Speaker 1: Welcome to Trallians. An Joelweber and I'm Eric. Eric. There's
Speaker 1: been some headlines from Washington, d C lately that have
Speaker 1: been interesting, specifically around UM taxes, which you know, we
Speaker 1: have a Democrat led House and they and Democrat president
Speaker 1: and so so we're seeing a lot of talk talk
Speaker 1: about taxes. And in a recent bill that was put
Speaker 1: forward by Senator Ron Wyden of Oregon. UM it wasn't
Speaker 1: initially even in the press release, but uh, it took
Speaker 1: aim at UH on e t F superpower, which is
Speaker 1: sort of the tax efficiency that's always been built into UM,
Speaker 1: the et F structure. Uh So what about that? Uh
Speaker 1: caught your attention? And then what has been the aftermath
Speaker 1: in the week plus since? Yeah, I mean there's been
Speaker 1: a bunch of articles on it. UM and I'll read
Speaker 1: to the Wall Street Journal headline. It's pretty basic. It
Speaker 1: says Democratic tax proposal takes aim at et F s
Speaker 1: and what they're trying to do is potentially tax the
Speaker 1: in kind creation redemption process UM. That process where and
Speaker 1: we'll go into this a little more, where you exchange
Speaker 1: the stocks or bonds for shares of the e t F.
Speaker 1: There's no cash exchanging so ETFs are able to sort
Speaker 1: of avoid some of the capital gains distributions that mutual
Speaker 1: funds have to deal with UM, although mutual funds also
Speaker 1: have that ability, but largely speaking, in any given year,
Speaker 1: you might find mutual funds have like, I don't know,
Speaker 1: six of them distributing capital gains, while only say five
Speaker 1: percent of e t F do. It's usually in that ballpark.
Speaker 1: Now that said, you're not avoiding taxes as an ETF investor,
Speaker 1: you're sort of just deferring them so that when you
Speaker 1: sell your e t F, you get taxed on those gains.
Speaker 1: You just don't get a sort of ongoing distribution because
Speaker 1: of what other people in the funded. So I've always
Speaker 1: been to the thought that the e t F was
Speaker 1: like fair um, whereas the mutual fund, if anything, should
Speaker 1: be given some relief to make it more like an
Speaker 1: e t F where your tax based on what you do,
Speaker 1: not based on what someone else does. So hopefully we
Speaker 1: can dig into this, but that's ultimately one of their
Speaker 1: superpowers because advisors, in particular, when have clients and taxable accounts,
Speaker 1: really like the fact that they can kind of sort
Speaker 1: of have control over that when they're taxed so I
Speaker 1: would still say that low cost, inter liquidity, transparency, those
Speaker 1: things still make them a viable force even if this
Speaker 1: were to go away. But it's a biggie okay. So
Speaker 1: to walk us through the bill, the e t F
Speaker 1: industry's reaction to that bill, and then some of the
Speaker 1: nuances of all things tax, we're gonna be joined by
Speaker 1: Dave Nadig, who's the director of research at e t
Speaker 1: F Trends, and Jeffrey Clone, professor of law at Fordham University,
Speaker 1: whose rees arch on this topic was actually cited by
Speaker 1: Senator Ron Wyden in the proposed bill this time on
Speaker 1: trying the e t F S tax nightmare. Professor Cologne,
Speaker 1: Dave Nateigg, Welcome to trillions. Thanks for having us, Okay, Dave,
Speaker 1: I want to start with you. Um, the status quo
Speaker 1: that sort of Eric referred to has been sort of
Speaker 1: this this thing that has made the et F special
Speaker 1: for a really long time. UM. And I want to
Speaker 1: kind of rewind the clock here to to win this
Speaker 1: news broke because you were at a meditation retreat um
Speaker 1: that was sort of interrupted I think by this news. So,
Speaker 1: so a what what happened um at this meditation camp
Speaker 1: whence uh this headline crusted your It was it was
Speaker 1: as I was on the way out the door, so
Speaker 1: luckily it didn't interrupt anything, and I was able to,
Speaker 1: you know, drop in and find my inner piece for
Speaker 1: four or five days. But uh, you know, this was
Speaker 1: a classic Friday afternoon press release. UM. You know, which
Speaker 1: the fine it's industry is just really addicted to dropping
Speaker 1: these major ideas on Friday, SIP four thirty. I don't
Speaker 1: know what it is, um, but you know, the proposal
Speaker 1: is really pretty straightforward, and and it's actually one that
Speaker 1: professor suggested in one of his papers, which was just
Speaker 1: eliminating a single line of the tax code. Uh A
Speaker 1: f F T two B sex if I can get
Speaker 1: it off the top of my head, I'm sure something
Speaker 1: to correct me if I'm wrong, which is a single
Speaker 1: line in the tax code which exempts mutual funds both
Speaker 1: the you know, anything that's a registered investment company exempts
Speaker 1: them from having to effectively worry about the tax issues
Speaker 1: of in kinding out um or honestly and kind of
Speaker 1: in uh securities into the portfolio, which is which is
Speaker 1: a the though way E T s managed to maintain
Speaker 1: net asset value versus market price. Right that that creation
Speaker 1: redemption mechanism is why e t F s work. UM.
Speaker 1: Putting a giant barrier for taxes around that, UM could
Speaker 1: be interesting and problematic. We're gonna get into that, I'm sure,
Speaker 1: but that was that was the thing that he dropped
Speaker 1: out there. UM. And you know whether or not that
Speaker 1: would raise substantial amounts of revenue, whether or not that's
Speaker 1: fair to investors, fair to the government, fair to non investors,
Speaker 1: I think that's probably what we're gonna dig into. And UM,
Speaker 1: let me just jump in here. You wrote an article
Speaker 1: about this and you opened up with y R E
Speaker 1: t S tax efficient. So just as a primer to
Speaker 1: people who may not understand exactly how they are, could
Speaker 1: you go through what you expected? Yeah? Sure? So so
Speaker 1: you know, I think most folks know that e t
Speaker 1: fs create and redeemed shares pretty much continuously. Uh. A
Speaker 1: bigger E t F top E t F that's trading
Speaker 1: every day, you know, like water is going to have
Speaker 1: multiple creations and redemptions to day. Uh. And one of
Speaker 1: the things that the issuer gets to do on a
Speaker 1: redemption is choose which tax lot to hand back out
Speaker 1: to the authorized participant. In the process of doing that redemption,
Speaker 1: and of course they always pick the tax plot that
Speaker 1: has the lowest basis because that's the one that would
Speaker 1: generate the most gains if they ever had to sell it. Uh,
Speaker 1: And they hand that back out to the AP. The
Speaker 1: AP because they're a market maker to just chooses to
Speaker 1: take to mark to market, which is what every market
Speaker 1: maker does. UH. That that's a choice that they get
Speaker 1: in the tax code is to either treat trading as
Speaker 1: an inventory process or as a trading on your own
Speaker 1: account process. All market makers choose to do that as
Speaker 1: an inventory process. So the incoming shares at the market
Speaker 1: maker come in mark to market and they'll just pay
Speaker 1: ordinary gains if they then later sell those at a gain,
Speaker 1: because that's how market making works. The fund doesn't have
Speaker 1: to book a gain on that lower basis that they
Speaker 1: handed out to that mark to market UM. So it
Speaker 1: acts as a form of tax deferral. It's effectively like
Speaker 1: having a giant four ohn K that is an e
Speaker 1: t F where you only have to worry about paying
Speaker 1: taxes on the way out. Okay, Professor Kloon, I want
Speaker 1: to bring you in. So everything we've talked about, I'm
Speaker 1: just curious, why why do we need to change anything? Okay, yeah, no,
Speaker 1: I think uh Dave lighted out very very clearly the
Speaker 1: benefits for e t F S a couple of things.
