1 00:00:13,200 --> 00:00:16,119 Speaker 1: This is Wall Street Week. I'm David Weston bringing you 2 00:00:16,320 --> 00:00:20,840 Speaker 1: stories of capitalism this week. Why so many US pharmaceutical 3 00:00:20,840 --> 00:00:24,240 Speaker 1: companies make their drugs in Ireland and whether President Trump 4 00:00:24,360 --> 00:00:29,120 Speaker 1: can use tariffs to change that, Plus the irresistible force 5 00:00:29,120 --> 00:00:34,400 Speaker 1: of government subsidies meets the immovable object of Harvard and 6 00:00:34,680 --> 00:00:37,760 Speaker 1: using the irs for all sorts of things other than 7 00:00:37,800 --> 00:00:42,360 Speaker 1: collecting money, how much it could cost us all But 8 00:00:42,440 --> 00:00:44,960 Speaker 1: we start once again with the Federal Reserve. 9 00:00:45,479 --> 00:00:48,640 Speaker 2: The risks of higher unemployment and higher inflation appear to 10 00:00:48,680 --> 00:00:52,040 Speaker 2: have risen. If the large increases in tariff that have 11 00:00:52,120 --> 00:00:55,600 Speaker 2: been announced or sustained, they're likely to generate a rise 12 00:00:55,640 --> 00:00:58,640 Speaker 2: in inflation, a slow down in economic growth, and an 13 00:00:58,680 --> 00:00:59,800 Speaker 2: increase in unemployment. 14 00:01:01,640 --> 00:01:04,440 Speaker 1: And we turn to our special contributor, Larry Summers of 15 00:01:04,480 --> 00:01:06,039 Speaker 1: Harvard for a reaction. 16 00:01:06,640 --> 00:01:10,840 Speaker 3: I thought the Chairman handled a difficult situation correctly. 17 00:01:11,440 --> 00:01:13,319 Speaker 4: Look, he has a real problem. 18 00:01:14,040 --> 00:01:18,920 Speaker 3: Policy is pursuing a supply shock that we are inflicting 19 00:01:19,000 --> 00:01:23,240 Speaker 3: on ourselves. We're pushing up prices with the tariffs, which 20 00:01:23,280 --> 00:01:27,839 Speaker 3: is a path to inflation. In response to that, monetary 21 00:01:27,840 --> 00:01:32,800 Speaker 3: policy normally hits the brakes. We're sucking purchasing power out 22 00:01:32,840 --> 00:01:38,120 Speaker 3: of the economy and creating huge uncertainty that potentially is 23 00:01:38,200 --> 00:01:43,120 Speaker 3: chilling spending in response to that, Monetary policy traditionally hits 24 00:01:43,480 --> 00:01:47,800 Speaker 3: the accelerator. It's kind of a trick that we've pursued 25 00:01:47,880 --> 00:01:52,760 Speaker 3: policies that have made expected unemployment and expected inflation go 26 00:01:52,880 --> 00:01:55,640 Speaker 3: up at the same time. It's not a good thing 27 00:01:56,000 --> 00:02:00,880 Speaker 3: to have done. But faced with both of them effects, 28 00:02:01,400 --> 00:02:04,520 Speaker 3: not knowing which one is going to be larger, not 29 00:02:04,680 --> 00:02:07,880 Speaker 3: knowing what the size of the shock is going to be, 30 00:02:08,440 --> 00:02:11,520 Speaker 3: not knowing what the effects of the uncertainty is going 31 00:02:11,600 --> 00:02:14,520 Speaker 3: to be. I don't see how the FED had any 32 00:02:14,600 --> 00:02:15,960 Speaker 3: viable alternative. 33 00:02:16,600 --> 00:02:18,400 Speaker 4: But watchful waiting. 34 00:02:18,919 --> 00:02:21,440 Speaker 1: The FED said explicitly, just exactly what you did, which 35 00:02:21,480 --> 00:02:23,920 Speaker 1: is the risks of inflation have gone up and the 36 00:02:24,000 --> 00:02:26,359 Speaker 1: risks of an employment have gone up, which really goes 37 00:02:26,400 --> 00:02:28,520 Speaker 1: to the dual mandates. And Chair Powell did his best 38 00:02:28,520 --> 00:02:32,000 Speaker 1: to dance around that. But as a macroeconomist, if in 39 00:02:32,040 --> 00:02:35,560 Speaker 1: fact you end up with inflation and higher unemployment at 40 00:02:35,520 --> 00:02:37,920 Speaker 1: the same time and you have to choose between to 41 00:02:37,960 --> 00:02:40,560 Speaker 1: two mandates, does history tell us which you should choose. 42 00:02:41,560 --> 00:02:47,120 Speaker 3: So this is a rare situation that the FED finds 43 00:02:47,160 --> 00:02:51,080 Speaker 3: itself in look, I don't think there's a hard and 44 00:02:51,240 --> 00:02:58,040 Speaker 3: fast rule. I think the balance of opinion would be 45 00:02:58,120 --> 00:03:04,240 Speaker 3: among economists that the fed first obligation is to the 46 00:03:04,320 --> 00:03:09,239 Speaker 3: price stability mandate, because if you let inflation go, you're 47 00:03:09,240 --> 00:03:12,359 Speaker 3: going to have higher inflation expectations, and that's going to 48 00:03:12,480 --> 00:03:17,639 Speaker 3: risk higher unemployment down the road, almost for sure, as 49 00:03:17,680 --> 00:03:20,120 Speaker 3: you try to achieve disinflation. 50 00:03:20,520 --> 00:03:23,000 Speaker 1: The one constant it seems we have right now is uncertainty. 51 00:03:23,200 --> 00:03:24,760 Speaker 1: We heard about it from the FED, We hear about 52 00:03:24,800 --> 00:03:26,680 Speaker 1: on Wall Street, we hear about it from companies as 53 00:03:26,720 --> 00:03:29,040 Speaker 1: they report their earnings. Uncertainty, and it pops up in 54 00:03:29,040 --> 00:03:30,639 Speaker 1: all sorts of ways. What do you make about what 55 00:03:30,639 --> 00:03:32,960 Speaker 1: happened with the Asian currencies in the last week. I mean, like, 56 00:03:33,000 --> 00:03:35,840 Speaker 1: for example, the Taiwan dollar went up more than done 57 00:03:35,840 --> 00:03:36,440 Speaker 1: in decades. 58 00:03:37,600 --> 00:03:43,480 Speaker 3: My instinct is that the Taiwanese situation, because of the 59 00:03:43,600 --> 00:03:48,000 Speaker 3: national security aspect, because of how much the currency had 60 00:03:48,040 --> 00:03:54,480 Speaker 3: been pegged, is because of aspects of the hedging behavior, 61 00:03:55,120 --> 00:03:59,120 Speaker 3: is somewhat unique. So I don't think it would be 62 00:03:59,320 --> 00:04:04,440 Speaker 3: right to see it as a precedent for multiple other 63 00:04:04,600 --> 00:04:07,040 Speaker 3: moves that are going to. 64 00:04:08,520 --> 00:04:09,200 Speaker 4: Take place. 65 00:04:09,960 --> 00:04:13,520 Speaker 3: But I'm not certain of that, and I'm very much 66 00:04:13,600 --> 00:04:20,520 Speaker 3: aware that there are huge foreign holdings of treasuries at 67 00:04:20,560 --> 00:04:26,800 Speaker 3: this point, that the other side of that flow into 68 00:04:27,880 --> 00:04:33,800 Speaker 3: US treasuries, that what enables other countries to buy all 69 00:04:33,839 --> 00:04:40,599 Speaker 3: those treasuries is the dollars they're accumulating, because in Toto, 70 00:04:40,720 --> 00:04:45,279 Speaker 3: they're exporting more to us than we are exporting to them. 71 00:04:46,000 --> 00:04:51,760 Speaker 3: But I don't think the contradiction between hating the trade 72 00:04:51,800 --> 00:04:58,320 Speaker 3: deficit and loving the capitol in flows is entirely clear 73 00:04:59,040 --> 00:05:03,599 Speaker 3: in the mind of the administration. I have not heard 74 00:05:03,680 --> 00:05:09,120 Speaker 3: the Secretary of the Treasury thoughtfully address the question if 75 00:05:09,200 --> 00:05:12,760 Speaker 3: we scale back trade deficits, which after all, is the 76 00:05:13,320 --> 00:05:19,680 Speaker 3: repeated and constant emphasis of their policy, how are we 77 00:05:19,880 --> 00:05:25,000 Speaker 3: going to have the capital inflows that are necessary to 78 00:05:25,120 --> 00:05:31,120 Speaker 3: keep interest rates bounded, that are necessary to accumulate all of. 79 00:05:31,040 --> 00:05:34,560 Speaker 4: The debt that we are mounting. 