1 00:00:02,600 --> 00:00:04,800 Speaker 1: Hi everybody, and thanks so much for joining us for 2 00:00:04,840 --> 00:00:07,400 Speaker 1: the special edition of Bloomberg Daybreak. I'm John Tucker at 3 00:00:07,400 --> 00:00:10,280 Speaker 1: the US stock market close for the good Friday holiday 4 00:00:10,760 --> 00:00:13,600 Speaker 1: coming up this hour. It's April. Have you done your 5 00:00:13,600 --> 00:00:16,600 Speaker 1: taxes yet? Well, the deadline less than two weeks away, 6 00:00:16,840 --> 00:00:20,000 Speaker 1: and we're gonna explore a few interesting tax related stories. 7 00:00:20,440 --> 00:00:23,400 Speaker 1: We'll see how DOGE cuts may impact the IRS this 8 00:00:23,520 --> 00:00:25,720 Speaker 1: tax season. Plus we're gonna tell you why some of 9 00:00:25,760 --> 00:00:29,480 Speaker 1: the nation's wealthiest corporations oh far less to the government 10 00:00:29,520 --> 00:00:33,600 Speaker 1: as a result of President Trump's overhauled tax code. And attention, 11 00:00:33,720 --> 00:00:37,239 Speaker 1: chocolate lovers, candy sales they're on the decline this Easter holiday. 12 00:00:37,560 --> 00:00:40,160 Speaker 1: But first, this is right around the corner the next 13 00:00:40,280 --> 00:00:43,320 Speaker 1: batch of earnings. Big banks will help kick it all off. 14 00:00:43,720 --> 00:00:47,600 Speaker 1: And joining us for this preview Bloomberg Intelligence Senior US 15 00:00:47,680 --> 00:00:53,000 Speaker 1: bank analysts Herman Chan and Bloomberg Intelligence financials analysts Neo Sipes. Hey, guys, 16 00:00:53,040 --> 00:00:55,640 Speaker 1: this should be a pretty simple model. I'm a bank. 17 00:00:56,120 --> 00:00:59,320 Speaker 1: I take in deposits, give the depositors one rate, then 18 00:00:59,320 --> 00:01:02,400 Speaker 1: I loan their money out at another rate, and I 19 00:01:02,480 --> 00:01:05,440 Speaker 1: make up the difference. And that's how I make money. 20 00:01:05,480 --> 00:01:07,760 Speaker 1: As a bank. That's right. Is it that simple? 21 00:01:08,360 --> 00:01:11,559 Speaker 2: That's right. You're talking about that's the metauders margin, which 22 00:01:11,600 --> 00:01:14,280 Speaker 2: is like a big bank metric that everybody focuses on, 23 00:01:14,400 --> 00:01:18,000 Speaker 2: and that is, in essence, the core of banking. You 24 00:01:18,400 --> 00:01:21,360 Speaker 2: make loans, you take in deposits, and you generate fees 25 00:01:21,440 --> 00:01:24,679 Speaker 2: from areas like wealth and capital markets. 26 00:01:24,880 --> 00:01:27,520 Speaker 1: Neil, It's not that simple, is it, Because they have 27 00:01:27,840 --> 00:01:31,000 Speaker 1: all these other different lines of businesses that they've added 28 00:01:31,040 --> 00:01:35,720 Speaker 1: over the years, investment banking, etc. So forth, consumer and 29 00:01:36,600 --> 00:01:39,119 Speaker 1: all sorts of other business divisions. Right, that's right. 30 00:01:39,200 --> 00:01:41,440 Speaker 3: And when you look at some of the largest banks 31 00:01:41,440 --> 00:01:44,720 Speaker 3: that we're expecting reports from in the next couple of weeks, 32 00:01:44,760 --> 00:01:47,440 Speaker 3: like a Goldman Sachs or Morgan Stanley, these are much 33 00:01:47,520 --> 00:01:53,440 Speaker 3: more fee oriented type banks. Businesses like you mentioned investment banking, trading, 34 00:01:53,640 --> 00:01:57,080 Speaker 3: asset and wealth management, many of which can be steadier 35 00:01:57,240 --> 00:02:01,160 Speaker 3: type of fee based income streams. And when we look 36 00:02:01,200 --> 00:02:04,600 Speaker 3: at things like capital markets, which are key inputs economic growth, 37 00:02:04,600 --> 00:02:08,240 Speaker 3: which are key inputs to the investment banking type business. 38 00:02:08,560 --> 00:02:11,840 Speaker 3: I mean, that's one where're expecting a rebound going forward. 39 00:02:11,880 --> 00:02:14,359 Speaker 3: We had the FED that was easing. Of course, there's 40 00:02:14,440 --> 00:02:18,200 Speaker 3: questions around where we're going from here with recent volatility, 41 00:02:18,280 --> 00:02:21,360 Speaker 3: but the broad expectation is there's still an investment banking 42 00:02:21,400 --> 00:02:24,360 Speaker 3: rebound on the horizon. We'll have to sort of reassess 43 00:02:24,400 --> 00:02:27,760 Speaker 3: and listen in on how those businesses are performing, particularly 44 00:02:27,800 --> 00:02:30,639 Speaker 3: in the month of March and into early April when 45 00:02:30,639 --> 00:02:32,919 Speaker 3: we get these results, as that's sort of a key 46 00:02:32,960 --> 00:02:36,240 Speaker 3: tailwind for a lot of these names, particularly a Goldman 47 00:02:36,280 --> 00:02:38,960 Speaker 3: and Morgan Stanley as we roll through twenty twenty six. 48 00:02:39,080 --> 00:02:42,239 Speaker 1: Yeah, and Hermit Chan who stands out in one particular 49 00:02:42,320 --> 00:02:46,359 Speaker 1: area as opposed the other banks, whether it be investment banking, 50 00:02:46,440 --> 00:02:49,720 Speaker 1: the fees generated there, or what are the business they're in. 51 00:02:49,880 --> 00:02:50,079 Speaker 4: Yeah. 52 00:02:50,120 --> 00:02:54,360 Speaker 2: Sure, So for my banks, they're more fixed income oriented. 53 00:02:54,440 --> 00:02:58,519 Speaker 2: So given their large balance sheets, they're trillion dollar balance 54 00:02:58,520 --> 00:03:00,680 Speaker 2: sheets on the asset side, they have. 55 00:03:00,760 --> 00:03:02,959 Speaker 1: Much remind us of the banks that you've covered. 56 00:03:02,760 --> 00:03:07,240 Speaker 2: So that's right. That would be JP, Morgan, Bank of America, City, 57 00:03:07,440 --> 00:03:10,919 Speaker 2: Wells Fargo on the larger side. So typically those banks 58 00:03:10,919 --> 00:03:14,960 Speaker 2: have more fixed income focus, whereas Neil's banks, which have 59 00:03:15,240 --> 00:03:17,600 Speaker 2: a smaller balancee like a Goldman and Morgan Stanley, are 60 00:03:17,600 --> 00:03:22,080 Speaker 2: more equity focused. That being said, Goldman and Morgan Stay 61 00:03:22,080 --> 00:03:26,000 Speaker 2: and also have more m and A feed generation capabilities 62 00:03:26,040 --> 00:03:29,400 Speaker 2: just because of their historical strength in that particular business. 63 00:03:29,480 --> 00:03:32,200 Speaker 1: Yeah, you mentioned that. And on the Bloomberg terminal that 64 00:03:32,360 --> 00:03:34,840 Speaker 1: everybody looks at, one of the most popular pages is 65 00:03:35,120 --> 00:03:39,000 Speaker 1: something called the league tables most leading whom in terms 66 00:03:39,120 --> 00:03:43,080 Speaker 1: of mergers and acquisitions and the fees they collect. Who's 67 00:03:43,160 --> 00:03:45,440 Speaker 1: on the top of that league table? Neil. 68 00:03:45,600 --> 00:03:47,680 Speaker 3: Yeah, So for quite a while you've seen Goldman at 69 00:03:47,680 --> 00:03:50,560 Speaker 3: the top, and you know Morgan Stanley and JP Morgan 70 00:03:50,840 --> 00:03:54,080 Speaker 3: join them as as long long standing times. 