2021-09-14_Will_Your_Bank_Automatically_Send_All_Your_Info_to_the_IRS
00:00:00.000 | Sweet Hop is an online marketplace curating the best in premium seating at stadiums, arenas,
00:00:05.000 | and amphitheaters nationwide. With Sweet Hop's 100% ticket guarantee, no hidden fees, and
00:00:10.500 | the personal high-level service you expect with a premium purchase, you can relax knowing
00:00:15.000 | you'll receive the luxury experience you deserve. Visit SweetHop.com today to book your premium
00:00:20.340 | tickets to your favorite teams, artists, and all the must-see live events to Sweet Hop
00:00:25.000 | around LA. It's more than just a ticket.
00:00:30.000 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:34.000 | skills, insight, and encouragement that you need to live a rich and meaningful life now
00:00:38.580 | while building a plan for financial freedom in 10 years or less. My name is Joshua Sheets.
00:00:43.600 | I am your host. And today we're going to talk about some of the recent news regarding a
00:00:48.960 | proposal by President Biden in the United States, as well as a bill in the Senate submitted
00:00:55.820 | by Senator Elizabeth Warren advocating that all banking and financial institutions report
00:01:06.820 | to the federal government and to the IRS all of the monthly inflows and outflows of those
00:01:15.120 | accounts. This is part of the overall press towards increasing, for the government trying
00:01:21.680 | to figure out how to increase the tax revenues and they're trying to go after, allegedly,
00:01:27.780 | go after tax evasion. We're going to begin in today's show with an overview of the actual
00:01:34.360 | news articles, the history, and the legislation. And I'm going to share with you specifically
00:01:39.840 | where I think this is going to go, and perhaps more importantly, some of the things that
00:01:44.820 | I believe that you can do about this particular issue. As we begin, I have an important announcement,
00:01:53.080 | however, to let you know that for the first time in about six months, I am going to be
00:01:59.160 | offering paid consulting once again. If you have been wanting to get my attention, if
00:02:04.960 | you have been wanting to reach out and speak to me for some aspect of financial consulting,
00:02:12.160 | business consulting in some way, I am now available to you. You can book a call by going
00:02:16.320 | to RadicalPersonalFinance.com/consult. And why you ask might you want to do that? Well,
00:02:24.760 | if you would like to gain the perspective of an expert and experienced financial advisor
00:02:32.880 | who does not abuse your personal privacy, then this might be a good way to do it. As
00:02:38.280 | you'll hear me talk about in today's show, one of the things that is unfortunate but
00:02:45.780 | true about the financial industry is anybody who is involved in the financial industry
00:02:53.240 | in the United States is automatically an unpaid spy for the US federal government. And that
00:03:00.600 | bothers me quite a bit. And so one of the things that I was quite happy about when I
00:03:05.260 | surrendered all of my insurance and securities licenses was to get out of that position.
00:03:13.760 | And so I don't tell people to buy or sell stocks, thus I do not need to have a securities
00:03:19.380 | license. I don't make any specific forward-looking statements on investments, thus I'm not regulated
00:03:25.600 | by securities regulators. I don't sell anything except myself. And so if you would like to
00:03:31.040 | talk to somebody who is actually honest, straightforward, and who may be able to help you, we have a
00:03:35.240 | list of people who can help you. And so if you would like to talk to them, you can do
00:03:41.380 | that by going to radicalpersonalfinance.com/consult. Let's begin with a newspaper article published
00:03:51.440 | yesterday in the Ocala Post. Headline of the article, "Biden Wants IRS to Snoop into Your
00:03:58.320 | Bank Account. Know When You Have $600 or More" by Rebecca Long. Dateline here is September
00:04:05.240 | 13, 2021. I'm not sure why, in the last few days I'm seeing a lot more article and discussion
00:04:11.500 | about this issue. This is not strictly from September, but I am, and so I want to comment
00:04:17.680 | on this current event. Let's begin with the introduction to this article. "Outraged citizens
00:04:23.560 | and banks alike want to know why President Joe Biden plans to allow the IRS to snoop
00:04:28.860 | into bank accounts, Venmo, PayPal, and crypto transactions, among other types of payment
00:04:35.100 | processing accounts. The White House said, 'This type of surveillance is needed to prevent
00:04:39.360 | tax evasion.' Biden plans to use any money that is confiscated during IRS audits to fund
00:04:45.880 | his proposed plan for the Democrats' $3.5 trillion budget plan. If passed, banks would
00:04:53.780 | be required to report every deposit and withdrawal from an account to the IRS in order to target
00:05:02.000 | audits. The bill, known as Senate Bill 1788, the "Restoring the IRS Act of 2021," was
00:05:10.300 | proposed by Senator Elizabeth Warren. Warren said the bill was intended to target the rich.
00:05:17.120 | However, tax experts say the bill does nothing of the sort and leaves those in Congress exempt."
00:05:24.720 | Now I said this is not a new issue. Let's go back to April, April 29, 2021, article
00:05:31.240 | in the Wall Street Journal. Headline, "Biden Tax Plan Leans on Banks to Help Find Unreported
00:05:39.160 | Income. The proposal would require banks to report annual account inflows and outflows
00:05:45.280 | to the Internal Revenue Service. Part of the funding for President Biden's $1.8 trillion
00:05:50.840 | American Families Plan hinges on a beefed-up reporting requirement for banks designed to
00:05:57.680 | identify unreported income. The proposal would require banks to report annual account inflows
00:06:04.480 | and outflows to the Internal Revenue Service. The requirement would also extend to peer-to-peer
00:06:11.240 | payment services, such as Venmo, but wouldn't require individuals and businesses to report
00:06:16.880 | any additional information to the government, according to people familiar with the plan.
00:06:22.160 | Financial institutions already must report interest, dividend, and investment income,
00:06:27.160 | and the IRS can get bank information during audits." Providing the IRS this information
00:06:33.080 | will help improve audit selection so it can better target its enforcement activity on
00:06:39.120 | the most suspect evaders. Avoiding unnecessary and costly audits of ordinary taxpayers,"
00:06:47.320 | the Treasury Department said in a statement Wednesday.
00:06:50.720 | The Biden plan, which includes new spending on child care, education, and paid leave,
00:06:54.600 | relies on $700 billion in revenue the administration says would come from a significant expansion
00:07:01.920 | of the Internal Revenue Service. The information reporting expansion of the plan, combined
00:07:07.160 | with some other efforts, would yield about $460 billion of the $700 billion in additional
00:07:15.140 | tax collection under the Biden-IRS changes, the people said.
00:07:19.660 | The plan would largely affect the bank accounts of business owners, placing financial institutions
00:07:24.720 | at the center of an effort to curb unreported or misreported business income. The IRS estimates
00:07:32.240 | that up to 55% of business income is unreported or misreported. Shocking that the IRS would
00:07:40.800 | estimate such a thing.
00:07:42.680 | Now let's go and additionally by way of background, that's enough news stories, let's go and read
00:07:48.600 | a little bit of text. First I want to begin with the official fact sheet published at
00:07:53.960 | WhiteHouse.gov on April 28, 2021 about the American Families Plan, and then we will go
00:07:59.800 | to the text of the bill submitted by Senator Warren.
00:08:03.280 | Overall in the American Families Plan, today President Biden announced the American Families
00:08:08.760 | Plan, an investment in our kids, our families, and our economic future. And the basic ideas
00:08:16.480 | are to expand government schools, add at least four years of free education, and so they
00:08:23.480 | want to expand government schooling. Basically in short, they want to add two years of government
00:08:29.720 | schooling for pre-kindergarten for three and four year olds, and then also add two years
00:08:35.920 | of government colleges for community college levels. Basically make community colleges
00:08:42.160 | tuition free. And then there is a proposal for expanded child credits, education and
00:08:52.240 | preparation for teachers, yada yada yada, childcare credits, yada yada, paid leave,
00:08:56.680 | yada yada, nutrition, blah blah blah.
00:08:59.040 | Okay, now how do we pay for it? This is the appropriate section here. Tax reform that
00:09:04.920 | rewards work, not wealth. The President's tax agenda will not only reverse, again reading
00:09:10.440 | from the government documents here, "The President's tax agenda will not only reverse the biggest
00:09:15.580 | 2017 tax law giveaways, but reform the tax code so that the wealthy have to play by the
00:09:23.400 | same rules as everyone else. It will ensure that high-income Americans pay the tax they
00:09:29.600 | owe under the law, ending the unfair system of enforcement that collects almost all taxes
00:09:38.640 | due on wages, while regularly collecting a smaller share of business and capital income.