Speaker 1: I think the thing that stimulated this proposal UM had
Speaker 1: had spoken to Widen's office was actually some reporting that
Speaker 1: was done by you guys at Bloomberg, you know, Zack
Speaker 1: Mider and Rachel Evans on Basically I call them pathologies,
Speaker 1: but using I think in what what you know most
Speaker 1: tax commentators would say is inappropriate way A fifty two
Speaker 1: B six, Right, They've kind of built on this. Uh,
Speaker 1: some transactions that you know, viewed from the lens of
Speaker 1: UH tax person and even even Congress now are are
Speaker 1: somewhat abusive, and we will talk about those. Those those
Speaker 1: are the so called heartbeat trades, right, UM, and I
Speaker 1: think that's what stimulated the interest UM. And then when
Speaker 1: they started to look at the potential revenue that that
Speaker 1: could be raised by this provision. I know that there
Speaker 1: is a preliminary estimate by the Joint Committee that it's
Speaker 1: about two hundred billion dollars over the next ten years. Uh.
Speaker 1: You know, it's preliminary. I and I'm sure that doesn't
Speaker 1: take into account, you know, adjustments that would be made.
Speaker 1: But I think the combination of those two things is
Speaker 1: like reading about the abuses and I know it's been
Speaker 1: talked about on the Joint Committee for a while, and
Speaker 1: then also basically the need for revenue to pay for
Speaker 1: the other items in the in the in the tax proposals, right,
Speaker 1: So a combination of those two it kind of brought
Speaker 1: this to the forefront. Um. Uh and that's kind of
Speaker 1: that's kind of where we are today. Go ahead, I
Speaker 1: just want to I totally remember that article. We actually
Speaker 1: had Rachel and Zach on the show. I did, I didn't.
Speaker 1: I think dodge was probably not the right word. I
Speaker 1: don't know if dirty secret was the right word. That's
Speaker 1: a debate for another day, but or maybe it is
Speaker 1: for today. But um, I saw you wrote an article
Speaker 1: about this before that. That article came out, right, so
Speaker 1: my article, let me let me just be clear. My article, uh,
Speaker 1: it came out in two thousands seventeen, but I it
Speaker 1: was kind of written in two thousand fifteen. So in
Speaker 1: the article, I didn't discuss the heartbeat trades. I was
Speaker 1: just looking at this uh um provision. Uh. You know,
Speaker 1: even even disregarding the herd be trades and the portfolio adjustments. UH.
Speaker 1: And I just looked at it and said, I didn't
Speaker 1: really think it was really sound tax policy. And you know,
Speaker 1: my my point was that it gave et FU an
Speaker 1: advantage over mutual funds. Basically identical mutual funds. You followed
Speaker 1: the same structure, sorry, this the same UH index, the
Speaker 1: same investments, but mutual funds will inevitably end up paying
Speaker 1: you know, whatever we call a d basis points maybe
Speaker 1: a hundred basis points more a year in taxes. Right, Um,
Speaker 1: it's not insignificant for long term taxable investors. And so
Speaker 1: that I kind of looked at it, and I just
Speaker 1: kind of critiqued it from a tax policy point of view,
Speaker 1: and and I didn't really see much justification. So just
Speaker 1: going back, this provision was originally put in in nineteen
Speaker 1: sixty nine. Prior to sixty nine, corporations didn't pay tax
Speaker 1: on distributions of securities appreciated securities. Sixty nine Congress UH
Speaker 1: starts to curtail that, but exempts mutual funds. So back
Speaker 1: then it was only s N and open end mutual
Speaker 1: funds goes along. In eight six Congress says all corporations
Speaker 1: are going to pay tax on the distribution of appreciated
Speaker 1: property after six, but they continue the exemption for mutual funds.
Speaker 1: It just moves to a different part of the of
Speaker 1: the code. And so this was out there, you know,
Speaker 1: in eight six. But stay've kind of noticed that mutual
Speaker 1: funds is rarely rare for them to make in kind distributions. Uh,
Speaker 1: not impossible, but very rare. Most mutual funds, my understanding,
Speaker 1: is promised to only make cast distributions for up to
Speaker 1: like two fifty thousand, which covers you know, all all
Speaker 1: almost everyone's distributions. But uh, what happened was this was
Speaker 1: there and then the E t F industry I think, uh,
Speaker 1: you know the person that invented it. Um, this allowed
Speaker 1: the E t F industry to kind of grow, right
Speaker 1: because the creation and redemption process is fundamental. I call
Speaker 1: it part of the d n A of E t
Speaker 1: F s because it allows the n a V to
Speaker 1: kind of stick prettys to the trading price where everyone
Speaker 1: else is buying. And if it doesn't, people come come
Speaker 1: in and make profits, and by them making profits, it
Speaker 1: keeps the n a V uh and market price uh
Speaker 1: pretty much in line. That makes it then beneficial for
Speaker 1: people to be able to buy sell short right options
Speaker 1: on it UM and it eliminates some of the problems
Speaker 1: that we had with discounts and premiums and closed in
Speaker 1: fund right. So closed end funds are almost now kind
Speaker 1: of a footnote in the history of investment companies UM.
Speaker 1: And so what we have left are, you know, basically
Speaker 1: open end mutual funds, which you know we'll throw e
Speaker 1: t f s into there as well. But then ETFs
Speaker 1: now are kind of uh, you know, everyone knows they've exploded,
Speaker 1: especially you know over the last ten years. We might
Speaker 1: not be having this conversation if uh we were we
Speaker 1: were we were a decade ago, from year two thousand
Speaker 1: to two thousand ten when there really wasn't much gains. UM.