71 00:03:54,120 --> 00:03:57,840 Speaker 1: More it's more important like brackets for the NCAA Ya. 72 00:03:58,480 --> 00:04:01,560 Speaker 3: Yeah, it's it's very closely fall and so we're always 73 00:04:01,600 --> 00:04:04,280 Speaker 3: monitoring those trends. And you know, again when you think 74 00:04:04,280 --> 00:04:07,440 Speaker 3: about MNA fees, which is small in the in the 75 00:04:07,480 --> 00:04:12,000 Speaker 3: world of Herman's much more diversified banks, for Goldman and 76 00:04:12,000 --> 00:04:14,520 Speaker 3: Morgan Stanley, it's much more impactful. And that's one of 77 00:04:14,560 --> 00:04:18,240 Speaker 3: the businesses that are you know, within the capital markets 78 00:04:18,880 --> 00:04:21,400 Speaker 3: universe is really expected to see the big step up 79 00:04:21,920 --> 00:04:24,680 Speaker 3: in twenty twenty six. And so you know, we actually 80 00:04:24,760 --> 00:04:29,040 Speaker 3: got a nice early read from one of the smaller piers, Jeffries, 81 00:04:29,240 --> 00:04:31,920 Speaker 3: whose quarter all note ends at the end of February, 82 00:04:32,000 --> 00:04:34,400 Speaker 3: So it's going to exclude most of the volatility and 83 00:04:34,440 --> 00:04:36,800 Speaker 3: the sort of trends that we've seen so far in March, 84 00:04:36,839 --> 00:04:39,040 Speaker 3: which are going to be most pertinent with one Q 85 00:04:39,240 --> 00:04:41,640 Speaker 3: results in the next couple of weeks. But what Jeffries 86 00:04:41,680 --> 00:04:44,360 Speaker 3: showed us was at least the first two months of 87 00:04:44,400 --> 00:04:48,520 Speaker 3: twenty twenty six were pretty strong across trading, particularly inequities 88 00:04:48,880 --> 00:04:51,880 Speaker 3: as well as M and A and ECM, fueled by IPOs. 89 00:04:51,920 --> 00:04:54,760 Speaker 1: Oh well, so you CM you're doing jargon now, neil. 90 00:04:54,720 --> 00:04:57,920 Speaker 3: Equity capital markets. So when you think about companies going 91 00:04:57,960 --> 00:05:01,760 Speaker 3: public or issuing stock, that's the business that we're looking at. 92 00:05:01,839 --> 00:05:05,080 Speaker 3: And you know, typically what drives that is robust equity markets. 93 00:05:05,120 --> 00:05:08,680 Speaker 3: And so prior to again the past month, we've really 94 00:05:08,720 --> 00:05:11,400 Speaker 3: seen you know, equities near all time highs. The IPO 95 00:05:11,520 --> 00:05:15,359 Speaker 3: calendar was starting to funnel through. So again it's really 96 00:05:15,400 --> 00:05:17,679 Speaker 3: going to be the incremental change of what we've seen 97 00:05:18,560 --> 00:05:20,840 Speaker 3: over the past month. That's going to be you know, 98 00:05:20,839 --> 00:05:24,000 Speaker 3: of biggest focus for the capital markets world with one 99 00:05:24,120 --> 00:05:24,640 Speaker 3: key results. 100 00:05:24,680 --> 00:05:27,400 Speaker 1: All right, Hermer, let's start with your bank, JP Morgan Chase, 101 00:05:27,880 --> 00:05:28,880 Speaker 1: give us the overview. 102 00:05:29,120 --> 00:05:31,839 Speaker 2: Yeah, so we're expecting a really strong quarterer. JP Morgan 103 00:05:32,320 --> 00:05:36,320 Speaker 2: had just mentioned in February they had a company updates 104 00:05:36,360 --> 00:05:38,560 Speaker 2: where they brought in a bunch of analysts and investors 105 00:05:38,560 --> 00:05:41,800 Speaker 2: coming in to hear management speak, and they talked about 106 00:05:42,320 --> 00:05:46,120 Speaker 2: mid teen growth in capital markets and in investment banking, 107 00:05:46,240 --> 00:05:49,720 Speaker 2: so really strong results there. On the lending side, we're 108 00:05:49,920 --> 00:05:56,039 Speaker 2: from industry data, we're seeing really robust growth across commercial 109 00:05:56,080 --> 00:06:00,760 Speaker 2: lending is really the standouts, and that's not only your 110 00:06:01,160 --> 00:06:06,040 Speaker 2: typical smaller middle market, but also large corporate and then 111 00:06:06,160 --> 00:06:09,440 Speaker 2: something called lending to non big financial institutions, which has 112 00:06:09,560 --> 00:06:13,679 Speaker 2: been a big focus for the for the industry these days. 113 00:06:14,360 --> 00:06:17,520 Speaker 2: All three areas from a commercial lending standpoint have been 114 00:06:17,520 --> 00:06:20,840 Speaker 2: really strong. That being said, there'll be some slow down 115 00:06:20,880 --> 00:06:24,839 Speaker 2: in credit cards given seasonalite in the first quarter, but 116 00:06:25,200 --> 00:06:27,400 Speaker 2: overall we're expecting a really solid result for them. 117 00:06:27,880 --> 00:06:30,800 Speaker 1: You're listening to Bloomberg Day Breaks a special edition. I'm 118 00:06:30,839 --> 00:06:34,159 Speaker 1: John Tucker and we're talking banks with Bloomberg Intelligence Senior 119 00:06:34,240 --> 00:06:39,560 Speaker 1: US bank analyst Herman Chan Bloomberg Intelligence Financials analyst Neil Sipes. Neil, 120 00:06:39,640 --> 00:06:43,560 Speaker 1: you mentioned of volatility, and certainly we've seen a great 121 00:06:43,600 --> 00:06:48,600 Speaker 1: deal of volatility. Is volatility good or bad from for 122 00:06:48,680 --> 00:06:51,120 Speaker 1: the banks. Yeah, so I think I guess it depends 123 00:06:51,160 --> 00:06:53,040 Speaker 1: on which particular business you're talking about. 124 00:06:53,040 --> 00:06:56,279 Speaker 3: It It certainly does, and so you know, Hermann mentioned 125 00:06:56,279 --> 00:06:58,760 Speaker 3: the guidance from some of the biggest piers like JP 126 00:06:58,880 --> 00:07:02,400 Speaker 3: Morgan calling from team's revenue growth in the capital market 127 00:07:02,480 --> 00:07:06,159 Speaker 3: side of the business. That bodes well, particularly for Goldman 128 00:07:06,720 --> 00:07:10,880 Speaker 3: who earns about half of revenue from trading, the remainder 129 00:07:10,960 --> 00:07:14,120 Speaker 3: from investment banking and asset and wealth management. So when 130 00:07:14,160 --> 00:07:17,800 Speaker 3: you think about volatility, volatility tends to be positive for 131 00:07:17,840 --> 00:07:21,400 Speaker 3: the trading businesses. You've seen that across equities and fixed 132 00:07:21,440 --> 00:07:26,080 Speaker 3: income products in the first quarter. When you have that volatility, though, 133 00:07:26,120 --> 00:07:29,560 Speaker 3: it's typically associated with uncertainty, right, and so there's been 134 00:07:29,640 --> 00:07:33,000 Speaker 3: sort of a darker cloud cast over twenty twenty six 135 00:07:33,040 --> 00:07:35,840 Speaker 3: in terms of economic growth where the FED is heading. 136 00:07:36,320 --> 00:07:39,680 Speaker 3: When you have a wide dispersion of potential outcomes and scenarios, 137 00:07:40,160 --> 00:07:43,600 Speaker 3: that tends to bode well for institutional clients repositioning and 138 00:07:43,680 --> 00:07:46,520 Speaker 3: driving that trading business. When you think about the capital 139 00:07:46,560 --> 00:07:50,160 Speaker 3: market side, the issuance, the capital raising, the m and A, 140 00:07:50,240 --> 00:07:54,280 Speaker 3: the mergers and acquisitions, the uncertainty can sort of drive 141 00:07:54,320 --> 00:07:59,680 Speaker 3: clients to perhaps take a pause reassess their business operations 142 00:07:59,680 --> 00:08:03,800 Speaker 3: whether or not they want to pursue those types of transactions. 143 00:08:03,840 --> 00:08:07,280 Speaker 3: So in a period like this you could see a 144 00:08:07,320 --> 00:08:09,520 Speaker 3: potential slow down and we've actually seen a bit of 145 00:08:09,560 --> 00:08:12,960 Speaker 3: a divergence in terms of expectations for twenty twenty six, 146 00:08:12,960 --> 00:08:16,400 Speaker 3: where again trading's getting the boost from volatility and that's 147 00:08:16,440 --> 00:08:19,640 Speaker 3: more than offsetting the potential headwinds that could come down 148 00:08:19,640 --> 00:08:21,600 Speaker 3: the road for investment banking. 149 00:08:21,320 --> 00:08:24,600 Speaker 1: Fees Herman with your JP Morgan Chase, the CEO there, 150 00:08:24,680 --> 00:08:29,360 Speaker 1: Jamie Diamond has referred to cockroaches. That's her Well, what 151 00:08:29,360 --> 00:08:31,480 Speaker 1: does he mean, first of all, explain it to everybody. 