00:09:46.160 | The plan will also eliminate long-standing loopholes, including lower taxes on capital
00:09:51.960 | gains and dividends for the wealthy, that reward wealth over work. Importantly, these
00:09:59.080 | reforms will also rein in the ways that the tax code widens racial disparities in income
00:10:06.440 | and wealth. President Biden's plan uses the resulting revenue to rebuild the middle
00:10:11.600 | class, investing in education, and boosting wages. It will also give tax relief to middle-class
00:10:18.880 | families, dramatically reducing child poverty and cutting the cost of child care in half
00:10:26.040 | for many families. The result of the President's individual tax reforms will be a tax code
00:10:31.240 | with fewer loopholes for the wealthy and more opportunity for low and middle-income Americans.
00:10:39.160 | Altogether these tax reforms focused on the highest income Americans would raise about
00:10:43.880 | $1.5 trillion across the decade. In combination with the American Jobs Plan, which produces
00:10:50.860 | long-term deficit reduction through corporate tax reform, all of the investments would be
00:10:56.620 | fully paid for over the next 15 years. President Biden's plan will revitalize enforcement
00:11:04.160 | to make the wealthy pay what they owe. We have a two-tiered system of tax administration
00:11:10.280 | in this country. Regular workers pay the taxes they owe on wages and salary, while some wealthy
00:11:17.600 | taxpayers aggressively plan to avoid the tax laws. Those with the highest incomes generate
00:11:25.640 | income in opaque categories where misreporting rates can reach 55%. A recent study found
00:11:33.720 | that the top 1% failed to report 20% of their income and failed to pay over $175 billion
00:11:42.040 | in taxes they owed. But today the IRS does not even have the resources to fully investigate
00:11:48.000 | this evasion. As a result of budget cuts, audit rates on those making over $1 million
00:11:54.040 | per year fell by 80% between 2011 and 2018.
00:12:01.040 | Now, obviously, we are reading government propaganda. Government propaganda is something
00:12:23.880 | that we all know and appreciate. But what is interesting to me is notice how, in this
00:12:35.480 | official document, which I have read verbatim prior to my commentary here, notice how the
00:12:42.880 | writers of this document pass back and forth regularly between tax avoidance and tax evasion.
00:12:53.300 | This bothers me. I point it out to you because it should bother you. There is a dramatic
00:12:58.480 | difference between tax avoidance and tax evasion. And what is quite frustrating to me is that
00:13:06.920 | the propagandists here, who are writing this particular bit of copy, this sales copy for
00:13:13.600 | their agenda, are ignoring that difference. And in that paragraph I just read, distinctly
00:13:23.080 | making false equivalencies between these practices. Did you notice it? "Regular workers pay the
00:13:31.920 | taxes they owe on wages and salaries while some wealthy taxpayers aggressively plan to
00:13:38.960 | avoid the tax laws," dropping down tootin' sentences, "but today the IRS does not even
00:13:45.600 | have the resources to fully investigate this evasion." So just have your guard up whenever
00:13:51.600 | you're reading government propaganda.
00:13:53.720 | The President's proposal would change the game by making sure the wealthiest Americans
00:14:01.100 | play by the same set of rules as all other Americans. It would require financial institutions
00:14:07.320 | to report information on account flows so that earnings from investments and business
00:14:14.180 | activity are subject to reporting more like wages already are. It would also increase
00:14:21.480 | investment in the IRS while ensuring that the additional resources go toward enforcement
00:14:27.160 | against those with the highest incomes rather than Americans with actual income less than
00:14:33.320 | $400,000. Additional resources would focus on large corporations, businesses, and estates,
00:14:40.340 | and higher income individuals. Altogether, this plan would raise $700 billion over 10
00:14:47.160 | years.
00:14:49.460 | Increase the top tax rate on the wealthiest Americans to 39.6%
00:14:55.260 | One of the 2017 tax cuts clearest giveaways to the wealthy was cutting the top income
00:15:01.140 | tax rate from 39.6% to 37%, exclusively benefiting the wealthiest households, those in the top
00:15:09.840 | 1%. This rate cut alone gives a couple with $2 million in taxable an annual tax cut of
00:15:16.460 | more than $36,400. The President's plan restores the top tax bracket to what it was
00:15:22.580 | before the 2017 law, returning the rate to 39.6%, applying only to those within the top
00:15:30.740 | 1%.
00:15:33.220 | End capital income tax breaks and other loopholes for the very top
00:15:38.900 | The President's tax reform will end one of the most unfair aspects of our tax system,
00:15:46.180 | that the tax rate the wealthy pay on capital gains and dividends is less than the tax rate
00:15:51.400 | that many middle class families pay on their wages. Households making over $1 million,
00:15:57.800 | the top 0.3% of all households, will pay the same 39.6% rate on all their income, equalizing
00:16:07.480 | the rate paid on investment returns and wages. Moreover, the President would eliminate the
00:16:13.100 | loophole that allows the wealthiest Americans to entirely escape tax on their wealth by
00:16:18.760 | passing it down to heirs. Today, our tax laws allow these accumulated gains to be passed
00:16:24.920 | down across generations untaxed, exacerbating inequality. The President's plan will close
00:16:32.180 | this loophole, ending the practice of stepping up the basis for gains in excess of $1 million
00:16:37.960 | ($2.5 million per couple when combined with existing real estate exemptions) and making
00:16:43.480 | sure the gains are taxed if the property is not donated to charity. The reform will be
00:16:49.280 | designed with protections so that family-owned businesses and farms will not have to pay
00:16:54.160 | taxes when given to heirs who continue to run the business. Without these changes, billions
00:16:59.840 | in capital income would continue to escape taxation entirely.
00:17:04.960 | High-income workers and investors generally pay a 3.8% Medicare tax on their earnings,
00:17:16.420 | but the application is inconsistent across taxpayers due to holes in the law. The President's
00:17:22.400 | tax reform would apply the taxes consistently to those making over $400,000, ensuring that
00:17:28.320 | all high-income Americans pay the same Medicare taxes.
00:17:32.800 | That is the gist of how the President of the United States proposes to increase revenues
00:17:39.840 | based upon that public statement on April 28th of 2021. Now let's read briefly for
00:17:46.960 | more details on the actual documents here that have a few more details.
00:17:56.000 | To begin with, let's read an excerpt from the Department of the Treasury, a document
00:18:00.960 | published in May of 2021, called "General Explanations of the Administration's Fiscal
00:18:06.640 | Year 2022 Revenue Proposals," and we find the appropriate section here on page 88, wherein
00:18:15.040 | the Treasury Department proposes this, "Introduce comprehensive financial account reporting
00:18:20.920 | to improve tax compliance." Current law. Business income is subject to limited information
00:18:27.440 | reporting. Current information reporting of gross receipts exists for only certain types
00:18:32.280 | of revenue, from Forms 1099-MISC, 1099-NESC, and 1099-K, and there is no information reporting
00:18:41.620 | on total deductible expenses. Reason for change. The tax gap for business income, outside of
00:18:48.100 | large corporations, from the most recently published Internal Revenue Service estimates,
00:18:53.640 | is $166 billion a year. The scale of this revenue loss is driven primarily by the lack
00:19:00.700 | of comprehensive information reporting and the resulting difficulty identifying noncompliance
00:19:06.720 | outside of an audit. While the net misreporting percentage is only 5% for income subject to
00:19:13.420 | substantial information reporting, the net misreporting percentages for certain categories
00:19:18.480 | of business income exceeds 50%. Requiring comprehensive information reporting on the
00:19:24.460 | inflows and outflows of financial accounts will increase the visibility of gross receipts
00:19:30.820 | and deductible expenses to the IRS. Increased visibility of business income will enhance
00:19:36.920 | the effectiveness of IRS enforcement measures and encourage voluntary compliance.
00:19:43.940 | Proposal This proposal would create a comprehensive
00:19:46.620 | financial account information reporting regime. Financial institutions would report data on
00:20:01.140 | financial accounts in an information return. The annual return will report gross inflows
00:20:07.840 | and outflows with a breakdown for physical cash, transactions with a foreign account,
00:20:13.900 | and transfers to and from another account with the same owner. This requirement would
00:20:19.140 | apply to all business and personal accounts from financial institutions, including bank,
00:20:24.940 | loan, and investment accounts, with the exception of accounts below a low de minimis gross flow
00:20:31.800 | threshold of $600 or fair market value of $600. Other accounts with characteristics
00:20:40.240 | similar to financial institution accounts will be covered under this information reporting
00:20:46.720 | regime. In particular, payment settlement entities would collect taxpayer identification
00:20:52.780 | numbers (TINs) and file a revised Form 1099-K expanded to all payee accounts subject to
00:21:02.420 | the same de minimis threshold, reporting not only gross receipts but also gross purchases,
00:21:09.060 | physical cash, as well as payments to and from foreign accounts, and transfer inflows
00:21:15.220 | and outflows. Similar reporting requirements would apply to crypto asset exchanges and
00:21:21.380 | custodians. Separately, reporting requirements would apply in cases in which taxpayers buy
00:21:27.180 | crypto assets from one broker and then transfer the crypto assets to another broker, and businesses
00:21:33.820 | that receive crypto assets in transactions with a fair market value of more than $10,000
00:21:39.820 | would have to report such transactions. The Secretary would be given broad authority to
00:21:45.260 | issue regulations necessary to implement this proposal. The proposal would be effective
00:21:51.000 | for tax years beginning after December 31, 2022.
