interest. And those were two things that were deductible under the previous tax code. The new tax code doesn’t let you deduct those things or limits them. And as a result of that, most people who were itemizing can’t itemize anymore. So the net effect of that is they’re, they’re paying tax on more of their income, they don’t get that deduction. So even if the tax rates are a little bit lower, which they were, they’re paying that tax on a bigger amount of income. So they overall, they’re paying more tax.

Ian Robertson
And so I guess the reason I think a lot of people say I’m paying too much tax goes back to the point of, you’re not getting a lot of value for your money. So we look at, we did a podcast on Sweden, we have our neighbors to the north in Canada, they pay a high tax rate, which when you kind of add it all together, I was doing the math of a friend up in Canada, and he was telling me how much he pays in taxes. And I was doing the math, I’m like, if you add my state tax, and then all my sales tax, and then my tax on my tax, and my tax has taxes on my tax, you know, it’s I’m like, I feel like I’m not far off. But when he retires, he gets a lot of government assistance and all that stuff.. in the US..

Tom Kubiak
And health care.

Ian Robertson
And health care.

Tom Kubiak
In those countries. Typically, the government, health care is is part of what they’re paying for in their tax and it’s not in the United States. Yeah. And that’s a big piece of the puzzle.

Ian Robertson
Yeah, but at the same time, I feel like too, we’re paying for healthcare and our taxes. I just ended up buying health care after I pay my taxes anyways.

Tom Kubiak
Well, yeah, yeah. I mean, you’re you’re paying for other people’s health care. You’re probably not paying for your, your healthcare, you’re paying for Medicaid. So Medicaid is the is the, you know, the health insurance that covers low income people and you know, and again, I’m not going to be one to argue that that’s not a warranted expense. Because every everybody should have good health care, like, regardless of your income health care should be, probably should be one of the things that is provided by government. But the challenge is, is that, you know, all everyone pays those Medicaid. Everyone pays into the tax system. But the people who get the health care are generally lower income who aren’t paying into the system. So you and I, we’re paying into it, but then we still have to go out and buy our own health insurance. And that dramatically increases the the overall tax effect.

Ian Robertson
Yeah.

Tom Kubiak
When compared to other countries.

Ian Robertson
Yeah and I’m not saying one country system is better than the other because there’s ups and there’s downs to it. Like, you know, you can’t go to the doctor when you want, you don’t choose your own doctor a lot of time.

Tom Kubiak
Yeah, right, socialized medicine leads to that.

Ian Robertson
Yeah, so there’s a lot of stuff. But I think about like, in my area, school taxes, they are nuts, the average person, you have a $200,000 house, you’re gonna pay about $3,500 in just school taxes a year. So that’s the average American family, which the average American family is going to make a little under 50 grand a year, can you imagine almost 10% of your income going to just school taxes. So now for me, I pay school taxes. My daughter doesn’t go to school, because we homeschool her. Yeah. And in our state, not not every state, but in our state. They don’t allow you, if you’re going to homeschool, they say you get no facilities, you get no books, you get no resources, you cannot ask us questions. And that’s it. So I’m like, I have to pay for school. But my daughter doesn’t get anything from them.

Tom Kubiak
Well, what about me, I have to pay for school, and I don’t even have kids, so..

Ian Robertson
But there’s also a benefit to it. Like, I’m not not saying we should be short minded. And if we don’t have school systems for people that can’t homeschool, we’re going to have an entire generation, we’ll grow old with an entire generation letting the country fall apart, because you know, they can’t mow lawns or can’t read. You know, it’s like, okay,

Tom Kubiak
What’s happened is the the populace has said the provision of an educational system is part of what government has to do. And as a result of that, the tax money has to be generated in order to be able to do that, you know, populace has also said through the, you know, through the way the federal government is, is that, you know, the Department of Defense, the defense of the United States is part of what the government has to do and pay for. And as a result, they need tax lobby to generate the, you know, Department of Energy, you know, the national parks have to be paid for, all these things are part of the national budget. And as a result of that, tax revenue has to pay for those things. So if you lower the tax revenue, you have to lower what you’re paying for otherwise, you end up with these massive budget deficits, like we have $33 trillion, or something like that.

Ian Robertson
So it reminds me of when my daughter was like two, and she wanted to do 50 things. And then we could only do five of them. And then she would get get upset because we didn’t have time to do all the other 45 things. And then me stupidly, will try to do all 50 things, and neither of us ended up happy. So the government’s like, we’ll do all this stuff. And they’re like, well, we want you to do that stuff away. But we don’t want to pay taxes. Now they’re both unhappy.