152 00:08:31,520 --> 00:08:36,360 Speaker 2: Sure, so cockroaches. That comment was in relation to some 153 00:08:36,480 --> 00:08:39,120 Speaker 2: fraud related activity that happened in the third quarter of 154 00:08:39,200 --> 00:08:44,280 Speaker 2: last year. You think of certain companies like First Brands, 155 00:08:44,720 --> 00:08:49,280 Speaker 2: an automotive parts company, Tricolor, which was a company that 156 00:08:49,520 --> 00:08:52,959 Speaker 2: lent to subprime auto borrowers. So those are the issues 157 00:08:52,960 --> 00:08:55,480 Speaker 2: that popped up in the third quarter that related the fraud. 158 00:08:55,840 --> 00:08:57,719 Speaker 2: There was another one that popped up here in the 159 00:08:57,800 --> 00:09:03,000 Speaker 2: first quarter in the UK MFS that is related to 160 00:09:03,640 --> 00:09:04,520 Speaker 2: residential ending. 161 00:09:04,800 --> 00:09:10,040 Speaker 1: But Jamie was worried about these loans going sour and 162 00:09:10,280 --> 00:09:13,000 Speaker 1: that it could spread through the industry. Do I have 163 00:09:13,040 --> 00:09:13,480 Speaker 1: that right now? 164 00:09:13,840 --> 00:09:16,200 Speaker 2: He's saying that these were fraud rent loans and there 165 00:09:16,280 --> 00:09:20,280 Speaker 2: might be more lurking in private credit and banking. 166 00:09:20,320 --> 00:09:23,080 Speaker 1: So does a bank like do the other banks have 167 00:09:23,160 --> 00:09:25,439 Speaker 1: to worry about this, you know, spreading? 168 00:09:26,040 --> 00:09:28,439 Speaker 2: The lesson learned in the third quarter was that banks 169 00:09:28,480 --> 00:09:31,760 Speaker 2: really scrubbed their balances to see what they really had 170 00:09:32,320 --> 00:09:36,640 Speaker 2: if there were any similar type exposures, and so far 171 00:09:36,720 --> 00:09:40,360 Speaker 2: we haven't seen any other than this MFS issue that 172 00:09:40,400 --> 00:09:43,000 Speaker 2: it popped up in the first quarter. So that being 173 00:09:43,040 --> 00:09:46,320 Speaker 2: said that there's much more scrutiny surrounding private credit. So 174 00:09:46,360 --> 00:09:50,120 Speaker 2: that's one of the main focuses of concern within the 175 00:09:50,160 --> 00:09:53,240 Speaker 2: markets these days is what are sort of the connections 176 00:09:53,280 --> 00:09:57,400 Speaker 2: between private credit and potential problems there within the broader 177 00:09:57,440 --> 00:09:58,200 Speaker 2: banking industry. 178 00:09:58,320 --> 00:10:00,920 Speaker 1: Now, I wanted to ask you how is just a 179 00:10:01,000 --> 00:10:07,079 Speaker 1: very broad question, how is technology today changing the banking industry? 180 00:10:07,720 --> 00:10:13,880 Speaker 3: Yeah, I think you're seeing it particularly pervasive in headlines 181 00:10:14,160 --> 00:10:16,959 Speaker 3: and headline risk that's been associated with the banks and 182 00:10:17,640 --> 00:10:21,600 Speaker 3: wealth managers alike, particularly in the first quarters as new 183 00:10:21,640 --> 00:10:25,280 Speaker 3: AI products are rolled out. From a broad lens, threatened 184 00:10:25,320 --> 00:10:29,959 Speaker 3: to at least disrupt, if not disintermediate, at least in 185 00:10:30,040 --> 00:10:34,320 Speaker 3: the more draconian scenario. Some of the traditional processes that 186 00:10:34,360 --> 00:10:37,480 Speaker 3: we see across banks and things like wealth management have 187 00:10:37,559 --> 00:10:40,360 Speaker 3: really been in the crosshairs here, which is a huge 188 00:10:40,360 --> 00:10:42,079 Speaker 3: business for Morgan Stanley driving. 189 00:10:42,160 --> 00:10:45,199 Speaker 1: So bankers could be replaced by robots. 190 00:10:44,800 --> 00:10:49,320 Speaker 3: Yeah, no, And and frankly, our view is much more 191 00:10:49,320 --> 00:10:52,080 Speaker 3: of a human plus AI end state, a human that's 192 00:10:52,080 --> 00:10:54,360 Speaker 3: empowered by AI. And I think that's what you're already 193 00:10:54,400 --> 00:10:58,120 Speaker 3: seeing at the investment banks today is you know, the 194 00:10:58,160 --> 00:11:01,360 Speaker 3: bankers and the employees, are you using AI tools, whether 195 00:11:01,400 --> 00:11:04,960 Speaker 3: third party or in house to help boost their productivity, 196 00:11:05,240 --> 00:11:08,120 Speaker 3: to serve more clients, to generate more revenue, and ultimately 197 00:11:08,120 --> 00:11:13,400 Speaker 3: boost the fundamental business that we know is traditional to banks. 198 00:11:13,480 --> 00:11:16,439 Speaker 3: So ultimately we think it's going to be a net positive. 199 00:11:16,960 --> 00:11:18,920 Speaker 3: But I think right now it's a lot of digestion 200 00:11:19,040 --> 00:11:21,000 Speaker 3: of how this is going to shake out, what we're 201 00:11:21,080 --> 00:11:24,199 Speaker 3: going to allow AI to actually disrupt, and where it's 202 00:11:24,240 --> 00:11:28,880 Speaker 3: actually going to come into these businesses. So staying tuned 203 00:11:29,160 --> 00:11:32,199 Speaker 3: to what's being rolled out, But from the broad strokes, 204 00:11:32,320 --> 00:11:34,920 Speaker 3: it feels positive to business production. 205 00:11:35,800 --> 00:11:39,679 Speaker 1: Herman, what's the landscape today that's driving banks to consolidate. 206 00:11:39,720 --> 00:11:40,920 Speaker 1: We've got about a minute. 207 00:11:40,720 --> 00:11:46,360 Speaker 2: Left, sure, So it's all about scale. We have banks 208 00:11:46,360 --> 00:11:49,720 Speaker 2: like JP Morgan Bank of America with trillion dollar balance sheets, 209 00:11:50,320 --> 00:11:53,680 Speaker 2: and we have about four thousand banks in the United States. 210 00:11:53,720 --> 00:11:57,040 Speaker 2: So how do you compete with the likes of JP Morgan, 211 00:11:57,120 --> 00:11:59,240 Speaker 2: How do you compete with the likes of fintech companies 212 00:11:59,280 --> 00:12:01,960 Speaker 2: and others that are encroaching in the traditional bank space. 213 00:12:02,480 --> 00:12:05,960 Speaker 2: You need scale to compete to invest in technology and 214 00:12:06,080 --> 00:12:09,920 Speaker 2: compliance issues. So that's what we're seeing today, increase in 215 00:12:10,040 --> 00:12:12,640 Speaker 2: M and A and just the smaller industry overall. 216 00:12:13,040 --> 00:12:16,280 Speaker 1: Guys, thanks very much, appreciate it, our thanks to Bloomberg Intelligences. 217 00:12:16,320 --> 00:12:19,600 Speaker 1: Herman Chan and Neil SIPs add up. Next, we'll tell 218 00:12:19,600 --> 00:12:22,480 Speaker 1: you why Amazon and Walmart are paying less taxes because 219 00:12:22,520 --> 00:12:26,839 Speaker 1: of President Trump's overhauled tax code. It's twenty minutes past 220 00:12:26,880 --> 00:12:40,800 Speaker 1: the hour. This is Bloomberg. Welcome back to the special 221 00:12:40,960 --> 00:12:43,720 Speaker 1: edition of Bloomberg Tape Break. I'm John Tucker. The US 222 00:12:43,800 --> 00:12:47,760 Speaker 1: stock market close for the Good Friday holiday. You have 223 00:12:47,840 --> 00:12:49,880 Speaker 1: less than two weeks to get those taxes in, so 224 00:12:49,920 --> 00:12:51,400 Speaker 1: we thought it would be a good time to explore 225 00:12:51,440 --> 00:12:54,600 Speaker 1: a couple of tax related stories. A year after Elon 226 00:12:54,679 --> 00:12:57,400 Speaker 1: Moss set up to slash jobs of the IRS, the 227 00:12:57,480 --> 00:13:01,320 Speaker 1: agency is struggling to meet demands amid a busy filing season. 