80 00:05:35,160 --> 00:05:39,719 Speaker 3: So my guess is that this Taiwan situation is suey generous, 81 00:05:40,320 --> 00:05:46,200 Speaker 3: but it is indicative of a much broader kind of 82 00:05:46,440 --> 00:05:54,560 Speaker 3: challenge that we face with capital inflows and trade deficit. 83 00:05:55,080 --> 00:05:58,599 Speaker 3: The one thing we know is that we can't fully 84 00:05:58,680 --> 00:06:03,240 Speaker 3: resolve that very deficit just as a matter of arithmetic 85 00:06:03,880 --> 00:06:09,279 Speaker 3: without also reducing the foreign capital inflow into the United States. 86 00:06:10,720 --> 00:06:13,840 Speaker 1: President Trump has been pressuring the FED to cut rates, 87 00:06:14,160 --> 00:06:17,800 Speaker 1: which the FED Chair Jay Powell has resisted. Larry's fellow 88 00:06:17,839 --> 00:06:21,400 Speaker 1: Harvard economist Ken Rogoff, was the chief economist at the IMF, 89 00:06:21,680 --> 00:06:25,000 Speaker 1: and his new book, Our Dollar, Your Problem looks at 90 00:06:25,000 --> 00:06:28,200 Speaker 1: the link between FED independence and the strength of the dollar. 91 00:06:28,960 --> 00:06:31,719 Speaker 1: We've heard from the Chair J Powell. One of the 92 00:06:31,720 --> 00:06:34,360 Speaker 1: concerns going to this was the independence of the Fed. 93 00:06:34,480 --> 00:06:36,600 Speaker 1: Given some of the remarks from the President United States 94 00:06:37,000 --> 00:06:41,520 Speaker 1: Donald Trump and others. Did J. Powell help restore some 95 00:06:41,560 --> 00:06:43,719 Speaker 1: of the confidence in the independence of the Fed. 96 00:06:44,480 --> 00:06:48,000 Speaker 5: Well, he's definitely held the line, and Trump has retreated 97 00:06:48,080 --> 00:06:51,360 Speaker 5: at the same time. But he's just been very professional, 98 00:06:51,760 --> 00:06:56,600 Speaker 5: kind of ignoring Trump and saying the truth. Tariffs are 99 00:06:56,640 --> 00:06:59,640 Speaker 5: going to cause higher prices and lower output. 100 00:07:00,040 --> 00:07:02,279 Speaker 6: Trump might not want to hear it. I mean, to 101 00:07:02,320 --> 00:07:03,000 Speaker 6: be fair to. 102 00:07:02,960 --> 00:07:08,120 Speaker 5: Trump, every president tries to get the FED to lower 103 00:07:08,120 --> 00:07:10,680 Speaker 5: interest rates. They're ninety nine percent of the time. But 104 00:07:11,560 --> 00:07:14,560 Speaker 5: I think where he is crossing a line. It's saying, well, 105 00:07:14,560 --> 00:07:18,440 Speaker 5: I'm going to fire him. That's just self destructive. He's 106 00:07:18,440 --> 00:07:22,360 Speaker 5: shooting himself in the foot. I mean that said, FED 107 00:07:22,400 --> 00:07:25,400 Speaker 5: independence is not as sacrosanct as people think. 108 00:07:25,720 --> 00:07:27,240 Speaker 6: I'm amazed how many. 109 00:07:27,320 --> 00:07:30,000 Speaker 5: Educated people I talk to who think the FEDS in 110 00:07:30,040 --> 00:07:34,760 Speaker 5: the Constitution and you can't do it. It's not. It's a 111 00:07:34,840 --> 00:07:38,440 Speaker 5: creature of Congress. There have been various acts of Congress, 112 00:07:38,520 --> 00:07:41,840 Speaker 5: but you know, nineteen thirteen it's when it started. If 113 00:07:41,920 --> 00:07:46,640 Speaker 5: Congress were in cahoots with Trump, they could literally make 114 00:07:46,680 --> 00:07:49,800 Speaker 5: it disappear in a week, bring it back under the treasury. 115 00:07:50,040 --> 00:07:51,840 Speaker 1: We have a tenion right now. I think everything is 116 00:07:51,840 --> 00:07:54,880 Speaker 1: because of Donald Trump as president. As you point out 117 00:07:54,960 --> 00:07:58,280 Speaker 1: in your book, you know, the Donisa dollar actually may 118 00:07:58,280 --> 00:08:01,120 Speaker 1: have peaked like in twenty fifteen. Exactly, there are larger 119 00:08:01,120 --> 00:08:04,080 Speaker 1: forces even than Donald Trump. Foot here, What are the 120 00:08:04,120 --> 00:08:08,320 Speaker 1: consequences of a relative decline in the dollar as against 121 00:08:08,360 --> 00:08:09,080 Speaker 1: other currencies. 122 00:08:10,000 --> 00:08:12,640 Speaker 5: So first, the fact that a larger forces is significant 123 00:08:12,800 --> 00:08:17,800 Speaker 5: is you know, if he backtracks and somehow convinces everybody 124 00:08:18,040 --> 00:08:21,760 Speaker 5: to forget that it happened. The role of law is fine, 125 00:08:21,960 --> 00:08:24,920 Speaker 5: We're not going to arbitrarily put tariffs and this and that. 126 00:08:25,560 --> 00:08:28,800 Speaker 5: We're still in a period of dollar decline. So the 127 00:08:28,840 --> 00:08:32,760 Speaker 5: consequences of it are first, will pay a higher interest rate? 128 00:08:33,240 --> 00:08:35,440 Speaker 6: Now we probably. 129 00:08:35,040 --> 00:08:38,439 Speaker 5: Pay between half a percent and a percent less than 130 00:08:38,480 --> 00:08:42,280 Speaker 5: we would if we weren't so dominant. It's not just 131 00:08:42,360 --> 00:08:45,959 Speaker 5: that the dollars the most used, it's way the most used. 132 00:08:46,640 --> 00:08:49,440 Speaker 5: And to be clear, that doesn't mean we're paying less 133 00:08:49,480 --> 00:08:52,320 Speaker 5: than Germany, because we borrow a lot more than Germany. 134 00:08:52,400 --> 00:08:56,040 Speaker 5: So it's sort of controlling for what we're borrowing. And 135 00:08:56,080 --> 00:09:00,520 Speaker 5: that applies to mortgages to car loans. It's a big deal. 136 00:09:00,720 --> 00:09:03,640 Speaker 1: So if the United States were to come together as one, 137 00:09:03,880 --> 00:09:06,320 Speaker 1: just bear with me. Now you're in a counterfactual. If 138 00:09:06,360 --> 00:09:08,240 Speaker 1: we're to come together as one and came to Ken 139 00:09:08,280 --> 00:09:11,520 Speaker 1: Rogan and said we our priority is making sure the 140 00:09:11,600 --> 00:09:14,920 Speaker 1: dollar does not continuous decline, what would you advise us 141 00:09:14,920 --> 00:09:16,720 Speaker 1: to do well. 142 00:09:16,760 --> 00:09:20,480 Speaker 5: I mean, the simplest thing for short term is preserved 143 00:09:20,480 --> 00:09:23,680 Speaker 5: fat independence, which I do think is under duress in 144 00:09:23,720 --> 00:09:27,480 Speaker 5: a lot of ways. Don't do the tariff war, which 145 00:09:27,559 --> 00:09:33,360 Speaker 5: is absolutely accelerates the process. When you restrict trade, you're 146 00:09:33,400 --> 00:09:36,599 Speaker 5: putting sand in the wheels of the global financial system. 147 00:09:37,040 --> 00:09:41,680 Speaker 5: When trade can't move freely, it affects finance. Since we're 148 00:09:41,720 --> 00:09:44,760 Speaker 5: the kings of finance and we benefit from that, you 149 00:09:44,800 --> 00:09:46,600 Speaker 5: know that's not a great idea either. 150 00:09:46,800 --> 00:09:49,800 Speaker 1: Coming back to j Powell, Chairman of the FED, and 151 00:09:49,800 --> 00:09:51,880 Speaker 1: what he had to say this week. Basically, the FED 152 00:09:51,920 --> 00:09:54,800 Speaker 1: told us the risks have gone enough of both inflation 153 00:09:55,480 --> 00:09:58,360 Speaker 1: and unemployment. Are we headed to stake fleation? 154 00:09:59,320 --> 00:09:59,480 Speaker 3: Oh? 155 00:09:59,480 --> 00:10:00,760 Speaker 6: I think it's very likely. 