00:21:57.940 | Now we go to the text of Senate Bill 1788, sponsored by Senator Elizabeth Warren, Democrat
00:22:07.620 | from Massachusetts, called Restoring the IRS Act, introduced on May 24, 2021. Now remember
00:22:16.540 | as we go to the actual bill for the details of this bill, remember that there are many
00:22:21.180 | thousands of bills submitted every year in both houses of Congress, and only some hundreds
00:22:27.640 | of them actually ever become law. And so there are frequently many crazy things written in
00:22:33.540 | bills, but it's useful to review the actual information. So let's do this. Reading from
00:22:39.020 | the text of Senate Bill 1788, introduced in the Senate May 24, 2021, as I find it on congress.gov
00:22:47.260 | on September 14, 2021. If we go to, we go through the first section of hey we want to
00:22:54.620 | appropriate more money for the IRS, and then we go to the second section and read the actual
00:23:00.060 | text of the law. Section 4, returns relating to certain business transactions. In general,
00:23:08.900 | the return requirement, subpart B of part 3 of subchapter A of chapter 61 of the Internal
00:23:13.500 | Revenue Code of 1986 is amended by adding at the end the following new section. Section
00:23:19.540 | 6050Z, returns relating to account transactions. A, requirement of reporting, any covered financial
00:23:29.420 | institution shall make the information return described in subsection B at such time as
00:23:35.820 | the secretary may by regulations prescribe. B, return. A return is described in this subsection
00:23:43.820 | if such return, 1, is in such form as the secretary may prescribe and 2, contains with
00:23:50.860 | respect to each account maintained by the covered financial institution. A, the name,
00:23:58.060 | address, and TIN, of course taxpayer identification number, of the person on whose behalf the
00:24:04.400 | account is maintained. B, the monthly gross inflows and outflows with respect to such
00:24:11.300 | account. C, in the case of an account that is not related to a trade or business, the
00:24:17.220 | amount of such inflows and outflows that are related to 1, cash transactions, 2, foreign
00:24:23.900 | transactions and 3, transfers to related accounts and D, such other information as the secretary
00:24:31.620 | may require for tax administration and enforcement purposes. My favorite is always D. So again
00:24:41.300 | by review it says that we're going to require financial institutions to create and submit
00:24:47.820 | a return that includes the name, address, and tax ID number of the person on whose behalf
00:24:52.300 | the account is maintained. The reason they use tax ID number is because that's either
00:24:57.340 | an EIN, employer identification number for business accounts or an SSN, social security
00:25:03.640 | number for individuals. So A, the name, address, and TIN of the person on whose behalf the
00:25:08.740 | account is maintained. B, the monthly gross inflows and outflows with respect to such
00:25:15.860 | account. Now my English ability is not sufficient to know all of the information that would
00:25:23.300 | be absorbed or necessary or seen under the term the monthly gross inflows and outflows.
00:25:31.860 | Generally I would understand monthly to mean each month on a calendar basis. The word gross
00:25:37.900 | usually means figures that are summed up and then inflows and outflows means how much money
00:25:44.140 | goes in and how much money comes out. So that could be a fairly general requirement. But
00:25:51.700 | what we get to in section D, and again I'm not an attorney, but there's no limitation
00:25:57.020 | that that necessarily be limited to just simply the total amount. And so let's continue in
00:26:02.960 | part C. But part B just says the monthly gross inflows and outflows with respect to such
00:26:08.900 | an account. So the financial institution would send to the IRS, to the secretary, to the
00:26:15.700 | government, the amount of money that came into your financial account each month and
00:26:21.420 | the amount of money that went out of your financial account each month. C, in the case
00:26:28.360 | of an account that is not related to a trade or business. So who are we talking about here?
00:26:34.100 | Well we're talking about an account that is not related to a trade or business. So that
00:26:40.940 | would be usually interpreted to be an individual person's account. So in the case of an account
00:26:47.100 | that is not related to a trade or business, the amount of such inflows and outflows that
00:26:53.220 | are related to three things. Cash transactions, foreign transactions, and transfers to related
00:27:00.300 | accounts. So if you are not a trade or business, they're not asking for all of the details
00:27:07.460 | of how much your local supermarket takes in in cash transactions on a monthly basis. But
00:27:12.180 | if they're asking for your account, if you ever take cash to the bank and deposit it,
00:27:17.740 | then they're asking for how much is your account there. Cash transactions, foreign transactions,
00:27:23.740 | how much money goes to foreign accounts, and then transfers to related accounts. So any
00:27:29.220 | transferring of money among your bank accounts. And D, such other information as the secretary
00:27:37.740 | may require for tax administration and enforcement purposes. And there are no further restricting
00:27:47.100 | statements. Covered financial institutions are then defined and there are some more details,
00:27:57.300 | but those are the important things to know. Actually I guess the other thing that would
00:28:03.540 | be interesting in section five where it talks about reports to Congress. It says the commissioner
00:28:08.540 | of the Internal Revenue Service after consultation with the comptroller general shall submit
00:28:13.320 | to Congress a report containing the following. One, an audit plan, a comprehensive description
00:28:19.180 | of a plan to shift more of the auditing and enforcement assets of the Internal Revenue
00:28:22.640 | Service towards high income, high wealth tax filers and corporations. And two, recruit
00:28:26.980 | and retain auditors with the skills essential to audit high income individuals and B, the
00:28:31.380 | progress made in implementing such plan. Two, tax gap analysis in general, a comprehensive
00:28:37.100 | description of the tax gap, including the amount attributed to high income, high wealth
00:28:41.420 | tax filers and corporations and B, how other information reporting improvements could reduce
00:28:46.740 | the tax gap, including strengthened third party reporting on ownership of C corporations
00:28:51.540 | and ultimate ownership of partnerships. Red flag. Tax gap, for the purposes of this paragraph,
00:28:58.340 | the term tax gap means with respect to any tax year, the difference between one, the
00:29:01.860 | amount of taxes owed by taxpayers under the Internal Revenue Code of 1986 for such tax
00:29:06.260 | year and two, the amount of revenue paid voluntarily and timely by taxpayers under such code for
00:29:12.780 | such tax year. And then number three, racial disparities analysis, a comprehensive analysis
00:29:21.420 | and description of whether there exists any racial disparities in the Internal Revenue
00:29:26.140 | Service's enforcement activities, including audits based on gross income, including a
00:29:31.340 | comprehensive description of any plans the Internal Revenue Service has to address any
00:29:36.500 | such disparities in the coming fiscal year. So there we have increasing racial analysis
00:29:46.580 | by the IRS. Now, that's what you need to know. Perhaps it was a little bit longer than
00:29:57.140 | I intended, but sometimes when I read news stories, I don't know what's actually true.
00:30:01.940 | And so I always say, okay, well, let me go and find out what the actual text of the proposal
00:30:07.900 | says and do my best to get an accurate understanding of what is actually being proposed, what is
00:30:13.460 | hyperbole, what is not, what is spin, what is not. I do my best. And so I try to share
00:30:17.900 | with you the details. Let's talk now about what happens with this legislation. Generally
00:30:31.340 | speaking, I believe that this is the future. I personally am persuaded that more transparency,
00:30:40.820 | more snooping, more reporting is the future. I don't see any reason why that will change.
00:30:49.580 | Now let me explain how I get there so you can see whether or not you agree with me.