228 00:13:01,800 --> 00:13:04,760 Speaker 1: For more, we are pleased to welcome Bloomberg Law reporter 229 00:13:05,120 --> 00:13:09,160 Speaker 1: Aaron Slowly so erin if I got a question for 230 00:13:09,200 --> 00:13:12,120 Speaker 1: the IRS. I haven't filed yet. Maybe I'm a small 231 00:13:12,160 --> 00:13:14,840 Speaker 1: business owner. Can I get in touch with them? 232 00:13:14,960 --> 00:13:16,360 Speaker 5: You should be able to get in touch with them, 233 00:13:16,400 --> 00:13:17,880 Speaker 5: But I try and get in touch with them as 234 00:13:17,880 --> 00:13:20,560 Speaker 5: soon as possible, and not wait till that April fifteen 235 00:13:20,640 --> 00:13:24,079 Speaker 5: deadline when everyone's rushing to file because they are low 236 00:13:24,120 --> 00:13:26,599 Speaker 5: in staff. After kind of the DOGE cuts from this 237 00:13:27,120 --> 00:13:27,800 Speaker 5: last year. 238 00:13:27,840 --> 00:13:30,720 Speaker 1: Well, what kind of shape is the iroisci? And first 239 00:13:30,760 --> 00:13:34,400 Speaker 1: of all, explain to me why DOGE targeted the IRS, which, 240 00:13:34,800 --> 00:13:37,760 Speaker 1: if I'm not mistaken, collects revenue for the. 241 00:13:37,760 --> 00:13:40,360 Speaker 5: Government, and it wasn't even an IRS hurting, It was 242 00:13:40,400 --> 00:13:45,000 Speaker 5: just a federal government abroad targeting. They offered a resignation 243 00:13:45,160 --> 00:13:48,400 Speaker 5: offer and more people at the IRS. About twenty five 244 00:13:48,440 --> 00:13:49,760 Speaker 5: percent of the RS took it, so it was a 245 00:13:49,800 --> 00:13:53,360 Speaker 5: lot more than people expected, and there were huge holes 246 00:13:53,400 --> 00:13:55,440 Speaker 5: that were left and now the IRS they also had 247 00:13:55,440 --> 00:13:58,000 Speaker 5: to deal with the US government shutdown, longest one in history, 248 00:13:58,080 --> 00:14:00,199 Speaker 5: so they had a lot to recover from at the 249 00:14:00,200 --> 00:14:02,000 Speaker 5: start of the season, and some of the people they 250 00:14:02,000 --> 00:14:05,520 Speaker 5: tried to hire they couldn't and training wasn't up to 251 00:14:05,640 --> 00:14:08,040 Speaker 5: date up until that point, and people are getting moved 252 00:14:08,040 --> 00:14:10,080 Speaker 5: from other divisions to kind of help out with this season. 253 00:14:10,640 --> 00:14:13,480 Speaker 1: So how much of a backlog are they facing right 254 00:14:13,520 --> 00:14:17,080 Speaker 1: now because of this? There's certainly not. It doesn't sound 255 00:14:17,080 --> 00:14:18,440 Speaker 1: like they're up to full staff at. 256 00:14:18,320 --> 00:14:20,440 Speaker 5: This point right They're not up to the staff that 257 00:14:20,480 --> 00:14:25,240 Speaker 5: they were in earlier in twenty twenty five. The perfect 258 00:14:25,320 --> 00:14:28,240 Speaker 5: level of staffing is kind of a debatable thing. I 259 00:14:28,320 --> 00:14:30,200 Speaker 5: think the IRS CEO will say that they're at the 260 00:14:30,200 --> 00:14:33,640 Speaker 5: perfect level right now. But a big thing that we're 261 00:14:33,680 --> 00:14:37,240 Speaker 5: thinking about is kind of the moving of employees two 262 00:14:37,240 --> 00:14:39,640 Speaker 5: different sectors and what kind of impact that we'll have 263 00:14:39,680 --> 00:14:42,400 Speaker 5: on the backlog, which is in the millions with the 264 00:14:42,440 --> 00:14:45,080 Speaker 5: accounts management, which basically that means any question that you 265 00:14:45,120 --> 00:14:46,960 Speaker 5: have for the IRS, it get's kind of put in 266 00:14:46,960 --> 00:14:50,800 Speaker 5: that bucket. And before the government shutdown that was projected 267 00:14:50,840 --> 00:14:55,000 Speaker 5: to be past pandemic levels and so I imagine with the 268 00:14:55,000 --> 00:14:57,080 Speaker 5: government shutdown, it's going to be potentially even worse. 269 00:14:57,360 --> 00:15:01,320 Speaker 1: So, as an individual taxpayer filer, am I going to 270 00:15:01,400 --> 00:15:03,800 Speaker 1: have to wait before I get my refund? 271 00:15:03,960 --> 00:15:05,320 Speaker 5: I think it's going to depend on the type of 272 00:15:05,320 --> 00:15:08,720 Speaker 5: filer that you are. If you're relatively a simple filer, 273 00:15:09,400 --> 00:15:12,360 Speaker 5: you file before the April fifteen deadline, I think you 274 00:15:12,400 --> 00:15:15,920 Speaker 5: should probably be in the clear. For the people who 275 00:15:15,920 --> 00:15:18,880 Speaker 5: have more complicated returns that usually file for extension or 276 00:15:18,960 --> 00:15:21,400 Speaker 5: there's any errors on the returns that you do file, 277 00:15:21,840 --> 00:15:24,480 Speaker 5: we'll start to see those impacts in the summer and 278 00:15:24,960 --> 00:15:27,720 Speaker 5: as people start to get phased out that we're seasonal workers, 279 00:15:27,760 --> 00:15:29,680 Speaker 5: like I think, we'll really start to see the impact. 280 00:15:29,720 --> 00:15:33,040 Speaker 1: Then too, Is the IRS up to speed in terms 281 00:15:33,040 --> 00:15:37,840 Speaker 1: of adopting technology that will help the process along? 282 00:15:38,440 --> 00:15:40,520 Speaker 5: No, the IRS is not up to day. It's been 283 00:15:40,640 --> 00:15:44,360 Speaker 5: historically underfunded, and that something With Doge coming in, I 284 00:15:44,360 --> 00:15:46,120 Speaker 5: think a lot of people had hoped that they bring 285 00:15:46,160 --> 00:15:48,280 Speaker 5: in their private sector experience, which I think they are 286 00:15:48,440 --> 00:15:51,400 Speaker 5: still doing in some respects. It just takes time, and 287 00:15:51,440 --> 00:15:54,920 Speaker 5: so a big thing of what Doge talked about was 288 00:15:55,320 --> 00:15:57,800 Speaker 5: cutting the workforce and that tech would replace it. But 289 00:15:58,200 --> 00:16:00,920 Speaker 5: they cut the workforce before the tech was in place. 290 00:16:01,000 --> 00:16:02,720 Speaker 5: So the IRS has a lot of work to do, 291 00:16:02,760 --> 00:16:05,120 Speaker 5: but they know it and they really need the funding 292 00:16:05,160 --> 00:16:05,800 Speaker 5: to help do it. 293 00:16:06,080 --> 00:16:06,840 Speaker 1: Are they getting it? 294 00:16:07,840 --> 00:16:10,240 Speaker 5: They are not getting it. They had about eighty billion 295 00:16:10,240 --> 00:16:13,360 Speaker 5: in funding extra funding to help modernize from a couple 296 00:16:13,400 --> 00:16:16,040 Speaker 5: of years ago, and each year that has been clawed 297 00:16:16,120 --> 00:16:18,480 Speaker 5: back bit by bit, so now they have a lot less. 298 00:16:18,480 --> 00:16:21,120 Speaker 5: It was eighty billion, now it's about under twenty five billion, 299 00:16:21,160 --> 00:16:23,680 Speaker 5: I think at this point. And annual funding is also 300 00:16:23,720 --> 00:16:25,880 Speaker 5: getting cut as well, which I think we should know 301 00:16:25,920 --> 00:16:28,480 Speaker 5: more about this next year's funding shortly too. 302 00:16:28,960 --> 00:16:33,000 Speaker 1: The IRIS has something called the Zero Paper Initiative. Can 303 00:16:33,000 --> 00:16:34,960 Speaker 1: you tell us more about that? And how's it? How 304 00:16:35,040 --> 00:16:35,520 Speaker 1: is that going? 