156 00:10:00,840 --> 00:10:05,200 Speaker 5: I mean, that's the base case here, that the hard 157 00:10:05,280 --> 00:10:06,679 Speaker 5: numbers are not so bad. 158 00:10:07,320 --> 00:10:08,760 Speaker 6: They're mixed, but not so bad. 159 00:10:08,760 --> 00:10:13,319 Speaker 5: I mean, the jobs report was amazing, but you know, nevertheless, 160 00:10:13,320 --> 00:10:18,080 Speaker 5: if you look at business confidence, consumer confidence, global confidence, 161 00:10:18,600 --> 00:10:22,480 Speaker 5: and some of the more forward looking measures, it certainly 162 00:10:22,520 --> 00:10:25,400 Speaker 5: looks like we're if we don't quite go into recession, 163 00:10:25,559 --> 00:10:29,360 Speaker 5: we're going into something that'll feel like it. And just 164 00:10:29,720 --> 00:10:32,719 Speaker 5: you know, the arithmetic of the tariffs is it's going 165 00:10:32,760 --> 00:10:36,920 Speaker 5: to raise prices so near term, yes, Now is that 166 00:10:36,960 --> 00:10:40,600 Speaker 5: a one time thing or not? It's hard to know 167 00:10:40,720 --> 00:10:43,199 Speaker 5: what behavior will be. I mean, I think the FEDS 168 00:10:43,360 --> 00:10:47,160 Speaker 5: a little bit worried that this is coming on top 169 00:10:47,240 --> 00:10:51,559 Speaker 5: of what just happened, where people were told, except by 170 00:10:51,640 --> 00:10:55,239 Speaker 5: Larry told you, but people are told this is temporary, 171 00:10:55,320 --> 00:10:58,320 Speaker 5: it's transitory, it's going away one time thing. Now the 172 00:10:58,320 --> 00:11:02,360 Speaker 5: tariffs are coming. Oh, it's it's a temporary, one time thing. Well, 173 00:11:02,400 --> 00:11:05,679 Speaker 5: you're not going to believe them and wage setters businesses. 174 00:11:06,360 --> 00:11:10,559 Speaker 5: So it's a difficult period for sure for the FED 175 00:11:10,960 --> 00:11:13,080 Speaker 5: and stagflations the most likely outcoming. 176 00:11:13,120 --> 00:11:16,800 Speaker 6: Powell kind of set that without coming out and saying it. 177 00:11:19,200 --> 00:11:19,360 Speaker 3: Up. 178 00:11:19,440 --> 00:11:23,120 Speaker 1: Next, the politicization of the IRS. President Trump has a 179 00:11:23,160 --> 00:11:26,360 Speaker 1: lot of plans for America's tax service, but they don't 180 00:11:26,400 --> 00:11:29,040 Speaker 1: appear to have much to do with actually collecting money 181 00:11:29,280 --> 00:11:32,400 Speaker 1: for the government. That's next on Wall Street Week. 182 00:11:33,000 --> 00:11:36,520 Speaker 7: You're listening to Bloomberg Wall Street Week with David Weston 183 00:11:36,920 --> 00:11:45,600 Speaker 7: from Bloomberg Radio. This is Bloomberg Wall Street Week with 184 00:11:45,840 --> 00:11:48,240 Speaker 7: David Weston from Bloomberg Radio. 185 00:11:49,240 --> 00:11:52,000 Speaker 1: This is a story about biting the hand that feeds 186 00:11:52,120 --> 00:11:55,360 Speaker 1: all of us, and at a time when we're particularly hungry. 187 00:11:55,880 --> 00:11:59,199 Speaker 1: The IRS is the federal agency charged with collecting taxes 188 00:11:59,240 --> 00:12:01,440 Speaker 1: from all of us who all them, And though we 189 00:12:01,559 --> 00:12:04,480 Speaker 1: might not enjoy paying our taxes, there's little doubt that 190 00:12:04,520 --> 00:12:08,520 Speaker 1: the government needs the money right now. President Trump has 191 00:12:08,520 --> 00:12:11,400 Speaker 1: made cutting the deficit a priority for his second term 192 00:12:11,400 --> 00:12:14,280 Speaker 1: in office, and he proposes to do that in part 193 00:12:14,440 --> 00:12:16,760 Speaker 1: by cutting back on government agencies. 194 00:12:17,880 --> 00:12:23,280 Speaker 3: We have cut billions and billions and billions of dollars. 195 00:12:23,559 --> 00:12:26,040 Speaker 1: One of the first agencies to be hit with some 196 00:12:26,160 --> 00:12:29,280 Speaker 1: of the deepest cuts has been the Internal Revenue Service, 197 00:12:29,679 --> 00:12:33,360 Speaker 1: an agency of the Treasury responsible for collecting taxes. Its 198 00:12:33,400 --> 00:12:37,200 Speaker 1: predecessor was a federal office once called the Commissioner of 199 00:12:37,280 --> 00:12:40,920 Speaker 1: Internal Revenue, created in eighteen sixty two to fund the 200 00:12:40,920 --> 00:12:43,680 Speaker 1: Civil War with the country's first income tax. 201 00:12:44,679 --> 00:12:46,640 Speaker 8: Most people think of the IRS in terms of an 202 00:12:46,679 --> 00:12:50,600 Speaker 8: agency of taxes. When you say IRS, that's what they 203 00:12:50,640 --> 00:12:53,760 Speaker 8: think about, right It is filing a tax return, paying 204 00:12:53,840 --> 00:12:56,040 Speaker 8: taxes and getting a refund, and how much is my 205 00:12:56,040 --> 00:12:58,200 Speaker 8: refund going to be? And how quickly am I going 206 00:12:58,240 --> 00:12:59,199 Speaker 8: to get that refund. 207 00:12:59,400 --> 00:13:03,319 Speaker 1: Chuck Reddick was IRS Commissioner in President Trump's first term. 208 00:13:03,720 --> 00:13:07,480 Speaker 8: That dynamic, right there, literally touches one hundred percent of 209 00:13:07,480 --> 00:13:11,719 Speaker 8: the American tax paying public, which is corporate, large corporations, 210 00:13:11,800 --> 00:13:14,920 Speaker 8: small corporations, it's small businesses throughout the country. 211 00:13:15,160 --> 00:13:17,280 Speaker 1: As important as it is for the IRS to make 212 00:13:17,320 --> 00:13:19,840 Speaker 1: sure the government gets all the revenues it's entitled to, 213 00:13:20,320 --> 00:13:22,480 Speaker 1: it has historically fallen short. 214 00:13:23,040 --> 00:13:27,200 Speaker 9: The IRS is responsible for collecting about ninety seven percent 215 00:13:27,280 --> 00:13:30,320 Speaker 9: of federal revenues. So the money that funds everything, that 216 00:13:30,360 --> 00:13:33,160 Speaker 9: funds our defense, that funds our roads, that funds our schools. 217 00:13:33,679 --> 00:13:36,679 Speaker 1: Natasha Saran is a professor at Yale Law School and 218 00:13:36,960 --> 00:13:40,600 Speaker 1: president of the Budget Lab, which calculates the fiscal impact 219 00:13:40,720 --> 00:13:42,400 Speaker 1: of federal policy proposals. 220 00:13:43,440 --> 00:13:47,040 Speaker 9: Historically, the IRS has been able to collect about eighty 221 00:13:47,120 --> 00:13:50,240 Speaker 9: five percent of taxes that are owed, so that means 222 00:13:50,240 --> 00:13:53,520 Speaker 9: that every year it loses out on about seven hundred 223 00:13:53,600 --> 00:13:56,400 Speaker 9: billion dollars in taxes that are owed to the government 224 00:13:56,440 --> 00:13:57,240 Speaker 9: but not collected. 225 00:13:57,640 --> 00:13:58,400 Speaker 4: That's a lot. 226 00:13:58,480 --> 00:14:02,000 Speaker 9: That's about three percent of GDP on an annualized basis. 227 00:14:02,679 --> 00:14:05,480 Speaker 1: Why has the government been going without revenue amounting to 228 00:14:05,600 --> 00:14:09,199 Speaker 1: three percent of its GDP each year? Experts say, it's 229 00:14:09,240 --> 00:14:11,239 Speaker 1: simply a lack of resources. 230 00:14:12,480 --> 00:14:15,559 Speaker 8: It has never had the resources for decades and decades 231 00:14:15,600 --> 00:14:20,960 Speaker 8: and decades. It has been an underfunded, underserved organization. It 232 00:14:21,000 --> 00:14:24,240 Speaker 8: doesn't get a lot of talking support from anybody on 233 00:14:24,280 --> 00:14:26,960 Speaker 8: the hill, not in terms of the nature of the 234 00:14:26,960 --> 00:14:31,160 Speaker 8: IRS itself. So people will use the IRS for other 235 00:14:31,240 --> 00:14:34,320 Speaker 8: game plans. So when the IRIS does get funding, Congress 236 00:14:34,360 --> 00:14:37,400 Speaker 8: tells us exactly how to spend every one of those dollars. 237 00:14:37,760 --> 00:14:40,280 Speaker 9: You had an IRS that, over the course of the 238 00:14:40,360 --> 00:14:45,520 Speaker 9: decade between twenty ten and twenty twenty had lost in 239 00:14:45,560 --> 00:14:48,080 Speaker 9: real terms about thirty percent of its budget. 