00:30:55.860 | I don't know whether this particular bill will become law or not. It probably doesn't
00:31:03.140 | matter one way or the other. If this particular bill becomes law or this particular bill does
00:31:09.100 | not become law, that won't change the general direction of the law. The general direction
00:31:17.860 | of the law is we're going to require more reporting, we're going to require more disclosure,
00:31:27.740 | and we're going to require more snooping by financial institutions. And this is, as I
00:31:34.940 | see it, a confluence of many different factors. What are they? Number one, more and more individuals
00:31:42.220 | have made choices of their own volition to move their activities, their financial activities,
00:31:49.580 | from things that are easily kept anonymous to things that are easily tracked. For example,
00:31:56.940 | the vast majority of us do virtually all of our financial transactions using credit cards
00:32:03.380 | and debit cards. Credit cards and debit cards automatically track everything that we do
00:32:09.620 | and they create a paper trail all along the way. But we didn't do it because we were forced
00:32:14.140 | to do it, we did it voluntarily. We made that change. We stopped using cash because of the
00:32:21.020 | convenience. We were persuaded that it was far more convenient for us to swipe our American
00:32:25.880 | Express or to tap our Visa debit card or to scan our QR code on our phone or use the contact
00:32:33.340 | list payment on our watch. We're convinced that it's far more convenient to do that than
00:32:38.380 | it is to carry physical bills. And there are good reasons why. You have, after all, cash
00:32:43.820 | back. I don't know, credit card transactions, sometimes about just 2% cash back as far as
00:32:49.380 | the amount of money that your credit card processor takes from the merchant for the
00:32:54.180 | transaction and then gives back to you to incentivize you to use his credit card. You
00:33:01.260 | have consumer protections, you have certain fraud protections, you have certain extended
00:33:06.660 | return warranties, things like that. You have the ability of spending huge amounts of money
00:33:11.580 | when it's inconvenient to get your hands on physical cash. And so most of us have voluntarily
00:33:15.860 | chosen to move our spending onto credit and debit cards. In addition, we have come to
00:33:22.460 | the point where we voluntarily have chosen to put ourselves in the position where we
00:33:27.500 | prefer to collect digital US token revenue rather than physical US token currency revenue.
00:33:38.300 | And so it's simpler. It's less accounting, it's easier to find fraud and theft from your
00:33:42.260 | employees if you have fewer cash transactions. And so we've generally just made it simpler.
00:33:47.720 | Why does the merchant pay an exorbitant merchant processing fee, which then the credit card
00:33:54.140 | company is going to give 2% back instead of offering you a 2% straight up discount? Well,
00:33:58.500 | because it's simpler and more convenient for the merchant to have a long string of credit
00:34:01.900 | card transactions than it is to have a whole bunch of cash. And the merchant knows that
00:34:06.900 | generally speaking, most of his customers will pay more and spend more when he is allowing
00:34:13.100 | them to pay with a credit card, which is why in the United States, generally, there's no
00:34:20.380 | such thing as minimum purchase requirements really anymore. You don't go into a store
00:34:23.940 | and it says you have to spend at least $10 to swipe a card and go in and buy something
00:34:27.220 | that's 37 cents in the vast majority of places for a card. And so we have voluntarily made
00:34:34.580 | those choices. That's the first long term trend. And most of us aren't going to change.
00:34:42.700 | We're not going to go and change back. Most of us are not going to start carrying around
00:34:47.020 | wads of cash and spending physical currency. We're not. And so that is known. This provides,
00:34:56.420 | first and foremost, an amazing paper trail that tax authorities can already use. For
00:35:03.020 | example, an IRS auditor already has the legal authority to subpoena all of your banking
00:35:10.740 | transactions, every single one of them, every one of your credit card transactions from
00:35:15.780 | every one of the financial institutions. And every one of those financial institutions
00:35:19.260 | will turn that information over to the auditor in the audit process. And so there's already
00:35:25.020 | an appreciation of how much data there is there. And most people who cheat on their
00:35:29.820 | taxes will find themselves hoisted by their own petard of their transactions that they
00:35:35.140 | have systematically done. And auditors are extremely skilled at finding out what's there.
00:35:40.900 | I've read several of the audit manuals that the IRS has published for its auditors on
00:35:45.260 | different industries. And the auditors are really, really good. They've figured out all
00:35:49.180 | the tricks. And they can usually find a way to identify tax evaders based upon the numbers
00:35:57.620 | of their industry.
00:35:59.580 | The second big trend, however, is it has gotten easier to absorb, catalog, and analyze electronic
00:36:06.500 | records for most people. It's not difficult for your bank to automatically keep all of
00:36:13.460 | its records electronically. They're already doing it. It's not difficult for the taxing
00:36:18.100 | authorities to create a conduit for the bank to send that information there. And so while
00:36:23.980 | at the moment the American Banking Association and the credit union associations, etc., are
00:36:31.020 | objecting to this, at the end of the day, they'll roll over. They have always rolled
00:36:37.220 | over. Right? Patriot Act, right? Remember what happened. Congress came out and established
00:36:42.380 | all kinds of new things. Bankers roll over.
00:36:45.140 | Today, every single person working in financial services in any level in the United States,
00:36:52.340 | every single banker and bank employee, every single credit union employee, every single
00:36:57.680 | insurance agent, every single financial advisor, every single person that interacts with the
00:37:04.060 | financial system in any kind of licensed capacity is already an unpaid spy for the US federal
00:37:12.740 | government. Each and every person, every single year, will take classes on how to spy for
00:37:18.660 | the federal government. You take an anti-money laundering course and you learn the red flags
00:37:23.380 | to look out for. And every single bit of that data is already there. And so why, conceptually,
00:37:31.520 | if bankers have already agreed to send every year 1099s, if employers have already agreed
00:37:37.780 | every year to send information on their W-2 reports for all of their employees and to
00:37:43.220 | send 1099s, they've already agreed, then what's a little bit more? Who's actually going to
00:37:47.860 | stand up and say, "No, it's too much"? No one's going to stand up and do that. They've
00:37:52.820 | already agreed to it and they're already well trained for it. And there's no ability for
00:37:57.140 | anybody to do it. You know that if you don't have your annual anti-money laundering and
00:38:01.180 | know your customer class, then you know you're running afoul. So they're already paying compliance
00:38:07.100 | officers to do the job to make sure, because they have to stop terrorism and money laundering
00:38:11.980 | and tax evasion. And so it's already being done every single year. And so what's a little
00:38:17.180 | bit more? They'll say they don't want to do it, but at the end of the day, if Congress
00:38:20.460 | passes it, the bankers will roll over and do it. There's no expectation of anything
00:38:24.220 | else. And I remind you again, all of your information that you tell to any banker, all
00:38:32.180 | of your information that you tell to any financial advisor, any insurance agent, all of that
00:38:39.060 | is already subpoenable by someone who is suing you. So for example, let's say that you go
00:38:44.820 | to your friendly local banker or insurance agent and you made a couple million bucks
00:38:50.540 | in crypto and you say, "Hey, you know what? Listen, I made a couple million bucks in crypto
00:38:54.500 | last year and I sold it. Man, it was great, but you ought to get involved in it." Then
00:38:58.660 | that financial advisor is going to walk away, he's going to open up his case notes and he's
00:39:02.300 | going to insert in there in his case notes when he walks away from the meeting, "Hey,
00:39:05.580 | so-and-so made a couple million bucks in crypto. Is there an opportunity here?" And then of
00:39:09.180 | course, if you're being audited or if you're in court or somebody is searching for information,
00:39:14.260 | they'll get a subpoena. They'll come to the financial advisor's office and they'll subpoena
00:39:18.020 | the tax records, all of the case notes. And your financial advisor will turn over all
00:39:22.900 | of his case notes to the particular investigator and all of that will become a matter of the
00:39:29.580 | court record available to the attorneys and the auditors, etc. And so that's the system
00:39:34.260 | that's already done. It's a system based upon compliance. And so there's only a slight additional
00:39:39.020 | measure to go with a partway measure like this.
00:39:42.540 | Now the headlines might temporarily make some people upset. Headlines, here's the Daily
00:39:49.140 | Mail article from a few days ago. "Why are they snooping on an average Joe over a $600
00:39:54.900 | payment? Fury as Biden tries to let IRS snoop on your bank accounts, Venmo, PayPal, and
00:39:59.700 | crypto plan deals and plan that could "violate the Fourth Amendment." We'll come to the Fourth
00:40:04.780 | Amendment issue in a moment. "The proposal would require banks to report gross inflows
00:40:09.900 | and outflows to the IRS from an account." Here is the Western Journal. "Your bank account
00:40:17.820 | may not be safe. Biden's budget bill could allow IRS to snoop on every transaction you
00:40:23.220 | make." So you have a little bit of right-wing resistance, a little bit from the conservative
00:40:29.140 | Republicans are going to say, "Biden can't do this. This isn't right," etc. But they
00:40:33.620 | will change their tune as soon as circumstances change. At the moment, it's convenient to
00:40:38.900 | oppose this because Republicans and conservatives don't have power. But pretty soon it will
00:40:45.540 | be convenient for them to support this because we got to go after the drug dealers, we got
00:40:49.500 | to go after the terrorists, and they'll just flip. It's how it works in everything. And
00:40:54.220 | so if you don't see that the trend is towards more transaction, more transparency all along
00:41:01.260 | the way. Now what could reverse the trend? Well, to reverse the trend would be if somebody
00:41:05.900 | was making a clear and principled argument in contradiction of it. Let me use by way
00:41:11.740 | of example. I personally believe that probably within a decade or so there will be free government
00:41:20.540 | schools available for anybody who wants a college degree all the way up through the
00:41:24.660 | bachelor's level. I think that that will be very probable. Maybe it's a decade, maybe
00:41:31.580 | it's 15 years, maybe it's 20 years, but I think that within the coming time, within
00:41:36.020 | a reasonable time, a decade or two, there will be government schools available for anybody
00:41:40.380 | who wants to go to one to get a college degree. Why do I think that? Well, the reason I think
00:41:46.700 | that is we already have government schools from K through 12. That's already widely accepted
00:41:55.460 | by the population and there's nobody arguing against that, nobody prominent. I'm a weird
00:42:01.540 | weirdo. I argue against it, but almost nobody even in my own listening audience agrees with
00:42:07.020 | me. People say, "Okay, that's nice." And they go ahead and they say, "Well, when I'm buying
00:42:11.540 | a house, I want to make sure that my child is in an A-rated government school district."