305 00:16:35,840 --> 00:16:38,240 Speaker 5: So the IRS wants to get rid of as much 306 00:16:38,280 --> 00:16:42,480 Speaker 5: paper as possible. I saw I went to an IRS 307 00:16:42,480 --> 00:16:45,280 Speaker 5: facility in Austin a couple of years ago, and like 308 00:16:45,320 --> 00:16:47,800 Speaker 5: the amount of people are and they hand type in 309 00:16:47,880 --> 00:16:50,560 Speaker 5: each return, so it takes a lot of time and 310 00:16:50,600 --> 00:16:52,840 Speaker 5: effort and people to get those paper returns. And so 311 00:16:52,840 --> 00:16:54,960 Speaker 5: they're trying to digitize across the board. And that's been 312 00:16:55,000 --> 00:16:58,840 Speaker 5: a bipartisan theme. Now the Trump administration has its own 313 00:16:58,840 --> 00:17:02,200 Speaker 5: spin on it, and they're heavily on government contractors to 314 00:17:02,200 --> 00:17:04,800 Speaker 5: do that too, and so when a new administration comes in, 315 00:17:05,280 --> 00:17:08,679 Speaker 5: they kind of start from scratch sometimes in some cases, 316 00:17:08,720 --> 00:17:12,680 Speaker 5: so that was kind of something that hindered this zero 317 00:17:12,720 --> 00:17:15,120 Speaker 5: paper initiative. When the Bid administration had made some progress, 318 00:17:15,160 --> 00:17:17,240 Speaker 5: they're kind of starting over a little bit now that 319 00:17:17,280 --> 00:17:19,800 Speaker 5: the Trump administration is in the IRS. 320 00:17:20,280 --> 00:17:22,520 Speaker 1: Have you been able to sort of take the temperature 321 00:17:22,560 --> 00:17:25,240 Speaker 1: of the employees there? What does morale like at the 322 00:17:25,280 --> 00:17:26,359 Speaker 1: IRS these days? 323 00:17:26,640 --> 00:17:29,679 Speaker 5: Morale is low, especially at the lower levels, especially for 324 00:17:29,760 --> 00:17:33,680 Speaker 5: the people that were involuntarily moved to work help process 325 00:17:33,720 --> 00:17:38,320 Speaker 5: tax returns. Some of those people are very highly paid 326 00:17:38,400 --> 00:17:41,160 Speaker 5: in terms of government salaries and they're doing entry level work, 327 00:17:41,160 --> 00:17:44,560 Speaker 5: and so those people there's low morale. This past year 328 00:17:44,640 --> 00:17:47,679 Speaker 5: was I think really tough, and they're having to manage 329 00:17:47,720 --> 00:17:50,880 Speaker 5: multiple workloads. I think at the top levels, I think 330 00:17:50,920 --> 00:17:53,760 Speaker 5: people are feeling really good about the IRS CEO and 331 00:17:54,200 --> 00:17:56,440 Speaker 5: his competency. I think they wish they had him full 332 00:17:56,480 --> 00:18:00,879 Speaker 5: time because he's also the Social Security Administration Commissioner. So 333 00:18:00,920 --> 00:18:02,640 Speaker 5: it's a little bit mixed depending on where you fall 334 00:18:02,640 --> 00:18:05,240 Speaker 5: in the hierarchy. But for the people at the lowest 335 00:18:05,240 --> 00:18:07,600 Speaker 5: helves of the RS which make up most of it. 336 00:18:07,680 --> 00:18:08,960 Speaker 5: I think it's pretty low morale. 337 00:18:09,320 --> 00:18:13,040 Speaker 1: Does this necessarily mean that less likely to be audited? 338 00:18:13,800 --> 00:18:15,760 Speaker 5: The IRIS would like to think, would like to tell 339 00:18:15,760 --> 00:18:17,720 Speaker 5: you that that is not the case. But I think 340 00:18:17,960 --> 00:18:20,159 Speaker 5: something we talked a lot about last year was are 341 00:18:20,160 --> 00:18:22,920 Speaker 5: people going to play the lottery this year knowing that 342 00:18:23,440 --> 00:18:25,720 Speaker 5: there's less people to audit you potentially? And so I 343 00:18:25,760 --> 00:18:27,760 Speaker 5: think the IRS is going to They say they're going 344 00:18:27,800 --> 00:18:30,080 Speaker 5: to rely a lot more on tech, but I think 345 00:18:30,160 --> 00:18:31,879 Speaker 5: only time will tell, and I think it'll be a 346 00:18:31,880 --> 00:18:33,959 Speaker 5: couple of years before we know how much people are 347 00:18:33,960 --> 00:18:35,480 Speaker 5: actually avoiding paying their taxes. 348 00:18:36,400 --> 00:18:38,560 Speaker 1: Great thanks a lot, I appreciate it, our thanks to 349 00:18:38,600 --> 00:18:43,040 Speaker 1: Bloomberg Law reporter Aaron Slowly. While some may be struggling 350 00:18:43,040 --> 00:18:45,359 Speaker 1: with higher tax it's a different story for some of 351 00:18:45,359 --> 00:18:49,080 Speaker 1: the country's wealthiest companies. For more, we are pleased to 352 00:18:49,080 --> 00:18:52,919 Speaker 1: welcome Bloomberg reporter Caitlin Riley. Caitlin, thanks for being with 353 00:18:53,000 --> 00:18:56,000 Speaker 1: us this morning. How has the President Trump's One Big, 354 00:18:56,040 --> 00:19:01,879 Speaker 1: Beautiful Bill changed the tax landscape, especially for the big guys, 355 00:19:01,920 --> 00:19:02,680 Speaker 1: the big companies. 356 00:19:03,080 --> 00:19:07,399 Speaker 6: Well, we saw corporate revenues drop last year by about 357 00:19:07,440 --> 00:19:11,480 Speaker 6: sixty five billion dollars following passage of the Big Beautiful 358 00:19:11,520 --> 00:19:15,160 Speaker 6: Bill over the summer, A lot of the business tax 359 00:19:15,200 --> 00:19:19,440 Speaker 6: breaks were retroactive to the start or earlier in the year, 360 00:19:19,600 --> 00:19:23,879 Speaker 6: and so we saw the corporate tax revenues Treasury brought 361 00:19:23,920 --> 00:19:27,320 Speaker 6: in drop quite a bit. If you compare that to 362 00:19:28,680 --> 00:19:32,400 Speaker 6: what they were expected to collect in twenty twenty five, 363 00:19:32,760 --> 00:19:35,720 Speaker 6: it's likely that tax cut is even greater than the 364 00:19:35,840 --> 00:19:39,800 Speaker 6: sixty five billion we saw revenue drop from twenty twenty four. 365 00:19:40,880 --> 00:19:44,159 Speaker 1: Are some companies better off than others in terms of 366 00:19:44,200 --> 00:19:48,040 Speaker 1: the treatment that they get with the new tax regulations. 367 00:19:48,359 --> 00:19:51,480 Speaker 6: Yeah, so the law left the twenty one percent corporate 368 00:19:51,560 --> 00:19:56,760 Speaker 6: rate in place, but it sped up some crucial deductions 369 00:19:56,840 --> 00:20:00,960 Speaker 6: for that particularly benefit companies that either spend a lot 370 00:20:01,000 --> 00:20:05,800 Speaker 6: of on research and development or on capital, and so 371 00:20:06,480 --> 00:20:10,639 Speaker 6: we saw big companies in particular benefit, as well as 372 00:20:10,760 --> 00:20:17,359 Speaker 6: companies in tech and pharma manufacturing, all of these industries 373 00:20:17,400 --> 00:20:21,560 Speaker 6: where you're seeing a lot invested in machinery and equipment 374 00:20:22,160 --> 00:20:26,160 Speaker 6: or research. Some of the companies we saw that paid 375 00:20:26,160 --> 00:20:30,119 Speaker 6: a lot less in cash taxes last year compared to 376 00:20:30,160 --> 00:20:36,959 Speaker 6: twenty twenty four included Amazon and Meta, Walmart, Home Depot, Eli, Lilly, 377 00:20:37,800 --> 00:20:38,640 Speaker 6: the list goes on. 378 00:20:39,320 --> 00:20:41,879 Speaker 1: Timing has a lot to do with this. Can you 379 00:20:41,920 --> 00:20:42,960 Speaker 1: talk about that for us? 380 00:20:43,400 --> 00:20:46,720 Speaker 6: So, the two biggest changes we saw are the most 381 00:20:46,800 --> 00:20:49,800 Speaker 6: lucrative changes we saw that took effects last year were 382 00:20:50,000 --> 00:20:55,240 Speaker 6: to allow companies to speed up deductions for investments they're 383 00:20:55,240 --> 00:20:59,119 Speaker 6: making into research and development here in the US. Before 384 00:20:59,200 --> 00:21:01,760 Speaker 6: this law was past, they had to spread those out 385 00:21:01,880 --> 00:21:05,040 Speaker 6: over five years. Now they can take those that full 386 00:21:05,119 --> 00:21:09,840 Speaker 6: deduction in the year they make those investments. Likewise, the 387 00:21:09,880 --> 00:21:15,280 Speaker 6: bill also sped up the deductions for purchases like equipment, machinery, 388 00:21:15,520 --> 00:21:19,280 Speaker 6: office furniture, computers, some software, it's that sort of thing. 