240 00:14:49,160 --> 00:14:52,560 Speaker 1: The Biden administration tried to remedy the problem working with 241 00:14:52,640 --> 00:14:55,480 Speaker 1: Congress to give the IRS more resources to get the 242 00:14:55,600 --> 00:14:56,080 Speaker 1: job done. 243 00:14:57,280 --> 00:15:01,640 Speaker 9: Congress invested about eighty billion dollars in the IRS over 244 00:15:01,680 --> 00:15:04,520 Speaker 9: a ten year period, and that over a ten year 245 00:15:04,560 --> 00:15:07,280 Speaker 9: period is actually super important because when you think about 246 00:15:07,280 --> 00:15:10,760 Speaker 9: things like, you know, hiring and training a bunch of 247 00:15:11,240 --> 00:15:15,400 Speaker 9: revenue agents who are capable of doing complex partnership return work, 248 00:15:16,080 --> 00:15:20,320 Speaker 9: or when you think about modernizing outdated technology, those are 249 00:15:20,440 --> 00:15:22,640 Speaker 9: investments that don't pay off immediately. 250 00:15:22,800 --> 00:15:25,160 Speaker 8: When I was on board August sixteen, twenty twenty two 251 00:15:25,600 --> 00:15:28,520 Speaker 8: Inflation Reduction Act, we got seventy nine point six billion 252 00:15:28,600 --> 00:15:32,520 Speaker 8: dollars of supplemental funding, and of that seventy nine point 253 00:15:32,560 --> 00:15:36,800 Speaker 8: six billion dollars, they appropriated forty five point six billion 254 00:15:36,840 --> 00:15:38,360 Speaker 8: dollars to what's called. 255 00:15:38,200 --> 00:15:39,720 Speaker 4: Compliance or enforcement. 256 00:15:40,000 --> 00:15:42,840 Speaker 8: And the significance of that forty five point six billion 257 00:15:42,960 --> 00:15:46,080 Speaker 8: was Treasury ran the numbers and said, well, IRIS, if 258 00:15:46,080 --> 00:15:48,800 Speaker 8: we give you forty five point six billion dollars for enforcement, 259 00:15:49,200 --> 00:15:50,600 Speaker 8: you will be able to recover. 260 00:15:50,360 --> 00:15:53,320 Speaker 4: Seven hundred billion dollars. That's their math. 261 00:15:53,680 --> 00:15:57,560 Speaker 8: That was never my math, and IRIS never spoke and said, 262 00:15:57,560 --> 00:16:00,000 Speaker 8: give us this and we'll recover that. I always said, 263 00:16:00,160 --> 00:16:03,480 Speaker 8: with more funding, will be a better agency across the board. 264 00:16:03,960 --> 00:16:06,840 Speaker 8: That gave Congress the ability to go spend seven hundred 265 00:16:06,880 --> 00:16:09,960 Speaker 8: billion dollars, So, if you will, giving us forty five 266 00:16:10,200 --> 00:16:13,280 Speaker 8: was a pay for for other things that Congress wanted 267 00:16:13,280 --> 00:16:13,600 Speaker 8: to do. 268 00:16:14,360 --> 00:16:17,440 Speaker 1: The hope was that by investing in the IRS, revenues 269 00:16:17,480 --> 00:16:20,360 Speaker 1: would grow more than the expense of more agents and 270 00:16:20,400 --> 00:16:23,640 Speaker 1: better technology. But as of now, it looks like that 271 00:16:23,720 --> 00:16:24,760 Speaker 1: will never happen. 272 00:16:25,840 --> 00:16:29,040 Speaker 9: You've seen a bunch of those investments rolled back. So 273 00:16:29,240 --> 00:16:32,800 Speaker 9: already of that eighty billion dollars, the IRS lost twenty 274 00:16:32,800 --> 00:16:36,800 Speaker 9: billion dollars of enforcement dollars that were really focused on 275 00:16:36,840 --> 00:16:39,760 Speaker 9: improving tax compliance. They were rolled back as part of 276 00:16:39,800 --> 00:16:42,120 Speaker 9: the debt sealing agreement last summer. 277 00:16:42,320 --> 00:16:45,240 Speaker 8: So in twenty three they took away twenty billion dollars 278 00:16:45,280 --> 00:16:48,120 Speaker 8: from enforcement, and then just in the last round took 279 00:16:48,160 --> 00:16:50,960 Speaker 8: another twenty one point four billion dollars for enforcement. 280 00:16:51,120 --> 00:16:54,000 Speaker 1: We have four years now. The Trump administration has moved 281 00:16:54,160 --> 00:16:57,240 Speaker 1: not only to reverse giving the IRS more resources, but 282 00:16:57,320 --> 00:17:01,160 Speaker 1: to cut them below what was there beforecluding cutting staff 283 00:17:01,200 --> 00:17:03,920 Speaker 1: by as much as twenty five percent, with a fair 284 00:17:04,119 --> 00:17:06,320 Speaker 1: number of staff already let go. 285 00:17:07,040 --> 00:17:09,960 Speaker 8: In terms of workforce cuts right the high for the agency. 286 00:17:09,960 --> 00:17:12,160 Speaker 8: There was about one hundred and two thousand employees last 287 00:17:12,240 --> 00:17:17,200 Speaker 8: year with deferred resignations, with getting rid of probationary people 288 00:17:18,000 --> 00:17:19,240 Speaker 8: as well as normal attrition. 289 00:17:19,560 --> 00:17:22,040 Speaker 4: So let me touch the attrition issue. 290 00:17:22,040 --> 00:17:24,439 Speaker 8: When I was on board, we averaged eighty three to 291 00:17:24,480 --> 00:17:29,320 Speaker 8: eighty seven thousand employees, but about fifty five thousand of 292 00:17:29,359 --> 00:17:30,560 Speaker 8: those employees were. 293 00:17:30,440 --> 00:17:32,320 Speaker 4: Eligible to retire within three years. 294 00:17:32,680 --> 00:17:37,000 Speaker 8: Thankfully, most IRS employees stay five years after they're eligible 295 00:17:37,000 --> 00:17:39,960 Speaker 8: to retire. But it's an aging workforce, and there was 296 00:17:39,960 --> 00:17:43,879 Speaker 8: a hiring freeze from twenty eleven to twenty eighteen, and 297 00:17:43,960 --> 00:17:47,440 Speaker 8: so you lost an entire generation of experience, if you will, 298 00:17:47,440 --> 00:17:50,480 Speaker 8: that you would bring in, and you have an aging workforce, 299 00:17:50,520 --> 00:17:54,119 Speaker 8: and then in the current environment, they've been encouraged or 300 00:17:54,160 --> 00:17:56,359 Speaker 8: told to leave the agency. 301 00:17:57,359 --> 00:18:01,600 Speaker 9: The IRS has lost about seven thousand probationary employees at 302 00:18:01,640 --> 00:18:02,320 Speaker 9: the agency. 303 00:18:02,880 --> 00:18:03,840 Speaker 10: And I think. 304 00:18:03,680 --> 00:18:06,280 Speaker 9: Probationary is like kind of a misnomer of a term 305 00:18:06,280 --> 00:18:08,880 Speaker 9: because it implies like someone's on probation or some such 306 00:18:09,080 --> 00:18:11,520 Speaker 9: that's really not the case at all. In fact, these 307 00:18:11,560 --> 00:18:14,840 Speaker 9: are individuals who were either recently hired and recruited by 308 00:18:14,840 --> 00:18:18,240 Speaker 9: the IRS to do some of this, like very difficult 309 00:18:18,280 --> 00:18:20,840 Speaker 9: work that they historically haven't been able to invest in, 310 00:18:21,240 --> 00:18:24,320 Speaker 9: like partnership audits, where today the IRS's audit rate is 311 00:18:24,359 --> 00:18:27,119 Speaker 9: like literally zero percent. So they hired a bunch of 312 00:18:27,160 --> 00:18:30,159 Speaker 9: people who have expertise in these areas. And what they 313 00:18:30,200 --> 00:18:32,960 Speaker 9: also did is they promoted people. They move people into 314 00:18:33,000 --> 00:18:36,040 Speaker 9: new roles, and because they're relatively new in these new roles, 315 00:18:36,280 --> 00:18:40,639 Speaker 9: they're probationary employees. About seven thousand of these people have 316 00:18:40,760 --> 00:18:43,280 Speaker 9: already been let go from the agency, and there have 317 00:18:43,320 --> 00:18:46,480 Speaker 9: been plans for reductions in force that would total like 318 00:18:46,560 --> 00:18:49,800 Speaker 9: fifty percent across the board, which would bring the IRS 319 00:18:49,840 --> 00:18:52,600 Speaker 9: to levels it hasn't been at