Speaker 1: So Dave is entirely correct that it's the games, aren't
Speaker 1: They don't disappear. Uh, it's a ferral. So the shareholders
Speaker 1: are deferring tax on kind of these uh economic gains
Speaker 1: that have arisen at the fund level. And it it's
Speaker 1: just it's important remember for taxable investors those gains are
Speaker 1: still there. Uh, they're not going to be UM, they
Speaker 1: don't disappear However, we know that eventually for deferral benefits
Speaker 1: mostly benefits higher income people more than lower income people.
Speaker 1: And then eventually the gains are deferred by for example, death,
Speaker 1: and then they become forgiven. But that applies to any
Speaker 1: other game. You're you're hitting the nail right on the head,
Speaker 1: you know. I think the there are a lot of
Speaker 1: things that we can unpack here. I think it is
Speaker 1: important to point out that e t f s were
Speaker 1: not designed to be a tax deferral vehicle. And honestly,
Speaker 1: for the first ten years of the e t F industry,
Speaker 1: nobody even talked about this. This was really when the
Speaker 1: advisor started finding e t s as a tool for
Speaker 1: retail allocations. At the advisor, you know, face of the
Speaker 1: coal mine, they're the ones that really latched onto this.
Speaker 1: I want to say, two thousand three four five when
Speaker 1: we start did to see that early adoption by UM
Speaker 1: by those financial advisors early in the context where we
Speaker 1: are now, I guess, UM, so so whatever designed to
Speaker 1: be a tax deferral vehicle. However, without that, there are
Speaker 1: all sorts of unintended consequences. Um you know, the numbers
Speaker 1: that are getting tossed around about you know, something like
Speaker 1: maybe twenty billion dollars a year and new revenue that
Speaker 1: would come in if you got rid of this tax deferral.
Speaker 1: I'm very skeptical of that number for a lot of reasons,
Speaker 1: not the least of which is the industry is very
Speaker 1: good at figuring out how not to do things like that, right,
Speaker 1: So I think you would just simply see new structures
Speaker 1: take place. You would see new investment management philosophies take
Speaker 1: place that UM that will delay and delay and delay
Speaker 1: booking those gains UM. The problems I have, though, are
Speaker 1: that there's this idea that somehow this is taxing the
Speaker 1: rich UM, and the evidence doesn't actually suggest that e
Speaker 1: t f s have really certainly in the last couple
Speaker 1: of years, when you look at the last few trillion
Speaker 1: dollars that have showed up in the e t F market,
Speaker 1: it's pretty easy to point that to the discount brokerage community.
Speaker 1: That's where that money is coming in. It's coming in
Speaker 1: from people SWAB and TV and FIDO accounts, their e
Speaker 1: trade accounts, the robin Hood accounts. That tends not to
Speaker 1: be the ultra high net worth investors way of accessing
Speaker 1: the markets. They're tending to go through private funds, private allocations, uh,
Speaker 1: you know, other kinds of brokerage accounts that don't show
Speaker 1: up in those classic discount windows. So you know, the
Speaker 1: people who are benefiting most from this, I would argue
Speaker 1: at somewhat unknowable, But I would argue is not the
Speaker 1: ultra high net worth investor. It's actually sort of the
Speaker 1: middle class investor who's managed to squirrel away an extra
Speaker 1: hundred grand outside their four own k. Right, Yeah, you're
Speaker 1: you raise, you raise a good point. Um. Uh. My
Speaker 1: one response might be that, um, if we're looking at
Speaker 1: this is what the I c I has raised in
Speaker 1: the last couple of press releases that you know, the
Speaker 1: average southern median household I think is E t F
Speaker 1: s are is about a hundred and twenty tho dollars
Speaker 1: of taxable income. Uh, and that's certainly not uh not wealthy.
Speaker 1: How you know. My response would be, let's just assume
Speaker 1: that this imposes higher taxes on E T f UH
Speaker 1: shareholders than than now and I think that that that's
Speaker 1: not an unreasonable assumption. You know. My my response would be, well,
Speaker 1: those all those households can just put more money into
Speaker 1: their IRA sep IRA right. The for a household you know,
Speaker 1: for a very very filing jointly, it's up to about
Speaker 1: hundred nine eight thousand that you can put in. That's
Speaker 1: twelve thousand, sorry d thousand of yearly annual income UH.
Speaker 1: And you can put in twelve thousand dollars. So if,
Speaker 1: for example, E t f s became kind of less
Speaker 1: tax favored than they are now, which is possible, those
Speaker 1: investors would certainly to me seem to have more room
Speaker 1: to to just shift into the tax exempt you know
Speaker 1: investments iras roth IRA's set iras the whole alphabet. But
Speaker 1: then they're giving up their timing options. Right. The beauty
Speaker 1: of the e t F has been you can actually
Speaker 1: put a hundred thousand dollars away for your kids college,
Speaker 1: which is in six years, and you can put it
Speaker 1: away in the SPF A hundred or whatever you want,
Speaker 1: some balance fund, whatever it is you choose to do,
Speaker 1: and you don't have to worry about whether or not
Speaker 1: that's going to get degraded over the next six or
Speaker 1: seven years because of fund. All of a sudden throws
Speaker 1: off a teen percent capital gain because one giant shareholder
Speaker 1: decided to get out near an institution and therefore the
Speaker 1: fund had to take had to take the hit. If
Speaker 1: you look at the higher volume e t f s,
Speaker 1: the implication of all of a sudden taxing all of
Speaker 1: these gains continuously can be quite profound. A lot of
Speaker 1: e t f s actually have you know, full turnover
Speaker 1: implied by their creation redemption mechanism on a monthly basis.
Speaker 1: So if you think about that, what that would mean
Speaker 1: is that you effectively be constantly making these streams of
Speaker 1: distributions to investors simply to make the creation redemption mechanism
Speaker 1: hold for NAV purposes. So you end up taking the
Speaker 1: n A V tracking function of e t f s
Speaker 1: and burdening it with the taxes, which I worry could
Speaker 1: actually unwind some of what we see beneficial about the
Speaker 1: NAV tagging structure. Just think about the way the e
Speaker 1: t F works. Shouldn't it be based on your action?
Speaker 1: It just it just seems like that, if anything, the
Speaker 1: mutual fund. Do you want a mutual fund? Or have
Speaker 1: you ever gotten to capital gains just from just sitting there.
Speaker 1: It's that, I think, is what really. It's not like
Speaker 1: the e t f s dodging or getting away with anything.