389 00:21:19,760 --> 00:21:23,800 Speaker 6: Otherwise those purchase the cost of those purchases would have 390 00:21:24,119 --> 00:21:27,639 Speaker 6: had to have been deducted over many years. And so 391 00:21:27,760 --> 00:21:32,440 Speaker 6: what we are seeing is a big increase in the 392 00:21:32,520 --> 00:21:37,159 Speaker 6: tax breaks companies are able to take this year or 393 00:21:37,200 --> 00:21:40,720 Speaker 6: this past year, this year and forward. But as those 394 00:21:40,720 --> 00:21:45,040 Speaker 6: companies move those deductions up rather than spreading them out 395 00:21:45,080 --> 00:21:49,440 Speaker 6: over several years, we would expect some of these tax 396 00:21:49,520 --> 00:21:51,879 Speaker 6: cuts to kind of lessen and level out as you 397 00:21:52,000 --> 00:21:56,840 Speaker 6: get farther away from the laws passage. As a lot 398 00:21:56,880 --> 00:21:59,680 Speaker 6: of this tax cut is front loaded. 399 00:22:00,320 --> 00:22:02,879 Speaker 1: Suffice to say, it's really going to impact the bottom 400 00:22:02,960 --> 00:22:04,440 Speaker 1: lines for these companies. 401 00:22:04,040 --> 00:22:08,400 Speaker 6: Right, yeah, and we're seeing that a lot this past year. 402 00:22:08,680 --> 00:22:13,520 Speaker 6: Amazon is paying billions less, paid billions less in cash 403 00:22:13,560 --> 00:22:17,399 Speaker 6: taxes last year, same with Meta. When you talk to 404 00:22:17,840 --> 00:22:21,560 Speaker 6: economists and supporters of the bill, the case they make 405 00:22:21,680 --> 00:22:26,520 Speaker 6: is that these breaks allow companies to reinvest that money 406 00:22:26,560 --> 00:22:29,160 Speaker 6: in their business, and the hope is that you see 407 00:22:29,440 --> 00:22:35,000 Speaker 6: economic growth increase as a result. The Tax Foundation, i 408 00:22:35,040 --> 00:22:40,440 Speaker 6: think estimates that this increases GDP by about zero point 409 00:22:40,560 --> 00:22:44,119 Speaker 6: seven percent thanks to these deductions, and so that is 410 00:22:44,640 --> 00:22:47,840 Speaker 6: the case Republicans will be making for the bill as 411 00:22:47,880 --> 00:22:50,359 Speaker 6: they head into this year's midterms. 412 00:22:50,520 --> 00:22:54,480 Speaker 1: Well, Caitlin, is there some degree of difficulty tracking this 413 00:22:54,680 --> 00:22:59,679 Speaker 1: and maybe some questions about the methodology behind all this. 414 00:23:00,720 --> 00:23:05,280 Speaker 6: M So, we started from a point of knowing by 415 00:23:05,359 --> 00:23:10,480 Speaker 6: how much revenue collected by the government went down. From there, 416 00:23:10,520 --> 00:23:13,120 Speaker 6: it gets kind of tricky and you're really reliant on 417 00:23:13,560 --> 00:23:20,399 Speaker 6: what companies themselves choose to disclose or not. And so 418 00:23:20,520 --> 00:23:23,800 Speaker 6: what we did was we went through SEC filings and 419 00:23:23,880 --> 00:23:28,080 Speaker 6: earnings calls to see what companies had chosen to share 420 00:23:28,960 --> 00:23:32,440 Speaker 6: about the impact of the big beautiful bill on their 421 00:23:32,480 --> 00:23:37,199 Speaker 6: tax burden. What we still don't have is, you know, 422 00:23:37,320 --> 00:23:41,960 Speaker 6: any direct attribution from these companies to like, how much 423 00:23:42,880 --> 00:23:47,000 Speaker 6: of their decreased cash tax payments are due to the 424 00:23:47,000 --> 00:23:50,680 Speaker 6: Big Beautiful veil versus you know, any number of other 425 00:23:50,840 --> 00:23:54,280 Speaker 6: variables that go into determining how much they owe in 426 00:23:54,320 --> 00:23:56,920 Speaker 6: corporate income tax each year. And so there is that 427 00:23:57,000 --> 00:24:01,600 Speaker 6: kind of methodology challenge where we're very reliant on what 428 00:24:01,840 --> 00:24:05,880 Speaker 6: companies choose to share, and by going through all these filings, 429 00:24:05,920 --> 00:24:08,080 Speaker 6: we were able to piece a picture together, but there 430 00:24:08,080 --> 00:24:12,240 Speaker 6: are still big questions and specifics, especially when it comes 431 00:24:12,240 --> 00:24:17,400 Speaker 6: to total numbers, that are just difficult to find. And 432 00:24:17,800 --> 00:24:21,639 Speaker 6: one thing we definitely ran into was there were additional 433 00:24:21,640 --> 00:24:24,359 Speaker 6: companies where we did see a drop in the cash 434 00:24:24,400 --> 00:24:27,400 Speaker 6: tax as they paid last year, but without the companies 435 00:24:27,480 --> 00:24:31,480 Speaker 6: themselves specifically attributing that to the Big beautiful bill. We 436 00:24:31,560 --> 00:24:35,159 Speaker 6: just didn't have enough to sort of include them in 437 00:24:35,200 --> 00:24:38,680 Speaker 6: the story and lump them in with this group because 438 00:24:38,680 --> 00:24:42,760 Speaker 6: we're so dependent on what they decide to share. 439 00:24:43,200 --> 00:24:46,000 Speaker 1: Okay, Caitlin, we'll leave it there. Great reporting, by the way, 440 00:24:46,000 --> 00:24:50,040 Speaker 1: our thanks to Bloomberg reporter Caitlin Riley. Up next, candy 441 00:24:50,119 --> 00:24:53,960 Speaker 1: sales on the decline This Easter Holiday. Thirty seven minutes 442 00:24:54,000 --> 00:25:08,520 Speaker 1: passed the hour. This is Bloomberg. Thank you so much 443 00:25:08,560 --> 00:25:10,639 Speaker 1: for joining us for the special edition of Bloomberg day 444 00:25:10,640 --> 00:25:13,159 Speaker 1: Break on John Tucker the US Doock Market clause for 445 00:25:13,200 --> 00:25:16,080 Speaker 1: the Good Friday holiday. We're continuing our look at tax 446 00:25:16,119 --> 00:25:21,680 Speaker 1: stories as the IRS deadline approaches, some wealthy Americans considering 447 00:25:21,920 --> 00:25:25,760 Speaker 1: tax shelters to reduce their overall liability. But what are 448 00:25:25,880 --> 00:25:28,639 Speaker 1: tax shelters? How do they work? Who benefits for more? 449 00:25:28,720 --> 00:25:28,800 Speaker 3: Or? 450 00:25:28,800 --> 00:25:32,400 Speaker 1: We're police to welcome Michael Bologne, a senior tax correspondent 451 00:25:32,440 --> 00:25:35,600 Speaker 1: with Bloomberg Tax. Have you done your taxes yet? 452 00:25:35,840 --> 00:25:38,280 Speaker 4: I had done my taxes and I did one of. 453 00:25:38,280 --> 00:25:40,760 Speaker 1: My That's what I would expect from you, the tax 454 00:25:40,880 --> 00:25:44,600 Speaker 1: expert explain to us, give me the dummies explanation, me 455 00:25:44,720 --> 00:25:47,879 Speaker 1: being the dummy of a tax shelter. What is it? 456 00:25:48,119 --> 00:25:51,040 Speaker 7: Well, I mean, the thing you understand about tax shelters 457 00:25:51,119 --> 00:25:55,560 Speaker 7: is that there's a basic thing would be just you know, 458 00:25:55,920 --> 00:25:59,760 Speaker 7: a roth ira I guess, but that's certainly an indication 459 00:25:59,800 --> 00:26:03,919 Speaker 7: of a legal tax shelter, something that the that the 460 00:26:03,960 --> 00:26:08,760 Speaker 7: IRS and the federal government blesses. But what I've really 461 00:26:08,840 --> 00:26:11,400 Speaker 7: done a lot of reporting on our tax shelters which 462 00:26:11,440 --> 00:26:17,000 Speaker 7: are considered perhaps abusive on the fringes of legality and 463 00:26:17,119 --> 00:26:20,920 Speaker 7: something that might require the I r S to intervene 464 00:26:20,960 --> 00:26:22,199 Speaker 7: and do some enforcement on. 465 00:26:22,640 --> 00:26:27,080 Speaker 1: So maybe stretching the law as much as you can 466 00:26:27,160 --> 00:26:28,800 Speaker 1: to avoid paying taxes. 