00:42:14.980 | Okay, fine, fair enough. And I'm not saying you can never enroll your child in a government
00:42:19.700 | school. You make the decisions that's best for your family and for some families maybe
00:42:23.220 | the government school is the best solution. But the point is that the population of the
00:42:27.700 | United States has broadly accepted that K through 12 is where it should be and there
00:42:35.380 | should be government schools available for K through 12. Now, President Biden here is
00:42:41.500 | proposing that it's K through 12 plus four. He's proposing that there be government pre-kindergarten
00:42:49.220 | schools available for third and fourth grade, or sorry, for three and four year olds, pre-k,
00:42:56.260 | three and four year olds. And also that there be government colleges available for what
00:43:00.880 | I call 13th and 14th grade. Now, I expect that proposal at some point to become law.
00:43:06.980 | Why? Well, can you tell me why anybody who accepts government K through 12 should fundamentally
00:43:15.120 | resist government pre-k or government 13 and 14? Why? Some people will say, "Well, it's
00:43:27.100 | too young, right? Maybe three and four. I don't want the government indoctrinating my
00:43:30.280 | three and four year old." But then they send their five and six and seven and eight and
00:43:35.380 | nine year olds to the government indoctrination centers anyway. So what's the difference?
00:43:39.940 | A little bit younger? Hey, if it's a little bit younger, then you can go out and get a
00:43:42.660 | job and you can make a little bit more money and then you have more money in your 401k
00:43:45.380 | and you'll be able to retire faster. What about 13th and 14th grade? Well, if you support
00:43:52.700 | government schools through 12th grade, then why wouldn't you, by extension, support government
00:43:58.580 | to 13th and 14th? So you see some people saying, "Well, no, you should pay for college." But
00:44:08.660 | there's no fundamental philosophical distinction. Why should you pay for college and not pay
00:44:15.180 | for high school? Why? Especially in a world in which, by all accounts, the college degree
00:44:22.220 | is necessary to live in a stable employment environment. And so I think there are good
00:44:28.820 | arguments against government schooling. But in order for you to have a strong argument,
00:44:35.020 | consistency is necessary. So I oppose government colleges for the same reason I oppose government
00:44:42.900 | high schools and government primary schools for the same reason I oppose government preschools.
00:44:46.760 | Not saying that as some abject desire to make myself seem virtuous, just saying that to
00:44:51.620 | me it makes sense. Why I oppose it, it's the same reason I would vote if I were elected
00:44:56.380 | emperor of the world. I would disband the Department of Education. I would eliminate
00:44:59.460 | all government schools and allow local communities if they wanted it, fine, but I would eliminate
00:45:04.140 | government schools. But the vast majority of people can't conceive of the world in
00:45:08.380 | which that would be possible.
00:45:10.280 | So now let's go to data reporting. I hope my argument was clear. By analogy, if you
00:45:17.300 | don't have a reason to oppose the government schools that exist, then you're going to
00:45:22.660 | have a very hard time fighting against the expansion of the government school system
00:45:26.460 | to 3 and 4 year olds and to 13th and 14th grade. I see the same principle here. Do you
00:45:36.160 | oppose sending out 1099s? Do you oppose filling out W-2 forms for your workers? Do you oppose
00:45:46.920 | the automatic reporting that is already there? Do you stand up and would you support a bill
00:45:53.500 | that says we should eliminate the 1099-K and the 1099-DIV and the 1099-MISC that all
00:46:01.020 | of these institutions already have to give? Do we oppose the KYC laws? Do we oppose the
00:46:06.620 | money laundering laws? Well, if you don't oppose those things, then why wouldn't you
00:46:13.500 | want the government to be able to have just a little bit more information? Because with
00:46:18.780 | a little bit more information, the IRS would be able to do, no doubt, a better job. To
00:46:26.140 | me it seems a fairly straightforward thing. Now you won't see that, right? The politicians
00:46:31.420 | will, depending on whether it's convenient, will say, "Yes, we need to tax the rich,
00:46:34.100 | and so we need to make sure that we have more reporting requirements so we can tax the rich,
00:46:38.180 | or we need to not do this because it's just too much for ordinary Americans." But it's
00:46:45.860 | an illusion. It's an illusion. And so the arc of history has bent massively in the direction
00:46:54.260 | of automatic forced disclosure and reporting. There are enough examples of this in so many
00:47:04.180 | parts of the world that the people who advocate for this position don't have to be perceived
00:47:09.980 | as weirdos and freaks in the modern world. Let me give you some international perspective.
00:47:15.740 | There are several countries in the world that automatically disclose all bank account—sorry,
00:47:20.460 | all bank return—tax return information for all citizens. Automatically. Many countries—I
00:47:30.940 | find this frequently in Latin America. Where was the latest place? Costa Rica. I was in
00:47:38.180 | Costa Rica recently and I was talking to several Costa Rican businessmen. And what the Costa
00:47:44.260 | Rican government has done—and this is common in Latin America—is you have to submit your
00:47:55.300 | taxpayer ID number at the point of sale. So if you go to the store—in many places in
00:47:59.380 | Latin America—you go to the grocery store. The first thing they'll do at the grocery
00:48:05.780 | store is ask you for what is your taxpayer ID number. Usually it's your Cedula number.
00:48:11.540 | Cedula is a national ID card that most Latin American countries have. In most Latin American
00:48:17.580 | countries you're required to have on you an identification card that is a government-issued
00:48:24.540 | from the national government—a government-issued national identification card that has all
00:48:28.540 | of your information. You're required to have it on you at all times and you're required
00:48:32.940 | to produce that to any government agent who asks it for you. Which is an interesting also
00:48:37.660 | sideline analysis we can do in talking about that same trend, the same kind of trend arc
00:48:43.820 | of inevitability. If you look at something like the Real ID Act in the United States,
00:48:48.620 | it's a backdoor national identification card because the front door method was found to
00:48:55.340 | be distasteful to US Americans, but the backdoor method was. And especially in a time of crisis,
00:49:02.180 | too much terrorism, too much drug dealing, too much money laundering, we need national
00:49:06.180 | ID, we need Real ID, and so the Real ID Act was passed and it'll fulfill its final implementation
00:49:11.460 | here in 2023. Back to the Cedula. So usually you go up and the first thing that the clerk
00:49:19.060 | asks you is for your Cedula number. Now, you don't always have to give the clerk your ID
00:49:26.300 | number. You don't always have to. You can still in many places simply walk into the
00:49:31.100 | grocery store, walk into the hardware store, buy something, pay using physical currency
00:49:36.660 | for that transaction, walk out. But they incentivize and require the collection of that data using
00:49:44.140 | a couple different methods. In some countries, they will give you a tax rebate based upon
00:49:51.260 | your giving them that number. So let's say you go to a restaurant, right? Restaurants
00:49:54.780 | are an area in which many restaurateurs engage in tax evasion. They under-report their earnings.
00:50:01.060 | So the government may say, "Listen, if you'll report how much money you spend at restaurants
00:50:06.340 | to us, then we will incentivize you. We'll give you a 40% rebate on your taxes for that
00:50:15.300 | amount that you spent on restaurants." And the way it works is you give your taxpayer
00:50:18.620 | ID number, the person, the restaurateur has to give you a receipt, and whether you paid
00:50:24.020 | with cash or whether you paid with a card, that information is now automatically entered
00:50:29.300 | into a database, which goes immediately to the taxing authorities. And so the government
00:50:34.260 | has incentivized the citizens to help the government track the revenue for each of the
00:50:42.140 | restaurants by giving the citizens a tax rebate based upon them reporting the amount of the
00:50:47.140 | spending. The other way that has happened is with the system in Costa Rica that has
00:50:51.860 | recently changed, is that if you want to take a tax deduction for any of your expenses,
00:50:58.980 | you have to register your taxpayer ID at the time of purchase. So you might be able to
00:51:05.940 | very well take a deduction on the amount of money that you're spending on supplies, right,
00:51:12.220 | at a local supply store for your business. But if you're going to do that, you have to
00:51:16.180 | register your taxpayer number, and they will not allow any deductions on your business
00:51:21.900 | tax return that aren't accompanied by an electronic receipt registered in the government database.