Speaker 1: It's almost just like they're making it more fair and
Speaker 1: whether that was an accident From the early invention of
Speaker 1: the e t F, again, they were really looking at
Speaker 1: how to just protect the investors of the fund from
Speaker 1: what other investors did. And that is something that Vanguard
Speaker 1: struggle with a lot early on, and that's why they
Speaker 1: actually did not let certain investors in the fund. They
Speaker 1: didn't want to incur costs in the funds. So the
Speaker 1: e t F externalizes costs, and one of those is
Speaker 1: your own taxation is on your actions. That just seems
Speaker 1: pretty fair to me right now. You're you raised a
Speaker 1: good point. Uh, sub Chapter M has you know, I
Speaker 1: hope that at a minimum that UM at least the
Speaker 1: public discussion of this proposal could kind of, you know,
Speaker 1: hopefully whatever happens to to this going forward is at
Speaker 1: least at a minimum stimulate some kind of discussion of
Speaker 1: how we should kind of rewrite It's it's called sub
Speaker 1: Chapter M of the Internal Revenue Code, but the rules
Speaker 1: for taxation of investment company for for some of the
Speaker 1: issues that that you you UM and also Dave have raised. UM. Uh,
Speaker 1: it's you know, it's about sixty plus years uh, and
Speaker 1: you know, with all of the changes in the tax code.
Speaker 1: Outside of this with all of the changes and kind
Speaker 1: of the investment vehicles, it's just kind of a system
Speaker 1: that's showing it's it's rust. Totally agree, totally agree. Um, Okay,
Speaker 1: now you know, let's let's just go back to to
Speaker 1: your point here. What pends on me you know, unfortunately
Speaker 1: or or the structure of of uh sub Chapter M
Speaker 1: is that basically the the investment company calculates, right, it's
Speaker 1: tax like a corporation. If it doesn't distribute, it's going
Speaker 1: to pay tax like a corporation. So it calculates all
Speaker 1: of the investment income, including the gains, dividends, short term gains. Uh.
Speaker 1: It calculates all that and then it basically can avoid
Speaker 1: tax by making distributions. Okay, Uh, and uh that's you know,
Speaker 1: that's kind of the system that we have. Uh. Your
Speaker 1: system would be basically basically would make each mutual fund
Speaker 1: investment into kind of like a big era. Right if
Speaker 1: as long as I don't sell, it's kind of what
Speaker 1: we call a consumption tax. Right, as long as I
Speaker 1: don't sell, so it's call it your four oh one K.
Speaker 1: As long as I don't pull it out, I don't
Speaker 1: pay any tax. I'm just not sure we're we're quite
Speaker 1: ready to go there. And then one of the if
Speaker 1: we step back, you know, we're trying to kind of
Speaker 1: do a lot of things. It's like twist right, Eventually
Speaker 1: you're gonna fall down. But you know, the the original
Speaker 1: idea behind taxing investment companies mutual funds was that you'd
Speaker 1: roughly get you know, it was designed for the small
Speaker 1: guy to be able to get uh diversification, okay, and
Speaker 1: then you'd roughly get the same tax consequences as if
Speaker 1: you invested directly. So if the investment company gets uh,
Speaker 1: interest income, you get passed through his interest income. If
Speaker 1: they get a long term capital gains, they get passed
Speaker 1: through to you as a long term capital gains. And
Speaker 1: so if you went to is uh what you know?
Speaker 1: I know Dave has made this point. Other people have
Speaker 1: made the point that let's just make sure that if
Speaker 1: if I don't do anything, if I don't receive anything,
Speaker 1: I don't pay any tax. Then it kind of turns
Speaker 1: it into a big IRA And I'm not sure that
Speaker 1: we should distinguish, you know, we should give that benefit
Speaker 1: to investment companies versus individual investing are what Dave alluded
Speaker 1: to this uh kind of direct indexing that's that's potentially
Speaker 1: coming down there. There's a big difference because in an
Speaker 1: ira A, one of the reasons you get tax deferl
Speaker 1: in an ira A is because you should be making
Speaker 1: transactions over time. Right, So if I'm a equity as
Speaker 1: a thirty year old, I definitely should be selling down
Speaker 1: some of that equity as I approach. So there isn't
Speaker 1: there's a societal good and saying, hey, you know what,
Speaker 1: mr six year old, We're gonna let you sell down
Speaker 1: some of your highly appreciated stock so that you can
Speaker 1: do a better thing and get a little bit safer
Speaker 1: in your allocation. That's a little different than what we're
Speaker 1: talking about here with what happens inside in e t F, right,
Speaker 1: because the main benefit to society of E t F
Speaker 1: tax deferral is the fact that when those things are
Speaker 1: eventually taxed, they will most likely be taxed at ay
Speaker 1: much higher level because all of the gains have instead
Speaker 1: been embedded into the fund and thus invested on behalf
Speaker 1: of the government who will ultimately tax them. So there,
Speaker 1: I get what you're saying, but there is a there's
Speaker 1: a different reason for it. In uh in an ira,
Speaker 1: which is to engender actually useful behavior for society. We're
Speaker 1: versus the E T F, which I've always argued as
Speaker 1: like Eric was saying, it's much more about tax fairness.
Speaker 1: It's much more about not getting hit with the tem
Speaker 1: per cent you know, you know, capital gains distribution a
Speaker 1: week after you put your money in, which I've gotten
Speaker 1: those emails from advisors before, believe me. And and that's
Speaker 1: a that's a genuine hit. So there's always this robbing
Speaker 1: the future to pay for the past, or to robbing
Speaker 1: the robbing the present to pay for the future, and
Speaker 1: vice versa, and Washington loves to do that, and you
Speaker 1: know that never works out well anyway. Um I what
Speaker 1: I worry about is simply eliminating the single line item
Speaker 1: here without as you pointed out, Jeff, a comprehensive review
Speaker 1: of of all of the implications of this taxation is
Speaker 1: exactly the kind of hand handed move we get out
Speaker 1: of Washington all the time that has tons of unintended
Speaker 1: consequences that nobody has even done the map on right now,
Speaker 1: I think, and also I think a lot of normal
Speaker 1: people look at this and they go, Okay, I get it.
Speaker 1: Only half the country actually owns stocks at all, so
Speaker 1: you are looking at just one half of the country
Speaker 1: benefiting here. I get that a lot of the lower
Speaker 1: income folks don't get this benefit, and that's that's a
Speaker 1: fair point. That said, when you turn it relativity in
Speaker 1: another way, I think a lot of people are like, well,
Speaker 1: why mess with small investors using e t F. There
Speaker 1: are much bigger fish to go after on the tax front.
Speaker 1: There's a lot of loopholes to go after. So there's
Speaker 1: also the relativity issue as well, looking at it versus
Speaker 1: other situations where some really really rich people institutions get
Speaker 1: away with not paying taxes or just direct indexing, right.