467 00:26:28,920 --> 00:26:33,320 Speaker 7: Right right, And and getting to that the point where 468 00:26:33,320 --> 00:26:35,359 Speaker 7: we would say this is something is abusive or not 469 00:26:35,840 --> 00:26:39,720 Speaker 7: might take years for the IRS to investigate and examine. 470 00:26:40,720 --> 00:26:45,199 Speaker 7: It's it's a process. But currently the DIRS is probably 471 00:26:45,200 --> 00:26:50,920 Speaker 7: investigating forty abusive tax schemes at least according to some 472 00:26:51,000 --> 00:26:54,720 Speaker 7: reports by the GAO, and and there's probably even more 473 00:26:54,800 --> 00:26:57,359 Speaker 7: of them out there at any one moment. 474 00:26:57,760 --> 00:27:00,159 Speaker 1: It sounds like it takes a lot of time the 475 00:27:00,200 --> 00:27:02,840 Speaker 1: part of the I r S, which has been hampered 476 00:27:02,880 --> 00:27:07,040 Speaker 1: by you know, doge layoffs, to come to the determination 477 00:27:07,200 --> 00:27:12,160 Speaker 1: whether a tax shelter is legal or not legal, right right. 478 00:27:12,240 --> 00:27:13,280 Speaker 4: It's it's a process. 479 00:27:13,320 --> 00:27:16,560 Speaker 7: You would have had to have a number of people 480 00:27:16,640 --> 00:27:20,159 Speaker 7: take a particular tax position that would have to go 481 00:27:20,240 --> 00:27:21,320 Speaker 7: into audit. 482 00:27:22,800 --> 00:27:24,920 Speaker 4: Auditor might and then auditor. 483 00:27:24,680 --> 00:27:27,560 Speaker 7: Might you know, see some real red flags in there 484 00:27:27,640 --> 00:27:31,280 Speaker 7: and decide, hey, let's kick this over to the Civil 485 00:27:32,000 --> 00:27:34,919 Speaker 7: Enforcement Division or the Criminal Enforcement Division and then you 486 00:27:34,960 --> 00:27:39,399 Speaker 7: would have to have some litigation around that that and 487 00:27:39,440 --> 00:27:43,280 Speaker 7: then there'd have to be some adjudication by a court. 488 00:27:43,560 --> 00:27:48,120 Speaker 7: So it's it's a process that can take, you know, years, 489 00:27:49,040 --> 00:27:53,200 Speaker 7: unless the IRS decides to sort of intervene immediately or 490 00:27:53,280 --> 00:27:58,720 Speaker 7: the or or perhaps Congress might intervene more quickly to say, hey, 491 00:27:58,800 --> 00:28:02,560 Speaker 7: this is this is something that that's just not tenable 492 00:28:02,680 --> 00:28:03,560 Speaker 7: or not within our. 493 00:28:03,560 --> 00:28:05,520 Speaker 1: View of the law. So if I were going to 494 00:28:05,600 --> 00:28:08,439 Speaker 1: play the tax shelter game, it sounds like now's the 495 00:28:08,520 --> 00:28:09,320 Speaker 1: time to do it. 496 00:28:09,720 --> 00:28:13,440 Speaker 7: Well, I mean, the truth of the matter is it's 497 00:28:13,480 --> 00:28:17,399 Speaker 7: a very difficult tax enforcement environment at the moment. Like 498 00:28:17,720 --> 00:28:20,359 Speaker 7: you said, the head count at IRS is roughly down 499 00:28:20,400 --> 00:28:24,760 Speaker 7: twenty five percent since President Trump returned to the White House. 500 00:28:25,880 --> 00:28:29,959 Speaker 7: In addition to that, the eighty billion dollars that was 501 00:28:30,000 --> 00:28:35,159 Speaker 7: set aside by Congress during the Biden years for improving 502 00:28:35,359 --> 00:28:38,960 Speaker 7: IRS enforcement has been clawed back, or a lot of 503 00:28:39,000 --> 00:28:42,760 Speaker 7: it's been clawed back. And in addition to that, the 504 00:28:42,840 --> 00:28:49,000 Speaker 7: Justice Department recently just completely dissolved it's specialized tax division 505 00:28:49,120 --> 00:28:55,480 Speaker 7: responsible for civil and criminal tax enforcement. So yeah, I 506 00:28:55,520 --> 00:29:02,040 Speaker 7: mean the federal government is thing into uh this tax 507 00:29:02,120 --> 00:29:03,400 Speaker 7: enforcement season for sure. 508 00:29:03,720 --> 00:29:07,760 Speaker 1: Well, let's talk about who's selling tax shelters. Is this 509 00:29:07,840 --> 00:29:09,360 Speaker 1: a lucrative business? 510 00:29:09,800 --> 00:29:11,360 Speaker 4: It is so far as we can tell. 511 00:29:11,400 --> 00:29:14,120 Speaker 7: I mean, there's I talked to a certain number of 512 00:29:14,200 --> 00:29:18,240 Speaker 7: wealth advisors out in the marketplace and and several of 513 00:29:18,320 --> 00:29:22,120 Speaker 7: them have told me that they are frequently pitched on 514 00:29:22,280 --> 00:29:27,280 Speaker 7: different tax schemes uh by by tax promoters, people who 515 00:29:27,320 --> 00:29:31,040 Speaker 7: spend really almost all their time just looking at gaps 516 00:29:31,080 --> 00:29:35,080 Speaker 7: in the federal tax code and figuring out structures that 517 00:29:35,160 --> 00:29:39,880 Speaker 7: can fit between those those gaps, and then and then 518 00:29:39,920 --> 00:29:43,000 Speaker 7: to begin to sell them to wealthy. 519 00:29:42,680 --> 00:29:46,840 Speaker 4: Individuals, and then and then really bulke up those sales 520 00:29:46,880 --> 00:29:48,320 Speaker 4: over over a period of time. 521 00:29:48,600 --> 00:29:49,760 Speaker 1: Are they on the up and up? 522 00:29:49,960 --> 00:29:54,720 Speaker 7: Well, some of the schemes are completely legitimate until the 523 00:29:54,760 --> 00:29:58,520 Speaker 7: IRS steps in and says, now, we don't think this 524 00:29:58,600 --> 00:30:02,360 Speaker 7: is a valid tax position. But some of them are 525 00:30:02,600 --> 00:30:05,959 Speaker 7: are are clearly well I don't know clearly, but are 526 00:30:06,280 --> 00:30:09,320 Speaker 7: probably illegal and would have to be stopped at some point. 527 00:30:09,880 --> 00:30:11,720 Speaker 1: So how do the promoters make money? 528 00:30:12,120 --> 00:30:17,400 Speaker 7: They usually take a percentage of whatever tax savings that 529 00:30:17,480 --> 00:30:24,320 Speaker 7: they've peddled to a wealthy individual, and their take can 530 00:30:24,400 --> 00:30:27,920 Speaker 7: be somewhere between five and thirty percent of whatever those 531 00:30:28,000 --> 00:30:29,120 Speaker 7: tax savings might be. 532 00:30:29,600 --> 00:30:32,200 Speaker 1: That's great. We appreciate it. Our thanks to Mike Bologna, 533 00:30:32,320 --> 00:30:35,800 Speaker 1: senior tax correspondent with Bloomberg Tax, who. 534 00:30:35,480 --> 00:30:36,400 Speaker 4: Can take us on. 535 00:30:38,920 --> 00:30:40,440 Speaker 5: The connect with you. 536 00:30:42,520 --> 00:30:51,240 Speaker 3: Con recalled to the candy Man, who the Candyman. 537 00:30:50,880 --> 00:30:55,640 Speaker 1: Can the nineteen seventies hit Candyman by Simney Davis Junior, 538 00:30:55,760 --> 00:30:58,240 Speaker 1: who remembers that, well, you may be seeing a little 539 00:30:58,320 --> 00:31:01,200 Speaker 1: less of the Candyman this year. That's because sales are 540 00:31:01,240 --> 00:31:04,480 Speaker 1: projected to drop. For more, we're pleased to bring in 541 00:31:04,840 --> 00:31:10,080 Speaker 1: Diana Roseria Penya candy sales declining why well. 542 00:31:10,040 --> 00:31:13,800 Speaker 8: Easter sales. Easter candy sales are set to decline around 543 00:31:14,120 --> 00:31:17,440 Speaker 8: five percent. People are just not buying them. You know, 544 00:31:17,480 --> 00:31:21,959 Speaker 8: we actually had scanning data showing the first four weeks 545 00:31:21,960 --> 00:31:24,560 Speaker 8: of the season. Justly with scanning data is that's just 546 00:31:24,920 --> 00:31:28,720 Speaker 8: it's it's basically what you go to the cash register 547 00:31:28,920 --> 00:31:32,160 Speaker 8: and whatever you scan and that's the data that they collect. 