since the nineteen sixties 320 00:18:53,000 --> 00:18:56,280 Speaker 9: when the population was sixty million people fewer. You've seen 321 00:18:56,480 --> 00:19:01,080 Speaker 9: a very significant exodus from the IRS of your love leaderships, 322 00:19:01,119 --> 00:19:04,200 Speaker 9: but really across the board, and about twenty two thousand 323 00:19:04,280 --> 00:19:08,320 Speaker 9: employees have already taken the deferred resignation plan that's been offered, 324 00:19:08,560 --> 00:19:10,400 Speaker 9: which means that by the end of this year, even 325 00:19:10,440 --> 00:19:14,040 Speaker 9: without any additional reductions in force, you're going to have 326 00:19:14,080 --> 00:19:16,720 Speaker 9: an IRS that's thirty percent smaller than it was at 327 00:19:16,760 --> 00:19:17,800 Speaker 9: the beginning of this year. 328 00:19:17,880 --> 00:19:22,160 Speaker 3: I think we will come to judge when we observe 329 00:19:22,320 --> 00:19:27,679 Speaker 3: the consequences of tens of thousands of IRS enforcement personnel 330 00:19:28,320 --> 00:19:32,080 Speaker 3: being let go, and it being done in a way 331 00:19:32,680 --> 00:19:37,520 Speaker 3: where the because of the incentive scheme, the most competent people, 332 00:19:37,600 --> 00:19:40,719 Speaker 3: the people who can get the best jobs elsewhere, are 333 00:19:40,760 --> 00:19:44,680 Speaker 3: the ones who are most likely to lead. I think 334 00:19:44,760 --> 00:19:49,520 Speaker 3: we are threatening the basis of our tax system, which 335 00:19:49,560 --> 00:19:52,120 Speaker 3: is based on voluntary compliance. 336 00:19:52,720 --> 00:19:55,159 Speaker 1: So is there any way of calculating how much this 337 00:19:55,240 --> 00:19:58,320 Speaker 1: will cost us, at least in lost revenues that we 338 00:19:58,400 --> 00:19:59,240 Speaker 1: otherwise would have. 339 00:19:59,200 --> 00:20:01,480 Speaker 9: Had Legs and I at the Yell Budget Lab have 340 00:20:01,560 --> 00:20:04,520 Speaker 9: concluded that just the workforce reductions that have been planned 341 00:20:04,520 --> 00:20:08,080 Speaker 9: thus far are likely to cost the IRS somewhere between 342 00:20:08,320 --> 00:20:11,920 Speaker 9: four hundred billion and two point four trillion dollars over 343 00:20:11,960 --> 00:20:14,800 Speaker 9: the course of this next decade. That's like a very 344 00:20:14,880 --> 00:20:18,560 Speaker 9: large range. And so what is driving that, Well, the 345 00:20:18,680 --> 00:20:21,399 Speaker 9: dollars that are going to be lost aren't just direct 346 00:20:21,440 --> 00:20:24,399 Speaker 9: dollars like you do fewer audits and as a result 347 00:20:24,400 --> 00:20:27,680 Speaker 9: of that you collect less taxes. Certainly that's going to happen, 348 00:20:27,720 --> 00:20:30,359 Speaker 9: and you know, we're great work by Nathan Hendron and 349 00:20:30,480 --> 00:20:34,200 Speaker 9: Ben Spernkaiser and their co authors says, every one dollars 350 00:20:34,280 --> 00:20:37,719 Speaker 9: spent on high end enforcement by the IRS generates twelve 351 00:20:38,080 --> 00:20:40,679 Speaker 9: so incredibly high ROI work that we're not going to 352 00:20:40,680 --> 00:20:44,119 Speaker 9: be able to do, but you're not just losing direct dollars. 353 00:20:44,359 --> 00:20:47,840 Speaker 9: If there are traffic cameras on the road, people drive 354 00:20:48,119 --> 00:20:51,359 Speaker 9: the speed limit more often than not. And the same 355 00:20:51,440 --> 00:20:54,160 Speaker 9: is true with the tax system. If there is an 356 00:20:54,200 --> 00:20:57,200 Speaker 9: infrastructure in place and people know that the IRS sits 357 00:20:57,280 --> 00:21:01,040 Speaker 9: ready to pursue non compliance more likely to play by 358 00:21:01,080 --> 00:21:05,080 Speaker 9: the rules, people are going to adjust their behavior and 359 00:21:05,320 --> 00:21:08,840 Speaker 9: not play by the rules as often, and also take 360 00:21:09,119 --> 00:21:12,720 Speaker 9: tax positions that are really quite questionable. 361 00:21:13,119 --> 00:21:16,240 Speaker 1: If President Trump really wants to make progress on that deficit, 362 00:21:16,680 --> 00:21:19,000 Speaker 1: it looks like cutting costs at the IRS may be 363 00:21:19,160 --> 00:21:22,159 Speaker 1: the last place to look, not only for the taxes 364 00:21:22,200 --> 00:21:25,119 Speaker 1: we won't collect, but also for the signal it sends 365 00:21:25,119 --> 00:21:27,320 Speaker 1: to those who didn't want to pay the taxes they 366 00:21:27,359 --> 00:21:28,879 Speaker 1: owed in the first place. 367 00:21:29,520 --> 00:21:31,879 Speaker 8: I do believe you're going to see aggressive tax planning. 368 00:21:32,400 --> 00:21:34,959 Speaker 8: I think you're going to see tax professionals who prepare 369 00:21:34,960 --> 00:21:37,399 Speaker 8: returns are telling you people are coming in saying, well, 370 00:21:37,440 --> 00:21:38,440 Speaker 8: why do I need to file the. 371 00:21:38,400 --> 00:21:39,840 Speaker 4: Return or have been found. 372 00:21:39,880 --> 00:21:45,359 Speaker 3: We have a president who's completely delegitimizing government and who's 373 00:21:45,520 --> 00:21:51,399 Speaker 3: taking away the capacity of the IRS to process tax 374 00:21:51,440 --> 00:21:57,000 Speaker 3: returns to want it when that's necessary, I think we'll 375 00:21:57,000 --> 00:22:01,320 Speaker 3: see many more people take cash payments and not report them, 376 00:22:01,640 --> 00:22:08,359 Speaker 3: many more people engage in dubious transactions with their cronies 377 00:22:08,440 --> 00:22:13,920 Speaker 3: to misvalue assets and avoid paying taxes. Many more people 378 00:22:14,080 --> 00:22:20,119 Speaker 3: engage in abusive tax shelters. That's an area of the 379 00:22:20,160 --> 00:22:24,320 Speaker 3: president I think has some awareness of from his past 380 00:22:24,400 --> 00:22:30,720 Speaker 3: business dealings. And when all of that happens, the people 381 00:22:30,720 --> 00:22:37,000 Speaker 3: who are going to pay are honest taxpayers. I'm working 382 00:22:37,080 --> 00:22:43,440 Speaker 3: on this pretty carefully right now with some colleagues. I'd 383 00:22:43,440 --> 00:22:48,520 Speaker 3: be surprised if we're not on our path to sacrificing 384 00:22:49,160 --> 00:22:52,600 Speaker 3: more than a trillion dollars of revenue over the next 385 00:22:52,760 --> 00:23:00,000 Speaker 3: decade because of this misguided want and attack on the IRS, 386 00:23:00,680 --> 00:23:03,920 Speaker 3: and that's going to make our fiscal problem worse, or 387 00:23:03,960 --> 00:23:08,320 Speaker 3: it's going to force us into other kinds of damaging 388 00:23:09,240 --> 00:23:12,959 Speaker 3: tax increases. It would be much better to do a 389 00:23:13,000 --> 00:23:17,040 Speaker 3: better job of collecting the taxes that are levied under 390 00:23:17,119 --> 00:23:20,960 Speaker 3: current law. It would be better not to be driving 391 00:23:21,440 --> 00:23:26,159 Speaker 3: the economy from above ground to underground in terms of 392 00:23:26,240 --> 00:23:34,120 Speaker 3: American competitiveness. So I don't think we've seen large consequences 393 00:23:34,640 --> 00:23:38,360 Speaker 3: yet from all of these, but the. 394 00:23:38,440 --> 00:23:39,600 Speaker 6: Risks are very big. 395 00:23:40,320 --> 00:23:43,480 Speaker 1: Coming up next, President Trump complains about all those US 396 00:23:43,600 --> 00:23:48,480 Speaker 1: pharmaceutical companies making drugs and money in Ireland. What took 397 00:23:48,520 --> 00:23:51,360 Speaker 1: them there in the first place, and can Trump tariffs 398 00:23:51,400 --> 00:23:52,480 Speaker 1: get them to come home. 399 00:23:53,119 --> 00:23:56,680 Speaker 7: You're listening to Bloomberg Wall Street Week with David Weston 400 00:23:57,040 --> 00:24:05,120 Speaker 7: from Bloomberg Radio. You're listening to Bloomberg Wall Street Week 401 00:24:05,240 --> 00:24:08,080 Speaker 7: with David Weston from Bloomberg Radio. 