Speaker 1: I mean that to me would be the immediate impactly
Speaker 1: at the switch on this, every hundred thousand dollar plus
Speaker 1: investor would immediately become a direct investing. Your client end
Speaker 1: up with better tax treatment than they're getting out of
Speaker 1: the e t F honestly, because for the most part
Speaker 1: they'll be able to carry tax losses forward, which is
Speaker 1: not something the average dollar investors spends much energy on.
Speaker 1: So if anything, I'm removing this from the e t
Speaker 1: F would shove everybody in that sort of mass affluent
Speaker 1: market out of e t F s, which would be
Speaker 1: bad for the E t F market, would be bad
Speaker 1: for individual investors, for whom that is their best option
Speaker 1: at the benefit of you know, the parametrics and the
Speaker 1: canvases of the world. Yeah. No, I I would I
Speaker 1: would agree that something like this could stimulate uh, you know,
Speaker 1: I mean, but that that's already on the horizon, right,
Speaker 1: you know, JP Morgan, Vanguard, black Rock, They're already looking
Speaker 1: at uh direct indexing direct I call it direct investing.
Speaker 1: Dave calls it direct indexing right where you would be
Speaker 1: treated as a holding those shares directly, right, and so
Speaker 1: you could do the tax loss harvesting. Um, you could
Speaker 1: defer the gains. You would make an essence that decision
Speaker 1: subject to the robot and whatever rules you've set up. Um.
Speaker 1: And I think that that's an important thing to kind
Speaker 1: of look at. UM, let's kind of look you know.
Speaker 1: I think it's important to talk about the real stimulus
Speaker 1: for this. I think was again the article in Bloomberg
Speaker 1: and by another financial journalists at Facts, said Elizabeth Kashner
Speaker 1: that talks about the heartbeat trades, right. Um. And so
Speaker 1: if we separate just the in and out, here's the
Speaker 1: SMP five hundred. We go in and out, in and out,
Speaker 1: there's no changes. I'm almost you know, saying, well, that
Speaker 1: might not be a horrible thing, right, If we have
Speaker 1: no change in the underlying portfolio, fine we we let
Speaker 1: we let it run, right. Um, And that's that's roughly
Speaker 1: if I just held the underlying SMP five hundred shairs,
Speaker 1: nothing change. We just let it run until I, like
Speaker 1: Eric says, until I sell. The problem is, uh, these
Speaker 1: things that are referred to as heartbeat trades, and just
Speaker 1: for the listener, they're basically is a fund has to
Speaker 1: sell some of its securities or disposed of them. If
Speaker 1: it sold them, it would have gain, which should be
Speaker 1: tax then to all shareholders. Um. What it does then
Speaker 1: is as reported, is that a market maker a bank
Speaker 1: will come in and fund will say, oh, I have
Speaker 1: to get rid of shares that are worth a billion
Speaker 1: dollars and you know I have a billion dollars of
Speaker 1: gain if I sell them. There's a billion dollars of
Speaker 1: game for everyone. So two days before or three days
Speaker 1: before someone will deposit, Uh, they'll create a billion dollars
Speaker 1: worth of shares um with the basket. And then you
Speaker 1: know at the rebalanced date, A billion dollars goes out
Speaker 1: to in a redemption, but the shares that go out
Speaker 1: are not a pearl rata share of all of the
Speaker 1: UH shares in the SMP five hundred, but the ones
Speaker 1: that have the gain. So if you step back and
Speaker 1: look at this, I think most tax people would say, well,
Speaker 1: what's really happened is the market maker has just exchanged
Speaker 1: a portfolio of shares one through four hundred and ninety
Speaker 1: for a portfolio of shares four five hundred. We just
Speaker 1: swap shares. I think it's actually worse than you think
Speaker 1: it is. I mean, if you if you're if you're
Speaker 1: approaching this as some sort of abuse of the system,
Speaker 1: there's actually no requirement anywhere in there that that it's
Speaker 1: versus one. It can be five hundred and five hundred
Speaker 1: in both directions as long as there's enough space in
Speaker 1: between that it can be deemed as having economic risk.
Speaker 1: So so, But but the problem is is the is
Speaker 1: in the US five hundred. That happens every day, right,
Speaker 1: But my point is there are plenty of funds out
Speaker 1: there who don't have an exogenous reason to be unloading
Speaker 1: any of their shares and are simply doing this to
Speaker 1: watch their tax liabilities away, and they're they're basically doing
Speaker 1: a creation for a hundred securities, and then they're doing
Speaker 1: redemption for all hundred securities and they're just swapping the
Speaker 1: tax lot. I'm saying, let's assume that that's okay, right,
Speaker 1: because the underlying portfolio stays the same at the fund level,
Speaker 1: we get rid of the games. Okay, let's let's just
Speaker 1: make an assumption that that's fine. My problem comes is
Speaker 1: when that you're taking out one share ten shares uh
Speaker 1: that otherwise have gain. You've just swapped one basket for
Speaker 1: another basket. If you and I did that, Dave, you
Speaker 1: know it's taxable. If I swap you Microsoft for Amazon,
Speaker 1: it's taxable. If I swap you Microsoft for Microsoft, it's
Speaker 1: not taxable. But our basis would stay the same. My
Speaker 1: concern is that the heartbeat trades um allow for an
Speaker 1: e t F, but really not a mutual fund to
Speaker 1: adjust as portfolio. So me, as an investor in the
Speaker 1: e t F, my portfolio is actually changing, right. So
Speaker 1: it's so Eric. It's it's not as if my view
Speaker 1: is you shouldn't be able, you should you should be taxed. Now,
Speaker 1: when those portfolio changes happen if you held the shares
Speaker 1: and you wanted to get rid of your tenant or
Speaker 1: fifteen shares, that's a taxable event. But yeah, but but
Speaker 1: but but that's not KAT, that's just custom baskets. Yeah. Yeah,
Speaker 1: but we we just we just encoded that in a
Speaker 1: new law. I don't think we're gonna get rid of
Speaker 1: that part. Yeah, I see what you're saying. Like you're saying,
Speaker 1: if you go into a mutual fund, you're a pool.
Speaker 1: You're with a pooled it's a pooled investment. So therefore
Speaker 1: you guys are all that the portfolio manager, you're with them,
Speaker 1: and you're buying and selling stocks, you should get text.