00:51:28.200 | And so in this way, you know, okay, I'm going to spend $500 on supplies. I want to deduct
00:51:32.660 | that so it offsets my $500 of gross income. Well, the way it's done is that you have to
00:51:37.860 | register it. And so if it's not registered, it's just a random payment sent out to somebody,
00:51:42.420 | even if you have a receipt, even if it's all totally well and above board, it doesn't count.
00:51:46.000 | And so that's increasing collection. And so the trend on a global basis is towards more
00:51:51.260 | collection, more data collection, more transparency on all of your transactions.
00:51:57.900 | So I don't see any reason why that would change. Think about it for a moment. Can you suggest
00:52:03.620 | to me any reason why that trend would change? Outside of a few people in kind of committed
00:52:17.700 | ideological camps where they believe in the right to privacy or they're concerned about
00:52:23.100 | government overreach or they're concerned about setting up databases, there's just not,
00:52:27.100 | I don't see any meaningful resistance to that. So I expect it to continue. I'm sad about
00:52:33.660 | it. I wish it weren't the case. Count me among those who try their very best to explain why
00:52:39.980 | it's a danger, why it's a danger when governments in the 20th century killed 260 million of
00:52:45.420 | their own citizens, why it's kind of dangerous to make sure that you give the government
00:52:50.060 | all of the data that you need for them to turn around and decide that you're an undesirable
00:52:54.620 | 10 years from now, 20 years from now when the other person comes into power. But most
00:52:59.620 | people don't buy those, right? They don't believe you have a right to privacy. Your
00:53:04.380 | right to your medical privacy ends when you come into my establishment. Scan your QR code.
00:53:09.420 | Your right to financial privacy ends when you make money in my country. And they're
00:53:13.340 | not willing to be philosophically consistent. So I don't see any reason why it would change.
00:53:22.740 | Maybe your answer might be, well what about the Constitution? What about legal restrictions?
00:53:30.060 | Let's talk about that for a moment because several of the news stories that I quoted
00:53:36.180 | from raise this concern. And it is a worthwhile concern. For example, going back to the very
00:53:43.460 | first article that I quoted from, "Banking officials are against" from the Ocala Post,
00:53:51.300 | "Banking officials are against the plan and say it violates the Fourth Amendment,
00:53:55.140 | which protects U.S. citizens from search and seizure without probable cause." I personally
00:54:02.260 | think that all of this data collection is indeed a violation of, if not the letter of
00:54:11.020 | the law, the spirit of the Fourth and Fifth Amendment. However, while I'm not a lawyer
00:54:18.420 | who has read every case law, basically, to my knowledge, all tax defenses, including
00:54:27.980 | the Fourth and, or citing the Fourth and Fifth Amendments, have failed. In the year, over
00:54:34.540 | the years, since the income tax was passed, found unconstitutional, and then the Constitution
00:54:39.940 | was amended with the Sixteenth Amendment, so thus it was found constitutional, many
00:54:43.900 | people who didn't feel that it was just, that the U.S. government could come and steal
00:54:49.060 | their money willy-nilly, have tried various defenses. And some of what I think, from a
00:54:55.700 | layman's perspective, are probably good, legally sound defenses, have included arguments
00:55:00.900 | from the Fourth and Fifth Amendment. Tax information is unique in the world of personal information.
00:55:07.340 | In virtually any aspect of American criminal and civil law, you don't have to extend
00:55:15.180 | information. Let's talk about criminal law, where it's the clearest, right? In criminal
00:55:18.540 | law, you are innocent of anything of which is alleged against you until you are proven
00:55:26.600 | guilty beyond a reasonable doubt. And there is no requirement that you have to open your
00:55:32.900 | mouth and testify against yourself and give your accusers information that could be used
00:55:37.660 | to incriminate you. You are not required to give up information by personal testimony.
00:55:45.020 | You may, in some cases, have your record seized, right? Somebody can go before the judge and
00:55:50.460 | can say, "I want to get a warrant," and with that warrant, they can search your premises.
00:55:54.880 | With that warrant, they can get your bank account information. With that warrant, they
00:55:58.620 | can get your call information, etc. And that's an important tool that law enforcement has.
00:56:05.100 | But in order to do that, they have to be able to present evidence to get that warrant, and
00:56:09.220 | then that evidence can later be used in court. But you're never required to submit the evidence
00:56:14.860 | without a warrant, except in tax law. In tax law, what the IRS requires is that every single
00:56:21.740 | year you sit down and you tell them all the information about all the money that you've
00:56:26.900 | earned or received or acquired from any form whatsoever and in any amount whatsoever. And
00:56:33.940 | then if you want to ask to not have to pay tax on all of the money that you received,
00:56:40.100 | then you can give them additional information claiming that you had certain business expenses,
00:56:44.100 | certain deductions, etc. And then you write a check and send them the amount of money
00:56:47.780 | that they asked for. If they disagree with you, you have to keep all the records to prove
00:56:53.260 | your case. And if the auditor comes and sits down with you and you can't prove every single
00:56:59.020 | dollar amount that you put on that form, they will disallow it and you'll be required to
00:57:03.700 | pay more tax money. If the IRS can provide evidence that you have committed fraud, that
00:57:10.740 | you've knowingly lied or committed fraud in any of the information on your return, you
00:57:15.860 | might even be tossed into prison. That's radically different than the whole tone of the legal
00:57:22.880 | structure under which virtually every aspect of the American justice system works. But
00:57:30.340 | here's what's important. Every one of those defenses is lost in court, to my knowledge.
00:57:36.620 | No matter how vigorously tax protesters have asserted their Fifth Amendment right against
00:57:43.700 | self-incrimination, they've lost. The judge tosses them in prison. And so I don't know
00:57:51.620 | whether there's something legally, technically different about this than not. But if already
00:57:59.380 | nobody thinks it's a Fourth Amendment violation for your employer to send a W-2 every year
00:58:03.220 | to the government saying how much they've paid you and how much they've deducted, if
00:58:08.220 | it's already not a legal violation for your banker to send a 1099 every year saying how
00:58:14.940 | much you have earned in interest and dividends, then why would it be a legal violation of
00:58:22.460 | the Fourth Amendment to have all the information disclosed on your gross inflows and outflows?
00:58:27.620 | What's the difference? I would hope there's some difference, but I don't see it. I'm not
00:58:31.060 | aware of it. So I don't see any real reasonable legal argument here as well. What you have
00:58:37.700 | to know is this. The government is desperately broke. Desperately, desperately broke. Remember
00:58:48.780 | that it was March of 2019 when I did episodes 628 and 629 of the podcast called "Federal
00:58:57.140 | Debt," the ticking bomb that no one is willing to defuse. And I talked about what the then
00:59:03.100 | situation of the U.S. federal government and U.S. federal finances was at that time. And
00:59:08.180 | I explained how dire it is if nothing changed. And I explained that in the next few years
00:59:15.940 | the changes you would have to see in order for there to be any hope of ever stopping
00:59:22.820 | the amount of the growth of the debt, there would have to be absolutely dramatically transformative
00:59:30.060 | changes in federal tax revenues, in spending, etc. To the point that no politician could
00:59:36.540 | advocate for those things and get elected, and no politician who advocated for those
00:59:40.540 | after election would ever win re-election. So what have we seen over the last two and
00:59:46.580 | a half years? Well, shockingly, we have indeed seen dramatic change. Unfortunately, it was
00:59:56.140 | dramatically in the wrong direction. Instead of dramatic change of massively increased
01:00:01.900 | tax rates and massive decreases in government spending, we've seen the exact opposite. We've
01:00:07.780 | seen massive increases in government spending due to the effects of the pandemic, massive
01:00:13.380 | more borrowing, and stable tax revenues with very modest increases. So what does that mean?
01:00:21.940 | Well remember, a government has four basic sources of revenue. Three of them are important,
01:00:28.740 | the fourth I just, I add because it does matter. The first form of revenue is taxation. Taxation,
01:00:36.340 | a government collects revenue through taxation. Second form of revenue is through borrowing.