402 00:24:09,080 --> 00:24:12,960 Speaker 1: This is a story about competing for the business. Every 403 00:24:13,000 --> 00:24:17,280 Speaker 1: government cuts sweetheart deals to attract companies business, but can 404 00:24:17,359 --> 00:24:21,320 Speaker 1: it go too far? President Trump says Ireland's done just that, 405 00:24:22,000 --> 00:24:25,720 Speaker 1: especially when it comes to US companies manufacturing pharmaceuticals. 406 00:24:27,560 --> 00:24:30,720 Speaker 5: The EU were set up in order to take advantage 407 00:24:30,760 --> 00:24:32,240 Speaker 5: of the United States. 408 00:24:32,160 --> 00:24:34,800 Speaker 4: Including Ireland. Is Ireland taking advantage of the US? 409 00:24:35,160 --> 00:24:37,480 Speaker 3: Of course they are, but the United States shouldn't have 410 00:24:37,560 --> 00:24:38,119 Speaker 3: let it happen. 411 00:24:38,640 --> 00:24:41,439 Speaker 1: Whether it's taking advantage of the United States or not. 412 00:24:41,960 --> 00:24:44,760 Speaker 1: The facts show that Ireland is winning more than it's 413 00:24:44,840 --> 00:24:47,200 Speaker 1: losing in the competition for American business. 414 00:24:47,840 --> 00:24:50,879 Speaker 11: So the Irish story with corporate tax and multinationals is 415 00:24:51,000 --> 00:24:54,280 Speaker 11: probably a five decade long story at least at this stage, 416 00:24:54,359 --> 00:24:56,760 Speaker 11: particularly since we joined the European Union, it's been a 417 00:24:56,800 --> 00:24:59,520 Speaker 11: real differentiator having a low corporate tax rate. 418 00:25:00,600 --> 00:25:05,080 Speaker 1: Ireland's investment promotion agency, the IDA, reports that more than 419 00:25:05,200 --> 00:25:08,600 Speaker 1: ninety pharmaceutical companies operate in the country, and many of 420 00:25:08,640 --> 00:25:11,560 Speaker 1: them are US based. All of this is no coincidence 421 00:25:11,800 --> 00:25:15,359 Speaker 1: for the companies. Ireland offers a range of advantages and 422 00:25:15,480 --> 00:25:18,679 Speaker 1: one of them is its sweet tax arrangement, part of 423 00:25:18,720 --> 00:25:22,200 Speaker 1: a long term Irish plan to attract foreign direct investment. 424 00:25:23,320 --> 00:25:26,200 Speaker 1: Danny McCoy is the CEO of the Irish Business and 425 00:25:26,280 --> 00:25:28,040 Speaker 1: Employers Confederations. 426 00:25:28,480 --> 00:25:32,520 Speaker 11: We're looking at an FDI model that's built on certainty 427 00:25:32,600 --> 00:25:34,879 Speaker 11: and log evity, and I think that's been really significant 428 00:25:34,880 --> 00:25:38,520 Speaker 11: the last decade in terms of the flight of capital 429 00:25:38,600 --> 00:25:42,200 Speaker 11: towards Ireland as a result of the OECD corporate tax work. 430 00:25:42,800 --> 00:25:47,440 Speaker 11: Big brands like Intel, Apple and Pfeiser have a history here. 431 00:25:47,600 --> 00:25:50,400 Speaker 11: In the case of Intel, they're nearly newbies at over 432 00:25:50,600 --> 00:25:53,720 Speaker 11: forty years. Apple has been here since nineteen eighty and 433 00:25:53,800 --> 00:25:57,480 Speaker 11: Pfiser probably the best part of a century in one 434 00:25:57,520 --> 00:26:01,240 Speaker 11: form of another. So longevity and the very big brands 435 00:26:01,440 --> 00:26:06,680 Speaker 11: have been co located here in Ireland long before the corporate. 436 00:26:06,280 --> 00:26:08,919 Speaker 6: Tax world that we've entered into in the last decade. 437 00:26:09,560 --> 00:26:13,280 Speaker 12: I think there's many different reasons why, I mean both 438 00:26:13,280 --> 00:26:15,600 Speaker 12: why they set up shop initially and then also why 439 00:26:15,640 --> 00:26:19,200 Speaker 12: they've continued investment in Ireland and continued to expand in Ireland. 440 00:26:19,440 --> 00:26:22,560 Speaker 1: Jennifer Duggan is Bloomberg's Ireland Bureau a chief. 441 00:26:22,880 --> 00:26:27,480 Speaker 10: I think the rumber of tax incentives initially there to 442 00:26:27,800 --> 00:26:31,639 Speaker 10: really entice international companies to come to Ireland, and I 443 00:26:31,640 --> 00:26:35,480 Speaker 10: think that probably started a lot of that initial investment. 444 00:26:36,000 --> 00:26:38,320 Speaker 12: But I think there's a number of things that has 445 00:26:38,440 --> 00:26:40,600 Speaker 12: helped Ireland continue to attract investment. 446 00:26:40,920 --> 00:26:43,920 Speaker 1: The Irish strategy to use taxes to compete for foreign 447 00:26:44,000 --> 00:26:48,280 Speaker 1: investment went into overdrive during the Great Financial Crisis and the. 448 00:26:48,280 --> 00:26:51,680 Speaker 13: Global Financial Crisis happened. We were part of an imf 449 00:26:52,000 --> 00:26:55,600 Speaker 13: ECB bailout. When I first joined the government twenty eleven, 450 00:26:55,640 --> 00:26:58,280 Speaker 13: we had fourteen percent unemployment, we had a massive budget 451 00:26:58,320 --> 00:27:01,119 Speaker 13: deficit and we were able to turn that around and 452 00:27:01,160 --> 00:27:05,159 Speaker 13: we mainly turned it around based on the trade and 453 00:27:05,200 --> 00:27:08,040 Speaker 13: sector of our economy, and that was producing goods and 454 00:27:08,080 --> 00:27:12,320 Speaker 13: services that we could sell for the world, and US 455 00:27:12,320 --> 00:27:14,000 Speaker 13: firms were a big part of that. 456 00:27:14,440 --> 00:27:18,119 Speaker 1: Leo Varadkar was Ireland's Prime Minister from twenty seventeen to 457 00:27:18,119 --> 00:27:21,560 Speaker 1: twenty twenty and then again from twenty twenty two to 458 00:27:21,640 --> 00:27:25,240 Speaker 1: twenty twenty four. Huw material to the fiscal situation in 459 00:27:25,240 --> 00:27:28,280 Speaker 1: Ireland has been, if I can say, the extra money 460 00:27:28,720 --> 00:27:29,920 Speaker 1: from corporate income. 461 00:27:29,680 --> 00:27:31,000 Speaker 4: Tax, it's been a UTEHLP. 462 00:27:31,320 --> 00:27:34,040 Speaker 13: It's a big part of our tax base, larger than 463 00:27:34,040 --> 00:27:35,760 Speaker 13: will be the case for most of out countries. 464 00:27:37,040 --> 00:27:40,080 Speaker 1: Corporate taxes make up close to twenty percent of total 465 00:27:40,119 --> 00:27:44,399 Speaker 1: government revenues, most of which comes from US multinationals. But 466 00:27:44,520 --> 00:27:47,919 Speaker 1: it wasn't just the Irish government's business friendly policies that 467 00:27:47,960 --> 00:27:51,120 Speaker 1: got us to where we are. The US did its 468 00:27:51,160 --> 00:27:53,640 Speaker 1: fair share to drive away business. 469 00:27:53,840 --> 00:27:56,160 Speaker 14: I think really the role of Ireland as a major 470 00:27:56,200 --> 00:27:58,280 Speaker 14: center of tax policy or of tax sort of goes 471 00:27:58,320 --> 00:28:01,359 Speaker 14: back to the nineteen eighties in some form, but it 472 00:28:01,400 --> 00:28:03,560 Speaker 14: really gets going in the late nineteen nineties and early 473 00:28:03,600 --> 00:28:04,320 Speaker 14: two thousands. 474 00:28:05,480 --> 00:28:08,960 Speaker 1: Alex Arnan is director of policy analysis at the pen 475 00:28:09,200 --> 00:28:10,439 Speaker 1: Wharton Budget Model. 