Speaker 1: I think generally people though, they don't look at it
Speaker 1: that way, and maybe that's the problem. They just see
Speaker 1: if I buy and sell shares Microsoft, I get tax
Speaker 1: when I do that, And in e t F is
Speaker 1: like that where I think people don't go and actually
Speaker 1: put themselves inside the fund as if they're in this
Speaker 1: nice little club of people who are all buying and
Speaker 1: selling stocks together because the PM is doing it, and
Speaker 1: so all they know is they just get hit with
Speaker 1: the tax bill. So I don't know, I think there's
Speaker 1: I know what you're saying, but don't you think people
Speaker 1: just are more thinking that it should just be like
Speaker 1: when you buy and sell a stock on your own. Yeah,
Speaker 1: but I don't think you should be able to accomplish
Speaker 1: something through an e t F indirectly what's happening with
Speaker 1: Dave called them custom portfolios. Yeah, it's just a I
Speaker 1: call them it even another variation of the heartbeat that
Speaker 1: you shouldn't be able to adjust your portfolio without having
Speaker 1: making it a taxable event. Right. So when Bloomberg reported
Speaker 1: on this about a month ago when there was a
Speaker 1: big rebalance, right, was that the Russell Russell three thousand, right,
Speaker 1: forty or fifty shares? Uh? And and they just reported
Speaker 1: everyone's doing heartbeat trades, right, And I said, well, wait
Speaker 1: if I if I'm a share learn Russell three thousand,
Speaker 1: and all of a sudden, now I have a different
Speaker 1: economic exposure. Um, you know, I think that that's an
Speaker 1: appropriate time to pay tax. So one, you know, if
Speaker 1: if if if if, if we could agree so on
Speaker 1: one issue would be if Congress says, well, the in
Speaker 1: and outs for the baskets, right, a whole basket in
Speaker 1: and out representative basket in and out. We could nothing's changing,
Speaker 1: my economic exposure isn't changing. That you know seems to
Speaker 1: be Uh. I could see making an argument for not
Speaker 1: making that a taxable event. But when the e t
Speaker 1: F s um underlying portfolio changes, uh, and then they
Speaker 1: use it, they basically swapped those shares for shares from
Speaker 1: a market maker. I think that there's you know, there's
Speaker 1: under tax common law that's that's permissible. Dave correctly stated
Speaker 1: that the SEC allows these custom portfolios. But just because
Speaker 1: the SEC allows it doesn't mean that they don't determine
Speaker 1: the tax benefits. So I which that's to me. Then
Speaker 1: none of the issue here is right. We now codified
Speaker 1: a whole bunch of things that when you wrote your paper,
Speaker 1: you you very carefully go through and point out, these
Speaker 1: are from exceptions, this is what you know, this is
Speaker 1: the rule you need an exemption from to do this right.
Speaker 1: Most of that's all gone away because the f E
Speaker 1: t F rule. So we cleared up the operational side
Speaker 1: quite dramatically, and to your point, we've done nothing on
Speaker 1: the tax side. So the tax side is just the
Speaker 1: same as it ever was. Um. It's interesting to hear
Speaker 1: you say that you actually think the sort of custom
Speaker 1: basketting issue is more problematic than the full basket heartbeat trading,
Speaker 1: because the full back basket heartbeat trading is actually the
Speaker 1: thing that Elizabeth has been writing about and that I
Speaker 1: think is actually caused the most fear, which is the
Speaker 1: idea that you can have a non economic activity, i e.
Speaker 1: I'm going to give you all five hundred, You're gonna
Speaker 1: give me all five hundred back in three days. That's
Speaker 1: clearly not a particularly economic activity that can have huge
Speaker 1: implications on the tach ight. The reason I'm not as
Speaker 1: concerned about the entire baskets is you're correct that would
Speaker 1: lower the game. They're using it just to lower the
Speaker 1: part cential gain inside the t F. But if E
Speaker 1: t F never sells, that gain is never going to
Speaker 1: be realized. Right. Um. That's why I don't have quite
Speaker 1: as much problem you know, from you know, it's not
Speaker 1: pure good tax policy, but I don't have quite as
Speaker 1: much problem with that because all we're doing is lowering
Speaker 1: the gain inside the E t F. But but if
Speaker 1: the gain that never has intractable because how would you
Speaker 1: possibly track that. Virtually every basket is optimized, like almost
Speaker 1: literally every single creation basket ever done, has been optimized
Speaker 1: at least at one share level. Right, so we talk
Speaker 1: about replication, but we don't do this in half shares.
Speaker 1: Every basket is wrong. But but one thing you could
Speaker 1: you could say is that we have a fifty two
Speaker 1: b six. This provision continues, except that unless you distribute
Speaker 1: a if you distribute a custom basket, you get taxed, right. Uh,
Speaker 1: obviously within reason if you if there are derivatives inside,
Speaker 1: you can't transfer those within reason doesn't play very well.
Speaker 1: And just like there's mostly not a lot of reason
Speaker 1: and these it's got to proportion them out right. You
Speaker 1: have to distribute you know, you know the rulings that
Speaker 1: they've given UH for closed end funds. So closed end
Speaker 1: funds don't get this rule, right they but the I
Speaker 1: r S has allowed them in private letter rulings but
Speaker 1: not not recently UH to get the benefit of this rule.
Speaker 1: By the statute, they don't issue redeemable securities, um. And
Speaker 1: so they just required that you basically have to distribute
Speaker 1: a proad of share of each security with it with
Speaker 1: some exceptions, and then a basically a proad of share
Speaker 1: of the basis right that goes out Um. You know,
Speaker 1: something like that maybe maybe acceptable. Uh, And then the
Speaker 1: only thing that would be hit were what are the
Speaker 1: kind of the trades that were talked about in the
Speaker 1: Bloomberg article. Um, again, when there's a taxable acquisition. Uh,
Speaker 1: you know, mutual funds have to pay tax on that.
Speaker 1: But E t f s heartbeat their way out of that.
Speaker 1: And that's something that I I think I don't think
Speaker 1: that there's much defense at all for that. When that
Speaker 1: article came out, and you know, one of the things was, well, um, Vanguard,
Speaker 1: black Rock, these companies look at it as their fiduciary
Speaker 1: duty to protect their investors. So that would be the
Speaker 1: defenses if they don't tax loss harvesting an advisor. This
Speaker 1: is what all fiduciaries do. No, I understand that argument.