01:00:46.340 | Third form of revenue is through user fees. Fourth form of revenue is inflation. Those
01:00:55.580 | are the four forms of government revenue. And so in order to balance a budget, you have
01:00:59.860 | to increase revenue and/or you have to decrease expenses. Well, decreasing expenses is politically
01:01:05.380 | impossible in the United States. Three quarters of government expenditures involve Medicare,
01:01:10.980 | Medicaid, Social Security, and military spending. The four sacrosanct areas of federal spending
01:01:18.940 | that nobody is willing to touch. So we fight about the remaining quarter of the budget.
01:01:25.380 | Meanwhile, the 75% continues. Oh, sorry, I forgot interest on the debt. So if you're
01:01:32.260 | not going to decrease expenses, you have to increase revenue. Well, first way you increase
01:01:35.820 | revenue is by increasing taxation. How do you do that? Well, you can change the rates
01:01:43.540 | which you see proposed. You can change the tax base, right, the amounts at which things
01:01:48.880 | are applied. You can close loopholes, quote unquote. Hey, I shouldn't use that word even
01:01:55.940 | in talking about even using their language. You can change what the government calls tax
01:02:02.380 | expenditures, meaning, hey, we're not taxing people on the inside buildup of their 401k
01:02:08.700 | funds. We should do that because we could collect a lot more tax revenue. Or we're not
01:02:12.700 | taxing people on the inside buildup of their cash value life insurance. We should do that
01:02:19.020 | because we're collecting, we could collect more tax money. Or we're not taxing people
01:02:23.300 | on the capital gains from the sale of their property. We should do that so we could start
01:02:28.940 | collecting tax revenue. Or we're not taxing people on the amount of money that they're
01:02:32.900 | spending for health insurance. We should do that because then we can collect revenue.
01:02:36.300 | Those are called tax expenditures. So you heard the Biden proposal reference a couple
01:02:40.660 | of those. So you can raise taxes or you can increase compliance, which is what they're
01:02:46.340 | trying to do. Okay, if we spent more money on IRS auditors, then maybe we can force people
01:02:51.700 | to pay us more money or we can force people out of the shadows and collect more money.
01:02:55.940 | And the US government has been doing that steadily. The trend is a 15 year trend. The
01:02:59.620 | US government destroyed international bank privacy. The US government forced the entire
01:03:03.740 | world to do its bidding. And all the bankers around the world that want to do business
01:03:09.100 | with Americans now have to report all that. So what's the difference between forcing the
01:03:11.660 | Americans, American bankers to report the same amount of information that international
01:03:16.140 | bankers have to report? It's going to happen. Okay, then back to borrowing, right? But the
01:03:22.500 | US government is borrowing lots and lots of money. And then inflation, inflation is kicking
01:03:27.460 | up. So what can you do about it? I would say first, the first thing that you can do about
01:03:41.220 | it is number one, make sure that you are in compliance with the law. Don't mess around
01:03:48.460 | with people who will put you in jail. The first rule of freedom is stay out of jail.
01:03:54.160 | Don't mess around with people who put you in jail. Stay compliant with the law. Stay
01:04:00.260 | compliant with the law, get good at documenting everything that you're doing, and you can
01:04:04.660 | win your tax cases. Tax court may not be fair, but you do argue it based upon the rules.
01:04:13.100 | And so if you will follow the rules, things are good. That's thing number one, stay compliant.
01:04:19.620 | Now, could things change dramatically 10 years from now? Absolutely. Everything can change,
01:04:25.100 | but stay compliant. If you don't like the rules, don't try to fight them. Don't spend
01:04:29.460 | the rest of your life in prison. Just leave, go somewhere else. Okay, which is what I am
01:04:35.740 | fundamentally saying. Stay compliant. Now, while you're staying compliant, there's no
01:04:41.480 | fundamental reason why you can't use the tools that are available to you in order for you
01:04:47.820 | to maintain privacy. For example, it is 100% legal for you to accept physical paper US
01:04:55.900 | tokens as payment for your services. And there is zero requirement that you take that physical
01:05:03.020 | paper and deposit it into a bank account. So if you're worried about this particular
01:05:07.620 | set of reporting, you can simply collect those US dollar tokens in the form of paper currency
01:05:14.780 | and then keep it. And then you can go and you can spend it. And in the United States,
01:05:19.300 | those activities are not tracked and you're breaking no law. You can record the amount
01:05:24.960 | that you're receiving in income, and you can keep the receipts for the amount that you're
01:05:29.200 | spending in expenses. As long as you report that income and then appropriately deduct
01:05:34.580 | those expenses, you're good to go. You can maintain privacy over your affairs by simply
01:05:40.420 | using those paper US dollar tokens. That's the thing you can do. There are other tools
01:05:47.060 | that you can use as well. There are other tools of financial privacy that you can use.
01:05:51.140 | And so if you desire to have privacy over your affairs, start doing that and encourage
01:05:57.060 | that. For years, I've engaged in and encouraged this as my mini protest. Now, this is falling
01:06:03.520 | out of favor, but in the United States, there's more of a cash culture than in many other
01:06:06.660 | countries in the world. But I systematically will refuse to spend credit transactions,
01:06:11.740 | especially in the United States. You go into a company, a business that has decided they
01:06:18.420 | won't accept physical currency. I understand why they do it. I think it makes sense for
01:06:22.340 | them to do it in most cases, but I'll just simply choose to shop at a different place.
01:06:27.120 | And if it's important to you, do that. It's important to be true to what you believe in.
01:06:32.260 | So if you want to avoid a business that engages in, you know, says, "Here, show us your QR
01:06:37.540 | code to shop here," avoid them and go somewhere else, someone that does something different.
01:06:41.540 | And so I systematically do that myself, and I encourage you to do it if you want to. You're
01:06:45.580 | breaking no law. And if you don't vigorously use the freedoms that you have, expect to
01:06:51.620 | lose them. All freedoms should be defended, right? Why do I refuse to talk to the police
01:06:57.620 | no matter what, even though I've done nothing wrong and my testimony could possibly help
01:07:02.540 | them? Well, I'm not going to talk to the police because that's my right. And when I see that
01:07:09.340 | those rights are being abused, I'm going to systematically refuse to ever talk to the
01:07:14.540 | police and teach others to do that because that will make a difference. It doesn't matter
01:07:19.400 | whether I'm guilty of anything or not. Why do I always use encryption on everything?
01:07:25.100 | Well, why would I not always use encryption? It's my right to privacy. You have no right
01:07:33.740 | to invade my personal privacy to try to find out what's in my email. The National Security
01:07:40.540 | Agency has no right whatsoever to invade my privacy to try to find out what's in my email.
01:07:49.340 | It doesn't matter that there is nothing incriminating. It doesn't matter that it's innocuous and
01:07:54.820 | mundane. I'm going to stand up as a form of protest and I'm going to encrypt all communications.
01:08:01.660 | I'm going to use the very best ways to do that. I get really nervous about those 260
01:08:09.980 | million people and I don't want to see another millions of people murdered. That wasn't my
01:08:15.900 | watch. This is my watch. And so I want to do my best to stand up for it. So same thing
01:08:19.940 | for you. Financial privacy. Engage in financial privacy for the principle of the thing and
01:08:27.100 | to defend your right to freedom. What else can you do practically speaking? I think you
01:08:32.500 | can get involved in to the extent that you're able to encourage the development of new financial
01:08:39.420 | systems. The financial landscape in the United States is absolutely disgusting. The US government
01:08:48.500 | generates most of its power in the world from the power of the US dollar which is used in
01:08:55.300 | an absolutely massive economy. The US government then employs the world's biggest army to enforce
01:09:04.100 | and support the interests of US businesses systematically, thus keeping a massive amount
01:09:10.700 | of power to the US dollar. That system is not likely to change quickly. Because of the
01:09:17.340 | power and the authority that has been given to agencies like the IRS, government agents
01:09:28.300 | have just tremendous power over your affairs. So what can you do? Well you can encourage
01:09:33.820 | use of other systems. I am excited, massively excited about the potential for things to
01:09:40.580 | change using cryptocurrencies and using the decentralized finance space. It is a frontier
01:09:47.940 | market at the moment. But for the first time that I've ever been able to believe there
01:09:53.900 | actually could be a change and transition to a new system. To new systems completely.
01:10:00.980 | Today you can actually live without reference to the US dollar. It's not easy. I don't do
01:10:09.980 | it yet. But you can actually do it. It is actually possible. You can take a debit card
01:10:17.520 | with you that spends directly off of a bitcoin wallet. It's amazing. It's easy, it's fast,
01:10:22.620 | it's cheap. No problem at all. And I'm encouraged that all the new solutions that I think are
01:10:27.820 | being developed to help people. And I think it's absolutely exciting. Now that doesn't
01:10:35.220 | necessarily mean you have more privacy. Some solutions tend towards privacy, some don't.