Tom Kubiak
Yep. And what what even exaggerates that more is anytime those things are increased, you now set the bar higher. And you can’t go back to what you had before. So as an example, you know, there’s a very popular credit called the earned income credit, it’s available for families or low income individuals. And it’s pretty significant for family with a couple of kids that make around $25,000, they can get four or $5,000 in earned income credits cash back from the government. Well, every year, they’ve progressively raised that a little bit. But now if the government were to say, Okay, well, we’re at $5,000, we want to take it back to $4,000. It creates a fervor of anger, that you’re taking away what you’ve given us, even though maybe it’s only been at $5,000 for one year, and maybe it went to $5,000 because of the pandemic. But to go back to 4000 It’s all of a sudden, you’re taking away something that you promised us and I’m just using that as one example. But that applies in every area of the tax code, if the tax, you know, if we say okay, well, we’ve been charging 10% on long term capital gains, let’s charge 15% on long term capital gains. Now it’s all of a sudden, you know, you’re you’re a bad person because you raise taxes.

Ian Robertson
Well, and look at, this is probably going to get us another viral video of people getting angry. Look at unemployment during the pandemic. I think that was a good example. They gave everybody like unemployment. They didn’t give it unfairly in my opinion to health care workers, or people at Walmart who had to work during the pandemic are like you don’t get that but keep working. You know? So they got that. And then when they started to take it away, when statistically it was one of the biggest worker shortages that we have on record in the US, people freaked out. They’re like, how dare you?

Tom Kubiak
Exactly. That’s this is exactly what we’re saying. Even a short term fix now becomes a permanent part of the tax code. In that case, it didn’t you know, that they didn’t add the, but when they took away that extra $600 a week, which was a crazy amount of unemployment, you know, people were getting $1,000 a week to stay home, and totally incentivize staying home. And the people who had, had to go into work, because they were first responders, or they were in essential businesses, they didn’t get anything. Yeah, it’s an example of just government ham handed doing stuff wrong.

Ian Robertson
It’s me and my daughter going somewhere, trying to do 50 things, and me giving her a bunch of sugar and her getting upset because we couldn’t do all 50 things. And I think that sums up how taxes work.

Tom Kubiak
Pretty much.

Ian Robertson
I didn’t need you at all, Tom, I summed it up right there, who needs your tax expertise?

Tom Kubiak
We’ve just scratched the surface on taxes. Like it’s such a big topic, and it generates so much angst amongst people, especially in the United States, because we have a tax season, you know, a period of time when tax returns need to be filed. And it’s just it’s a very stressful time for people. And they typically, you know, they’re they’re reminded of how much tax they pay and and it just creates a lot of animosity toward government.

Ian Robertson
And there’s also a wee bit of history here with taxes. You know, there was a whole party in Boston. I heard about it.

Tom Kubiak
True. Yeah.

Ian Robertson
That’s okay. There was tea there. So.

Tom Kubiak
There was tea, exactly.

Ian Robertson
How bad could it have been.

Tom Kubiak
Everybody loves Boston.

Ian Robertson
Well, I think this is an interesting discussion. I think we’re going to have to have another podcast later on and talk more maybe about some of these niche parts of the of taxes, how they work.

Tom Kubiak
Yeah, sounds good.

Ian Robertson
Because I have a lot of questions on it. But to take us out. Do you have a tax joke for us?

Tom Kubiak
I always have a joke. So here’s my joke. Where do pirates send their taxes?

Ian Robertson
To Davy Jones’ locker?

Tom Kubiak
Close..to the I R S.

Ian Robertson
That was not good, that was not good.

Tom Kubiak
That was a good one.

Ian Robertson
I have a fun fact. So Peter the Great, when was Peter the Great alive, it was 1700s. But he taxed beards.

Tom Kubiak
He taxed beards?

Ian Robertson
Beards. So if you had a beard, you were taxed.

Tom Kubiak
Really?

Ian Robertson
He was an interesting dude, though, you know, he was six foot eight.

Tom Kubiak
Peter the Great was? Well, that’s why he was the great.

Ian Robertson
Well, I don’t know. You know, Russian’s a funny language too, like Ivan the Terrible. He wasn’t terrible. That was actually a compliment. But Peter the Great was six foot eight. He could they say he could look into a second story window because people were a lot shorter back then, in general, a second story window was only seven foot off the ground. So he would just kind of peak up with his head and he could look into his second story window.

Tom Kubiak
Do you know how much he taxed? What was the tax on a beard?

Ian Robertson
What was the tax? I don’t know.

Tom Kubiak
I wonder what that was? I wonder if it’d be worth growing a beard. If I had to pay tax on it.

Ian Robertson
Would you get a deduction if you only had a mustache?

Tom Kubiak
Good question. Would I keep my mustache if I had to pay tax on it every year?

Ian Robertson
And do you get taxed differently on different types of beards?

Tom Kubiak
True. What if it’s just like, you know, like one of those two day growth beards, or what if it’s a massive ZZ top beard. You shouldn’t have to pay the same thing.

Ian Robertson
I think the US government should start taxing man buns because that’s a travesty, that that shouldn’t happen.

Tom Kubiak
I agree. That should definitely be taxed away.

Ian Robertson
Yeah. Well, it was great talking with you, Tom.

Tom Kubiak
Well, likewise, Ian, always good.

Ian Robertson
Thank you very much for being on your own show.

Tom Kubiak
Until next time.

Ian Robertson
Talk soon. Bye.

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