Speaker 1: But then then the real question is, though what should
Speaker 1: be the rule? Well, yeah, and I think that's a
Speaker 1: reasonable conversation. Okay, So, Dave, how existential is this for
Speaker 1: the E t F as we know it. I don't
Speaker 1: think it's I don't the only place that could become
Speaker 1: an existential crisis. It's really messes up the market maker
Speaker 1: incentive to do creation redemption. So if if all you're
Speaker 1: doing is going to the structure of the forty Act
Speaker 1: fund that is the e t F and saying, hey,
Speaker 1: you know what, we're going to change the rules a
Speaker 1: little bit on what you have to distribute out to
Speaker 1: your shareholders like on the regular that's not that big
Speaker 1: a deal. If what they instead do is try to
Speaker 1: come back at this through the AP and market making system,
Speaker 1: that actually has some really scary implications. Now that's not
Speaker 1: what's being talked about. What's being talked about is simply
Speaker 1: removing this at the at the Ford Act level. Um,
Speaker 1: it's not existential. I don't think e t f s
Speaker 1: go away. The liquidity, the access, the cost advantages, none
Speaker 1: of those get changed at all. Um. The certainly the
Speaker 1: sort of public acceptance doesn't just reverse all of a sudden.
Speaker 1: People don't all of a sudden go back to trying
Speaker 1: to find an SMP five mutual fund because now all
Speaker 1: of a sudden they don't get a tax advantage in
Speaker 1: their sp t F. It would simply put them at parody,
Speaker 1: and at parody most mutual funds still looks substantially worse,
Speaker 1: both on a cost basis, attracting basis, like you name
Speaker 1: it right, just just the fact they have to hold
Speaker 1: cash to meet redemptions means that in general, most mutual
Speaker 1: funds are going to still look course. And and the
Speaker 1: trend that we've seen and talked about on the podcast
Speaker 1: before of mutual funds converting into e t s would
Speaker 1: we do you think we'd see any changes there or
Speaker 1: you really more funds would continue to become ets. I
Speaker 1: think the tax advance, the tax efficiency of ets has
Speaker 1: always been a bit of a nice to have for
Speaker 1: some investors. It's a huge deal, right if you happen
Speaker 1: to be a multimillion dollar taxable investor who has exhausted
Speaker 1: all of your other ways of squirreling money away, Yeah,
Speaker 1: the ET has been really helpful for you. But ETFs
Speaker 1: are increasingly used by huge institutions who don't care about this.
Speaker 1: They're actually even being used inside a lot of rs
Speaker 1: and borrowing ks at this point, and people don't care.
Speaker 1: They're either um and obviously the hardcore trading community doesn't
Speaker 1: care about any of this because none of them are
Speaker 1: holding for long enough for these things to matter. So
Speaker 1: it's this narrow slice where yeah, they'd really care, but
Speaker 1: that slice isn't gonna go to mutual funds. They're just
Speaker 1: gonna direct index. Yeah, and let me jump in here.
Speaker 1: I you know, you know it's killing Majol do these
Speaker 1: pans with Dave all the time, and I love riffing
Speaker 1: off of him. I feel like we could just sit
Speaker 1: here and go off for hours. But um, okay, a
Speaker 1: couple of things. Conversions. There was a version today actually
Speaker 1: a pot et FU converted to our pot mutual fund
Speaker 1: converted to an e t F. I don't think that
Speaker 1: was for tax tax reasons. It had been out performing
Speaker 1: the pot e t f s and nobody was buying it.
Speaker 1: I think ETFs are just worth of fisher biting. But
Speaker 1: I do think the tax could help some mutual fund conversions.
Speaker 1: Um that's one feature. Um. I was telling Jroll earlier
Speaker 1: that tax the tax efficiency of ETFs is sort of
Speaker 1: like Superman's X ray vision. You know, it's he can
Speaker 1: still fly, he can still do you know what he does,
Speaker 1: but he you know, he's he's gonna lose something. And
Speaker 1: I agree. I think direct indexing is the natural benefactor
Speaker 1: of those really wealthy people. That's who I think is
Speaker 1: really gonna just avoid it anyway, is the really wealthy people.
Speaker 1: They're gonna But that's part of The problem is the
Speaker 1: billion dollars were theoretically talking about when it's actually collected
Speaker 1: in three. Like if you eliminated it today and say, okay,
Speaker 1: let's take a look in four and see how much
Speaker 1: money we made, it's gonna be like five, not twenty,
Speaker 1: because the industry is very smart at figuring out how
Speaker 1: to get people out of this situation. And I think, um,
Speaker 1: who would probably be the biggest loser would be active
Speaker 1: e t F s like an ARC or a high
Speaker 1: turnover smart beta e t F because a Vanguard ETF
Speaker 1: is just not turning over that much anyway. Um, you know,
Speaker 1: Vogel always said index mutual funds are almost as tax
Speaker 1: efficient as an e t F even with that special
Speaker 1: thing you guys have, because we just don't trade so
Speaker 1: many ways. This is what blows my mind. There's so
Speaker 1: many ways around it. You run the whole thing through
Speaker 1: a twenty percent Cayman subsidiary, it all goes away done.
Speaker 1: Like I mean, there's so many ways around that problem
Speaker 1: that if I wanted to run a three active equity
Speaker 1: fund in an e t F structure and all this
Speaker 1: went away, I can think of three or four ways
Speaker 1: that I can do it. Right now inside the four
Speaker 1: D act that nobody's even talking about. So, Professor Cologne,
Speaker 1: you've clearly kicked the hornets nest. Are you surprised? Um? Yeah?
Speaker 1: And have you have you gotten emails? Like what kind
Speaker 1: of feedback have you gotten from all this? It's funny
Speaker 1: this article when I when I wrote it, um, uh,
Speaker 1: Dave was they would probably laugh. You guys will laugh.
Speaker 1: Is this is the only article that people wrote me
Speaker 1: emails about. It wasn't a criticism, but it was like, Oh,
Speaker 1: my name is uh Joe Smith. I have a ten
Speaker 1: million I run ten billion dollar family foundation in uh
Speaker 1: San Francisco. Do you have any ideas and how we
Speaker 1: could use this? Uh? Tons of those emails actually, so
Speaker 1: people looked at it. Oh I didn't know about this?
Speaker 1: How can I now build up on it? And three
Speaker 1: three points? Basically, you know, Dave kind of alluded this,
Speaker 1: and I think Davi would have better information than I would.
Speaker 1: I don't think E t F s uh. You know,
Speaker 1: this is a little bit of a roadbump for them.
Speaker 1: But if we look at the universe of investors, we
Speaker 1: have the foreign investors, uh, you know, offshore pedge funds.