01:10:42.260 | But what you can do is you can encourage those things that do give privacy if you want more
01:10:48.060 | privacy in your affairs. And you can work with those who respect your personal right
01:10:52.340 | to privacy. Who don't invade your privacy and abuse you. One of the things that I am
01:10:59.060 | convinced of is that today change is possible faster than ever before. Traditionally throughout
01:11:06.780 | history when you look at the world you look around and you say you know what things can't
01:11:10.080 | change quickly. They really can't. It's going to take decades and decades and the powers
01:11:14.500 | that be are the powers that are going to be the powers that be for the future. But today
01:11:19.180 | the rate of change, the ability for one man or one idea or one political slogan or one
01:11:25.860 | principle or one anything to spread around the world has never been faster. Which means
01:11:32.180 | that change is happening at a faster pace than ever before. And so the world is compounding.
01:11:39.100 | Things are compounding systematically. Which means that there are more opportunities than
01:11:43.500 | ever before. And things can change faster than ever before. It's very possible, this
01:11:49.620 | is 2021, it's very possible that in 2031 you and I are living under a very different financial
01:11:58.780 | system. It's very possible. Things can change so much faster. So hopefully that change is
01:12:08.060 | in a positive direction. Not all of it will be. But hopefully if you'll be thoughtful
01:12:12.980 | and you'll get involved and just using the things that serve you, that change can be
01:12:16.620 | in a positive direction. Trying to keep myself to a not excessively long show here with example
01:12:26.100 | after example and stay on point. The point is use new approaches. The fourth and final
01:12:31.620 | thing that you can do is you can always choose, as my friend Andrew Henderson says, to go
01:12:36.900 | where you're treated best. You are not stuck in the United States of America. You are not
01:12:45.060 | stuck banking in the United States of America. You are not stuck investing in the United
01:12:51.420 | States of America. You can go where you're treated best. If you want to live in the United
01:12:57.800 | States of America, there's no requirement that you bank in the United States of America.
01:13:03.900 | And in today's world, it's far easier than it's ever been to bank offshore. You should
01:13:11.660 | consider it. You will gain more privacy. Even with FATCA, even with that, you'll gain more
01:13:16.300 | privacy. I'm going to give you a very simple example. As I travel the world, I have a number
01:13:21.140 | of credit cards, number of business cards, debit cards from a number of different places,
01:13:27.260 | number of different institutions, number of different countries. So I travel the world.
01:13:32.460 | When I'm outside of the United States, I will frequently use my US credit cards for all
01:13:39.340 | of my transactions. Now I'm aware of the fact that I don't have meaningful personal privacy
01:13:46.260 | with that. I'm aware of the fact that all of my data is being scraped by the US credit
01:13:51.420 | card companies and being sold. I'm aware of the fact that I'm being profiled based upon
01:13:55.180 | that data. I'm aware of the fact that I'm generating records on all of those transactions
01:14:00.380 | that the US government can take and do and they can subpoena and get all that stuff.
01:14:04.740 | I'm aware of the fact that there's no real privacy there. I'm not involved in anything
01:14:09.300 | nefarious. I'm quite boring and conventional in my actual life. And so I don't have anything
01:14:14.740 | in there that I don't mind being published on the front page of the New York Times. No
01:14:17.660 | big deal. If you want to see how much money I spend on meat at the grocery store, that's
01:14:23.220 | fine. I won't be embarrassed by the fact that there's more meat on my checkout slip than
01:14:27.260 | vegetables. But what I gain is I do gain a substantial amount of privacy while traveling.
01:14:37.300 | So for example, when I am in Mexico or Costa Rica, Costa Rica with their system of taxpayer
01:14:46.900 | ID number. When I'm in Costa Rica and I swipe my US credit card, I just say no thank you
01:14:54.020 | when they ask me for a taxpayer ID number. If they press, I say I'm a tourist. I'm just
01:14:57.140 | passing through. And then I swipe my card. In order for the Costa Rican government to
01:15:06.500 | gain access to all of my affairs, they would have to create some kind of cross-border agreement
01:15:12.260 | and go to the US government and convince the US government why they need access to all
01:15:16.940 | of my financial affairs. Why would they do that? I'm not involved in anything. Now if
01:15:26.700 | I were a terrorist or something, then certainly they would be able to eventually do that.
01:15:30.980 | But for most normal people who just want a little privacy, it's great. Now let's go one
01:15:36.540 | step farther. Let's say that I bank in a country where I don't live. Let's say that I use my
01:15:43.660 | Canadian bank account or my Canadian credit card. You can call up American Express. If
01:15:51.140 | you arrange for yourself an address in Canada, you can call up American Express. You can
01:15:55.740 | do a credit transfer from the United States to Canada. You can say, "Hey, can I have a
01:15:58.940 | Canadian American Express?" Your Canadian American Express will swipe just as well in
01:16:02.580 | Panama as anywhere else. And now you create a third layer. And so you can use the institutions
01:16:09.820 | and create for yourself more simple basic levels of privacy than ever before. Now it
01:16:16.860 | doesn't work everywhere. I'm not saying it's easy. I'm saying this is the tool. This is
01:16:20.540 | what's available to us. And so if you care about privacy, just start engaging in things
01:16:24.900 | that are more consistently private and use those tools. Use cash when you can. Use alternative
01:16:32.980 | currencies when you can. And use internationalization when you can. Those tools work. That's what
01:16:41.740 | we've got. And then teach and advocate for the principles that you care about when you
01:16:48.820 | can. There's no question I try to not make my show hyperpolitical, but I do try to be
01:16:55.740 | clear like why do I stand for privacy? I stand for financial privacy, the same reason I stand
01:17:01.020 | for medical privacy, the same reason I stand for communications privacy. It's your right
01:17:06.140 | as a human being to maintain your own affairs private. I have no right to come and pry into
01:17:13.540 | your affairs. I have no right to come and point a gun in your face and say, "You have
01:17:17.860 | to tell me about something that's wrong." So, I have no right to pry into your affairs.
01:17:23.900 | Thus, I'm going to protect you. And then I appreciate the same courtesy and response.
01:17:31.100 | That's it for today. In summary, now you know more about what is being proposed. I expect
01:17:36.740 | in the fullness of time these proposals to pass, these kinds of proposals to pass. I
01:17:41.100 | see no reason why they won't. There may be political activism and political resistance
01:17:46.020 | at the moment, which would be great. I'm happy for it. Will that political resistance last?
01:17:51.740 | Perhaps not, in my opinion. But it doesn't really matter. The trend is in that direction.
01:17:56.580 | I don't see any reason to expect that trend to change. But what you can do is you can
01:18:01.660 | take steps now that will be practical to protect your personal privacy. You don't have to sit
01:18:08.020 | and take it. You may choose that you're willing to, but you don't have to. For me, that brings
01:18:15.080 | me a tremendous amount of peace and joy. Thank you so much for listening to today's show.
01:18:21.140 | I would remind you that, again, I am taking consulting clients. If you'd like to speak
01:18:24.080 | to me personally in a private capacity, go to radicalpersonalfinance.com/consult. I previously
01:18:30.360 | did focus more on the privacy aspects of my consulting work, but I found that most of
01:18:38.940 | my clients just didn't really care, and that's totally fine. I won't give you any advice
01:18:43.220 | for anything that's illegal, etc. But if you do care about privacy, just use a private
01:18:47.500 | form of payment. If you need to establish something privately, I do have clients from
01:18:51.300 | time to time who will speak to me. I take all my calls on Zoom because it works and
01:18:55.500 | it's effective, but from time to time, I'll use other more secure forms of communication
01:19:00.620 | with clients. Happy to do that. If you want to set up a call and you want to talk and
01:19:04.860 | we do everything on signal and you send me cash in the mail, I've done that many times.
01:19:10.300 | That's no problem as well. So happy to work with you on anything that you want. I don't
01:19:15.540 | care about your name. I don't care what email address you need. In today's world, I just
01:19:18.940 | use a system that's available. If you want to talk to me about financial planning, if
01:19:21.540 | you want to talk about business planning, offshore planning, etc., you can do that at
01:19:26.980 | radicalpersonalfinance.com/consult. Radicalpersonalfinance.com/consult. Be back with you on the podcast very soon.
01:19:30.980 | Sweet Hop is an online marketplace curating the best in premium seating at stadiums, arenas,
01:19:36.100 | and amphitheaters nationwide. With Sweet Hop's 100% ticket guarantee, no hidden fees, and
01:19:41.380 | the personal high-level service you expect with a premium purchase, you can relax knowing
01:19:45.860 | you'll receive the luxury experience you deserve. Visit SweetHop.com today to book your premium
01:19:51.220 | tickets to your favorite teams, artists, and all the must-see live events to Sweet Hop
01:19:55.860 | around LA. S-U-I-T-E-H-O-P.com. It's more than just a ticket.