476 00:28:11,680 --> 00:28:14,040 Speaker 14: One of the key changes there is on the US 477 00:28:14,119 --> 00:28:18,439 Speaker 14: side is the introduction of what's called check the box regulations. Essentially, 478 00:28:18,480 --> 00:28:22,720 Speaker 14: it made it easier for US multinationals to manage their 479 00:28:22,720 --> 00:28:28,000 Speaker 14: overseas operations. And so this change in US regulations combines 480 00:28:28,080 --> 00:28:33,560 Speaker 14: with some very specific attractive features of the Irish tax environment. 481 00:28:33,760 --> 00:28:37,000 Speaker 14: Starting in the nineteen nineties, they dramatically reduce their corporate 482 00:28:37,000 --> 00:28:39,680 Speaker 14: tax rate down to about twelve point five percent by 483 00:28:39,720 --> 00:28:42,880 Speaker 14: two thousand and three. Ireland also has a lot of 484 00:28:42,920 --> 00:28:46,200 Speaker 14: bilateral tax treaties with other countries, which makes it easy 485 00:28:46,240 --> 00:28:50,000 Speaker 14: to manage the relationship between your subsidiaries across those countries. 486 00:28:50,240 --> 00:28:53,800 Speaker 14: So the combination of those US policy changes the Irish 487 00:28:53,800 --> 00:28:56,680 Speaker 14: tax environment, and then some features of Ireland as an 488 00:28:56,720 --> 00:28:58,120 Speaker 14: economy that made it attractive. 489 00:28:58,320 --> 00:29:01,160 Speaker 1: This isn't the first time and Trump has focused on 490 00:29:01,240 --> 00:29:05,440 Speaker 1: Ireland's success in luring US businesses. His Tax Cuts and 491 00:29:05,560 --> 00:29:09,200 Speaker 1: Jobs Act of twenty seventeen tried to address at least 492 00:29:09,280 --> 00:29:10,640 Speaker 1: some of the problems. 493 00:29:10,760 --> 00:29:15,040 Speaker 14: When we look at the Irish royalty payments to other 494 00:29:15,080 --> 00:29:19,840 Speaker 14: countries before twenty nineteen twenty twenty, we see the vast 495 00:29:19,840 --> 00:29:22,920 Speaker 14: majority of these payments are going to tax havens. That's Bermuda, 496 00:29:23,000 --> 00:29:27,680 Speaker 14: the Cayman Islands, the Netherlands, Luxembourg, Singapore, and then starting 497 00:29:27,680 --> 00:29:31,040 Speaker 14: in twenty twenty, we see a very sharp crossing of 498 00:29:31,200 --> 00:29:34,200 Speaker 14: the pattern of the trends here, where royalty payments to 499 00:29:34,240 --> 00:29:37,160 Speaker 14: these tax havens fall off a cliff, royalty payments directly 500 00:29:37,200 --> 00:29:40,760 Speaker 14: to the US shoot up, and often this is interrelated 501 00:29:40,800 --> 00:29:42,800 Speaker 14: with some of the changes in the Tax Cuts and 502 00:29:42,880 --> 00:29:46,880 Speaker 14: Jobs Act, in particular the deduction for foreign derived intangible income. 503 00:29:46,960 --> 00:29:48,000 Speaker 6: I think we are vulnerable. 504 00:29:48,840 --> 00:29:51,840 Speaker 13: Ireland is a small country in a very big world, 505 00:29:52,360 --> 00:29:55,479 Speaker 13: and we've done very well because of globalization. It's one 506 00:29:55,520 --> 00:29:57,400 Speaker 13: of the things that has helped us to become a 507 00:29:57,440 --> 00:29:59,719 Speaker 13: wealthy country and hastowed us to increase our stands from 508 00:29:59,720 --> 00:30:03,360 Speaker 13: living considerably. So a less globalized world is going to 509 00:30:03,360 --> 00:30:07,200 Speaker 13: be less favorable to Ireland economically. But I'm not as pessimistic, 510 00:30:07,240 --> 00:30:09,760 Speaker 13: I think, as maybe others are. The United States is 511 00:30:09,800 --> 00:30:14,479 Speaker 13: certainly now going in a direction which is protectionist, and 512 00:30:14,520 --> 00:30:17,320 Speaker 13: that's definitely going to be a negative force. But at 513 00:30:17,360 --> 00:30:20,320 Speaker 13: the same time, the European Union twenty seven countries four 514 00:30:20,320 --> 00:30:23,120 Speaker 13: interred million people, is doubling down on free trade. 515 00:30:23,680 --> 00:30:27,080 Speaker 1: Now President Trump is once again focused on Ireland's big 516 00:30:27,120 --> 00:30:31,360 Speaker 1: attraction for US pharmaceutical companies. But this time the tool 517 00:30:31,400 --> 00:30:34,000 Speaker 1: he wants to use isn't taxes, but one of his 518 00:30:34,120 --> 00:30:38,960 Speaker 1: favorites tariffs. If your single goal was to get US 519 00:30:39,080 --> 00:30:42,560 Speaker 1: pharmaceutical companies to make more on shore United States, would 520 00:30:42,600 --> 00:30:45,040 Speaker 1: you use tax policy or tariff policy? 521 00:30:45,400 --> 00:30:45,440 Speaker 5: No. 522 00:30:45,440 --> 00:30:47,960 Speaker 14: Obviously tariffs are a form of tax, but really here 523 00:30:48,040 --> 00:30:51,240 Speaker 14: the much more important component is the corporate income tax policy. 524 00:30:51,480 --> 00:30:54,680 Speaker 14: If what we were talking about was a deeply considered, 525 00:30:55,320 --> 00:31:00,640 Speaker 14: well planned out, long term strategy for predictable tariffs on pharmaceuticals, 526 00:31:01,040 --> 00:31:04,040 Speaker 14: that might be a different story. That might start encouraging 527 00:31:04,120 --> 00:31:08,720 Speaker 14: some major multinationals to rethink how they've arranged their activities 528 00:31:08,760 --> 00:31:11,920 Speaker 14: around the globe. If it's what we have been seeing 529 00:31:11,960 --> 00:31:14,760 Speaker 14: in practice from the Trump administration over the last few months. 530 00:31:15,120 --> 00:31:18,920 Speaker 14: Very hard to imagine really any big corporation making major 531 00:31:19,000 --> 00:31:22,800 Speaker 14: long term decisions on that basis. It is just too unpredictable, 532 00:31:23,200 --> 00:31:24,960 Speaker 14: and that is really the biggest factor there. 533 00:31:26,120 --> 00:31:29,520 Speaker 12: I don't see it being a doomsday situation where suddenly 534 00:31:29,560 --> 00:31:32,360 Speaker 12: all US arm and tech companies move out of Ireland. 535 00:31:32,680 --> 00:31:34,800 Speaker 12: I don't think that's something that's going to happen overnight, 536 00:31:35,080 --> 00:31:38,760 Speaker 12: but it certainly has the potential to damage Ireland's economy 537 00:31:39,520 --> 00:31:43,120 Speaker 12: and also its attractiveness to future investment as well. Ireland 538 00:31:43,280 --> 00:31:46,640 Speaker 12: has the second largest exports to the US from the EU, 539 00:31:46,840 --> 00:31:49,240 Speaker 12: only behind Germany, and most of that is from the 540 00:31:49,240 --> 00:31:50,400 Speaker 12: pharmaceutical industry. 541 00:31:50,760 --> 00:31:52,280 Speaker 4: If US companies. 542 00:31:51,840 --> 00:31:54,360 Speaker 12: Start to invest less than Ireland or start to move 543 00:31:54,440 --> 00:31:58,720 Speaker 12: even small parts of their production to back to the US, yeah, 544 00:31:58,720 --> 00:32:00,840 Speaker 12: that would certainly have an impact. It's not something that's 545 00:32:00,880 --> 00:32:03,440 Speaker 12: going to happen overnight, but you know, as we see 546 00:32:03,680 --> 00:32:05,760 Speaker 12: going forward over the next five years that the rest 547 00:32:05,760 --> 00:32:07,960 Speaker 12: of the lifetime of this administration, it is something that 548 00:32:07,960 --> 00:32:09,280 Speaker 12: we could see gradual changes. 