Speaker 1: We have endowments, we have UM pensions, we have four
Speaker 1: O one case four or three bs that are now
Speaker 1: allowing purchases of ETF So there's just a huge universe
Speaker 1: of tax exempt money out there that this is irrelevant. Right,
Speaker 1: So if any of the listeners say, oh my god,
Speaker 1: this is gonna I have E t f s in
Speaker 1: my era or anything like this, this will not affect
Speaker 1: you one iota, right, And I just think that this,
Speaker 1: you know, worse comes to worse. It just makes E
Speaker 1: t f s a little bit the proper what we
Speaker 1: call tax clientele where you're gonna be late lyast taxes,
Speaker 1: the tax exempts will will move more into this UM
Speaker 1: and then the taxable people may move to the extent
Speaker 1: that you can away from this now that um. Dave
Speaker 1: Rais is a good point about the upcoming wave of
Speaker 1: direct indexing. Direct investing, the heartbeat trades, which allow you
Speaker 1: to basically get rid of one or two or five
Speaker 1: securities without paying tax via redemption creation. When you're direct indexing,
Speaker 1: you won't be able to do that, right, And so
Speaker 1: that just kind of tells you if you can't do
Speaker 1: it directly owning the shares, why should you be able
Speaker 1: to do it indirectly via an E T F Right.
Speaker 1: So I'm a I'm you know, I think this direct
Speaker 1: indestining is a great thing, and allow the tax lost harvesting. Um.
Speaker 1: But at the same time time for portfolio adjustments, Uh,
Speaker 1: they will be taxable. Uh if there are gains, right again,
Speaker 1: you'll be able to tax loss harvest to mitigate some
Speaker 1: of that. Knowing what we know about d C and
Speaker 1: how this has gone down, Professor Colin, what are the
Speaker 1: odds that you think that this bill becomes a lot
Speaker 1: I'm gonna say not great because the uh there's eight
Speaker 1: neutral funds and ETFs are everywhere, so you're stepping on
Speaker 1: everyone's toes. I would hope at a minimum. Uh, you know,
Speaker 1: I'm not giving you an answer. I will see what
Speaker 1: happens in the Senate. I don't think it was in
Speaker 1: the House bill on Friday, right, it didn't get in there.
Speaker 1: I know that the White House is looking at this,
Speaker 1: but we'll so we'll see what happens in the Senate.
Speaker 1: I'm I can't give you a percentage, but at a minimum,
Speaker 1: I hope it kind of stimulates a discussion of how
Speaker 1: in the US, you know, we can kind of fix
Speaker 1: the taxation of kind of public investment companies for for everyone. Okay,
Speaker 1: try and put some odds on that. Oh I'm gonna
Speaker 1: I wanna say, under Okay, and and and Dave, how
Speaker 1: about from your perspective, I think there's no chance that
Speaker 1: a straight up recision of a fifty two six happens
Speaker 1: in this Congress. I don't. I would give that essentially
Speaker 1: zero odds have happened. I think we'll get a bitcoin
Speaker 1: et f first. Um. As far as the broader issue, UM,
Speaker 1: I think if we actually ended up with a I
Speaker 1: mean to too crazy scenarios, either a clear mandate for
Speaker 1: one party in every branch of the Congress and White House,
Speaker 1: which I don't think it's gonna happen anytime soon, or
Speaker 1: actual bipartisanship to try to solve some real problems. I
Speaker 1: don't think that's gonna happen anytime soon either. But with
Speaker 1: one of those two priors, then yeah, I think a
Speaker 1: full re look at what we do in investment taxation
Speaker 1: would be phenomenal because it's a mess. Right. We haven't
Speaker 1: had substantial look at that since what camera what was
Speaker 1: s right, that was the last time we actually looked
Speaker 1: at the tax code and did anything useful to it,
Speaker 1: in my opinion, and since then all we've done is
Speaker 1: or poke around the edges as a political football. But
Speaker 1: the the Investment Task codes at nightmare, and so I'm
Speaker 1: all for cleaning it up. Is this repeat? Like, if
Speaker 1: I'm looking at this massive tax bill, say, I'm like
Speaker 1: Senator Joe Mansion from West Virginia, who he's got a
Speaker 1: lot of power, right, and I look at this tax bill?
Speaker 1: Is that line really? Do I even know what that is?
Speaker 1: Is that a deal breaker for most people? Or are
Speaker 1: there other things in the bill that would be deal
Speaker 1: breakers and need to be taken out and amended. I'm
Speaker 1: wondering if the all the horse trading they do doesn't
Speaker 1: involve this, but this just stays in and everybody's happy
Speaker 1: and it does go through. I think it's hard to tell.
Speaker 1: Early on in my career I worked in d c
Speaker 1: UH and and saw some from the inside some some
Speaker 1: of the way the tax legislation gets past UH. It's
Speaker 1: not pretty. That's why I just didn't really want to
Speaker 1: give any any predictions. You know. The one thing that
Speaker 1: kind of keeps it I think a little bit bigger
Speaker 1: than than day zero, than than Dave's view is is
Speaker 1: the revenue associated with it a poker full are not imaginary?
Speaker 1: Not um, just because they're gonna need revenue offsets, right, um,
Speaker 1: and for the pay for all of this. And so
Speaker 1: I think in a normal year I would say it
Speaker 1: had very little chance. But this year I think it
Speaker 1: definitely has some chance of staying in. That's fair, That's fair.
Speaker 1: I have a cruel joke. I have a cruel joke.
Speaker 1: You mean that has a heartbeat. Eric's Eric's gonna kill
Speaker 1: me for that. He's way too proud of himself. I
Speaker 1: can tell I'm looking at him, Okay, Professor Cologne Um.
Speaker 1: Final question, which is the final question we ask of
Speaker 1: everyone um on the on the podcast, what's your favorite
Speaker 1: e F F ticker? Oh e t F ticker? Oh
Speaker 1: my goodness. I will admit I don't own a d
Speaker 1: t F uh. We we don't allow them through our
Speaker 1: retirement plan at Fordham. UM, but probably probably spy. I
Speaker 1: have some familiarity with that. And Dave, I think, I know,
Speaker 1: I think I've heard yours before. But what's your soup?
Speaker 1: What's the soup? R? I'm still go move van Agri business.
Speaker 1: I still think it's the I mean for an amount
Speaker 1: of tia. I mean, come on, all right, Dave, Dave uh,
Speaker 1: Professor Cologne, thank you so much for joining us on Trillions.
Speaker 1: Thank you right, thank you, Joel, thank you all right.
Speaker 1: I never pleasure Dave speaking. Thanks for listening to Trillions.
Speaker 1: Until next time. You can find us on the Bloomberg terminal,
Speaker 1: Bloomberg dot com, Apple Podcast, Spotify, and wherever else you
Speaker 1: like to listen. We'd love to hear from you. We're
Speaker 1: on Twitter, I'm at Joel Weber Show. He's at Eric Faltunist.
Speaker 1: You can find Dave Natick at Dave Natick, and you
Speaker 1: can find Professor Cologne at Fordham Law n y C.
Speaker 1: This episode of Trillions was produced by Magnus Hendricks. Francessica
Speaker 1: Levie is the head of Bloomberg Podcast. Bye.