549 00:32:09,400 --> 00:32:12,320 Speaker 14: It is hard to imagine what they will actually come 550 00:32:12,360 --> 00:32:15,400 Speaker 14: out with would be enough to really prompt major shift 551 00:32:15,640 --> 00:32:18,640 Speaker 14: in the long term planning and activities. There's a couple 552 00:32:18,720 --> 00:32:21,440 Speaker 14: other wrinkles in there. You know, Ireland has an exit 553 00:32:21,520 --> 00:32:26,000 Speaker 14: tax for intellectual property. So if a major US manufacturer 554 00:32:26,000 --> 00:32:29,640 Speaker 14: of pharmaceuticals did want to move some of their valuable 555 00:32:29,640 --> 00:32:32,440 Speaker 14: pens out of Ireland back to the US, they would 556 00:32:32,440 --> 00:32:35,240 Speaker 14: have to not just get more benefit than they're losing 557 00:32:35,280 --> 00:32:37,720 Speaker 14: from what they currently have in terms of their strategy, 558 00:32:37,840 --> 00:32:40,040 Speaker 14: they would have to be enough to offset this exit 559 00:32:40,080 --> 00:32:43,720 Speaker 14: tax that Ireland will levy and which they have specifically 560 00:32:43,760 --> 00:32:44,880 Speaker 14: to prevent this sort of thing. 561 00:32:45,280 --> 00:32:48,320 Speaker 1: Ireland has seen change coming and is provided for it 562 00:32:48,400 --> 00:32:51,840 Speaker 1: by investing the revenues it has enjoyed until now. 563 00:32:52,120 --> 00:32:55,880 Speaker 12: Ireland has one of only two trade surpluses within the EU. 564 00:32:56,080 --> 00:32:58,840 Speaker 12: Being open to foreign direct investment to multinationals, I think 565 00:32:58,840 --> 00:33:01,600 Speaker 12: has brought a lot of multilturalism to Ireland as well 566 00:33:01,920 --> 00:33:05,680 Speaker 12: and really helped propel Ireland in its development in terms 567 00:33:05,760 --> 00:33:08,680 Speaker 12: of just to be more diverse, more progressive. So there's 568 00:33:08,720 --> 00:33:11,040 Speaker 12: a number of different ways that it's impacted. From education 569 00:33:11,200 --> 00:33:12,080 Speaker 12: perspective as well. 570 00:33:12,200 --> 00:33:13,040 Speaker 4: It's been a huge help. 571 00:33:13,320 --> 00:33:16,000 Speaker 13: It's a big part of our tax space, larger than 572 00:33:16,040 --> 00:33:18,560 Speaker 13: will be the case for most developed countries, and we've 573 00:33:18,600 --> 00:33:22,320 Speaker 13: invested that, invested in infrastructure in particular, and that will continue. 574 00:33:23,280 --> 00:33:25,040 Speaker 6: But we've also thought ahead. 575 00:33:25,320 --> 00:33:28,400 Speaker 13: While it might have been tempting to ramp up public 576 00:33:28,440 --> 00:33:31,520 Speaker 13: spending by much more than we did, we haven't done that. 577 00:33:31,640 --> 00:33:35,200 Speaker 13: So the government for twenty twenty five anticipates running a 578 00:33:35,200 --> 00:33:37,479 Speaker 13: budget surplus of just one hundred three percent of GDP. 579 00:33:38,160 --> 00:33:40,680 Speaker 13: There might be a falloff in the amount of corporate 580 00:33:40,680 --> 00:33:42,960 Speaker 13: tax revenues that come into the Art Exchequer and that's 581 00:33:43,000 --> 00:33:46,640 Speaker 13: why we've paid down our debt, why we are running 582 00:33:46,640 --> 00:33:50,640 Speaker 13: substantial government surpluses, notwithstanding a lot of political pressure back 583 00:33:50,640 --> 00:33:52,800 Speaker 13: home to spend more on just about everything. And we've 584 00:33:52,800 --> 00:33:57,520 Speaker 13: also established some future sovereign wealth funds, putting aside money 585 00:33:57,520 --> 00:34:00,680 Speaker 13: for future pension and care liabilities and also things like 586 00:34:00,720 --> 00:34:02,720 Speaker 13: the cost of climate action into the future as well. 587 00:34:03,080 --> 00:34:06,640 Speaker 1: And in the competition for the US pharmaceutical business, Ireland 588 00:34:06,680 --> 00:34:09,880 Speaker 1: has a lot going for it beyond favorable taxes. 589 00:34:10,080 --> 00:34:12,719 Speaker 13: The investment pipeline still remains very strong, a lot of 590 00:34:12,800 --> 00:34:15,880 Speaker 13: US companies investing in Ireland, a lot expanding their operations. 591 00:34:16,040 --> 00:34:18,680 Speaker 13: I think because of the geopolitical changes that are happening 592 00:34:19,040 --> 00:34:21,120 Speaker 13: and the changes and the rules of tax and trade, 593 00:34:21,400 --> 00:34:24,560 Speaker 13: we might see the same level of new investment in 594 00:34:24,600 --> 00:34:26,520 Speaker 13: the years ahead as we saw in the past. But 595 00:34:26,560 --> 00:34:30,280 Speaker 13: I'd certainly be optimistic that those big pharma, big medical 596 00:34:30,320 --> 00:34:34,960 Speaker 13: devices chip operations will continue to operate. There's going to 597 00:34:34,960 --> 00:34:36,880 Speaker 13: be a market for these products, and are growing and 598 00:34:36,960 --> 00:34:39,680 Speaker 13: expanding market for these products, not just in the US, 599 00:34:39,719 --> 00:34:41,520 Speaker 13: but in other parts of the world as well. And 600 00:34:41,560 --> 00:34:43,920 Speaker 13: bear in mind, were part of the European Single Market, 601 00:34:44,080 --> 00:34:46,440 Speaker 13: a market of over four hundred billion people, and the 602 00:34:46,480 --> 00:34:49,600 Speaker 13: European Union has a network of free trade agreements with 603 00:34:50,200 --> 00:34:52,239 Speaker 13: lots of different parts of the world. I'm confident those 604 00:34:52,280 --> 00:34:53,400 Speaker 13: operations will continue. 605 00:34:53,520 --> 00:34:56,760 Speaker 11: International business of trust Ireland, and they've got a history 606 00:34:56,800 --> 00:34:57,920 Speaker 11: and a record prove it. 607 00:34:58,080 --> 00:35:00,960 Speaker 12: We've seen Ireland's economy binds back and really recover in 608 00:35:01,080 --> 00:35:03,960 Speaker 12: international presence of major companies has certainly helped us. 609 00:35:04,160 --> 00:35:06,920 Speaker 1: In the end, what the United States does to compete 610 00:35:07,000 --> 00:35:10,800 Speaker 1: for pharmaceutical manufacturing will depend in large part on one man, 611 00:35:11,280 --> 00:35:12,120 Speaker 1: President Trump. 612 00:35:12,400 --> 00:35:14,360 Speaker 13: I think what we don't hear enough about is the 613 00:35:14,560 --> 00:35:17,239 Speaker 13: by latter relationship. It used to be very one way, 614 00:35:17,880 --> 00:35:20,480 Speaker 13: but now Ireland invests a lot in the US. Were 615 00:35:20,520 --> 00:35:23,799 Speaker 13: the sixth biggest investor in the US, which isn't bad 616 00:35:23,800 --> 00:35:26,360 Speaker 13: for a small country of just over five million people, 617 00:35:26,560 --> 00:35:28,400 Speaker 13: and depending on how you counted the summer, between one 618 00:35:28,480 --> 00:35:32,360 Speaker 13: hundred and two hundred thousand Americans across fifty states working 619 00:35:32,360 --> 00:35:35,680 Speaker 13: in Irish owned companies. But certainly there is a focus 620 00:35:35,800 --> 00:35:38,600 Speaker 13: on tax and one thing I was said to President Trump, 621 00:35:38,600 --> 00:35:40,879 Speaker 13: and I met him many times, is that if there 622 00:35:40,920 --> 00:35:44,200 Speaker 13: is an issue around tax laws, it's probably more of 623 00:35:44,200 --> 00:35:46,480 Speaker 13: an issue with American laws than our laws. The anomalies 624 00:35:46,520 --> 00:35:49,360 Speaker 13: that maybe exist in the law are probably more on 625 00:35:49,360 --> 00:35:51,680 Speaker 13: the American side, and fairnesss he's acknowledged that. He's said 626 00:35:51,719 --> 00:35:54,279 Speaker 13: that we've been very smart in our tax policies. We've 627 00:35:54,320 --> 00:35:58,160 Speaker 13: always expected at some point that the US would change theirs. 628 00:36:00,080 --> 00:36:01,680 Speaker 1: Is it for us? Here at Wall Street Week, I'm 629 00:36:01,719 --> 00:36:17,719 Speaker 1: David Weston. Join us next week for more stories of capitalism.