548 00:31:32,160 --> 00:31:35,960 Speaker 1: Readily available data to people like for people like you, for. 549 00:31:36,040 --> 00:31:39,760 Speaker 8: People like us. Yes, so I mean obviously it's aggregated, 550 00:31:39,800 --> 00:31:42,920 Speaker 8: so we're not necessarily going to see you like what 551 00:31:43,520 --> 00:31:48,880 Speaker 8: a specific person, but but definitely it's something that you know, 552 00:31:48,920 --> 00:31:53,160 Speaker 8: people track. We get that information every month, and yeah, 553 00:31:53,160 --> 00:31:55,920 Speaker 8: we're seeing, you know, in the season it's pretty soft 554 00:31:55,920 --> 00:31:59,320 Speaker 8: and we don't necessarily think it's going to you know, recuperate. 555 00:32:00,160 --> 00:32:04,200 Speaker 1: We're talking about a specific type of candy, chocolate or peeps. 556 00:32:04,680 --> 00:32:09,200 Speaker 8: We're talking about Eastern dedicated candy like peeps, you know, 557 00:32:09,320 --> 00:32:12,840 Speaker 8: the eggs those guys pretty much. 558 00:32:13,120 --> 00:32:14,400 Speaker 1: And what's the reason behind this. 559 00:32:14,720 --> 00:32:19,280 Speaker 8: People are being more strategic with their consumption. And you know, 560 00:32:19,360 --> 00:32:23,520 Speaker 8: while Eastern is pretty is getting pretty famous for adults, 561 00:32:23,560 --> 00:32:26,960 Speaker 8: and there seems to be a more appetite to celebrate 562 00:32:27,000 --> 00:32:30,080 Speaker 8: the season. It seems that people are just not buying 563 00:32:30,120 --> 00:32:32,800 Speaker 8: as much candy as as they used to. It's not 564 00:32:32,920 --> 00:32:33,400 Speaker 8: it's a. 565 00:32:33,280 --> 00:32:36,360 Speaker 1: Bit is it an economic thing or because a gasp 566 00:32:36,600 --> 00:32:39,080 Speaker 1: that everybody wants to be healthy these days, or a 567 00:32:39,080 --> 00:32:40,960 Speaker 1: combination of all these things or what I. 568 00:32:40,920 --> 00:32:45,080 Speaker 8: Think they're both. You know, I think there's people that 569 00:32:45,680 --> 00:32:49,600 Speaker 8: are starting to get tired of the price increases. We've 570 00:32:49,640 --> 00:32:53,360 Speaker 8: seen significant price increases in the package food, you know, 571 00:32:53,440 --> 00:32:57,240 Speaker 8: industry overall, Like you know, usually low single digit increases 572 00:32:57,320 --> 00:33:01,520 Speaker 8: is fine, but we're seeing sometimes in the low teen increase. 573 00:33:01,600 --> 00:33:05,080 Speaker 8: So people are definitely being a little bit more conscious 574 00:33:05,080 --> 00:33:06,920 Speaker 8: about what they put in put in their basket. 575 00:33:07,080 --> 00:33:10,880 Speaker 1: Who are the leading candy manufacturers and what do they say? 576 00:33:11,120 --> 00:33:15,040 Speaker 1: How are they responding to what you just said. Appears 577 00:33:15,040 --> 00:33:15,719 Speaker 1: to be a trend. 578 00:33:15,920 --> 00:33:20,160 Speaker 8: Yes, so Hershey has sixty seven percent of the dollar 579 00:33:20,240 --> 00:33:24,440 Speaker 8: share for chocolate and lint and Mars follow that at 580 00:33:24,520 --> 00:33:28,600 Speaker 8: a high single digit share. And what they're saying is 581 00:33:28,640 --> 00:33:31,080 Speaker 8: they're trying to be more competitive. They're trying not to 582 00:33:31,120 --> 00:33:35,520 Speaker 8: be as price competitive because they don't want to race 583 00:33:35,600 --> 00:33:38,120 Speaker 8: to the bottom, but that might be the lever that 584 00:33:38,160 --> 00:33:40,560 Speaker 8: they have to pull to get volume to grow. 585 00:33:40,640 --> 00:33:44,719 Speaker 1: Again, what is the biggest input costs for these companies. 586 00:33:44,520 --> 00:33:48,400 Speaker 8: So it's obviously chocolate. Chocolate has been you know, on 587 00:33:48,480 --> 00:33:50,200 Speaker 8: a tear in the past year. 588 00:33:50,520 --> 00:33:52,520 Speaker 1: They've increased talking about cocoa price. 589 00:33:52,640 --> 00:33:56,400 Speaker 8: Cocoa prices, Yes, cocoa prices have been, you know, increasing 590 00:33:56,440 --> 00:34:00,640 Speaker 8: significantly the past year. It has reduce us a little 591 00:34:00,640 --> 00:34:04,600 Speaker 8: bit chocolate tears. Thinking that they might be able to 592 00:34:05,000 --> 00:34:09,200 Speaker 8: see lower prices going forward. We'll see with what happens 593 00:34:09,239 --> 00:34:12,680 Speaker 8: with with you know, the conflict and everything and tariffs 594 00:34:12,719 --> 00:34:14,799 Speaker 8: and stuff like that. But it seems that they are 595 00:34:14,840 --> 00:34:17,799 Speaker 8: expecting lower costs and that the hope is that they 596 00:34:17,840 --> 00:34:20,320 Speaker 8: can able to pass that through the consumer. 597 00:34:20,719 --> 00:34:24,800 Speaker 1: Oh, you mentioned tariffs. How have tariffs impacted the candy business? 598 00:34:25,120 --> 00:34:29,520 Speaker 8: So wrapping, you know, like those steel, aluminum, like those 599 00:34:29,600 --> 00:34:34,200 Speaker 8: kind of things derivative of the supply chain. Obviously, gas 600 00:34:34,239 --> 00:34:39,680 Speaker 8: prices are starting to affect that, so you know, those 601 00:34:39,719 --> 00:34:43,000 Speaker 8: are the kind of things that might have to you know, 602 00:34:43,040 --> 00:34:45,200 Speaker 8: they have to pass through to the consumer. 603 00:34:45,440 --> 00:34:45,600 Speaker 4: Oh. 604 00:34:45,680 --> 00:34:50,160 Speaker 1: I have to answer you chocolate expert parenthetically my trivia questions. 605 00:34:50,200 --> 00:34:52,600 Speaker 1: You know how cocoa plants are pollinated? 606 00:34:53,280 --> 00:34:55,200 Speaker 8: I actually don't. Maybe I should have. 607 00:34:56,000 --> 00:34:59,840 Speaker 1: I thought I've told you this though wild boars running 608 00:34:59,840 --> 00:35:02,279 Speaker 1: through the cocoa fields. It's the fleas on the back 609 00:35:02,320 --> 00:35:05,560 Speaker 1: of the wild bores that actually pollinate the corbo plants. 610 00:35:06,000 --> 00:35:08,440 Speaker 1: So the next time you're biting into a chocolate bunny, 611 00:35:08,560 --> 00:35:11,319 Speaker 1: just think think of those poor fleas that pollinated the 612 00:35:11,320 --> 00:35:12,120 Speaker 1: cocoa plants. 613 00:35:12,200 --> 00:35:14,640 Speaker 8: Well, I don't necessarily want to age myself, but I 614 00:35:14,719 --> 00:35:18,000 Speaker 8: have tried chocolate with insects on it. 615 00:35:19,120 --> 00:35:21,120 Speaker 1: The chocolate covered insects. 616 00:35:20,640 --> 00:35:23,920 Speaker 8: Yes to increase the protein. So that was like the 617 00:35:23,960 --> 00:35:26,360 Speaker 8: first wave of the protein craze. 618 00:35:26,560 --> 00:35:30,279 Speaker 1: Okay, well, what's next? The Eastern candy sales data point 619 00:35:30,320 --> 00:35:34,760 Speaker 1: to softer season. But you point out this is probably 620 00:35:34,800 --> 00:35:37,440 Speaker 1: a trend that's going to continue right Well. 621 00:35:37,320 --> 00:35:40,120 Speaker 8: The way that I see it is that there's a lot, 622 00:35:40,239 --> 00:35:42,840 Speaker 8: like I said, there's a lot more appetite to celebrate 623 00:35:42,880 --> 00:35:47,040 Speaker 8: the season, but people are actually planning to buy more 624 00:35:47,200 --> 00:35:50,440 Speaker 8: on the day after Eastern because there's there's. 625 00:35:50,239 --> 00:35:53,640 Speaker 1: A we call that stale candy. 626 00:35:52,920 --> 00:35:57,080 Speaker 8: Yes, happy fifty percent off, you know, candy season. So 627 00:35:58,160 --> 00:36:03,400 Speaker 8: you know, the Ferrero surve survey earlier this month indicated 628 00:36:03,440 --> 00:36:06,600 Speaker 8: that sixty four percent planned to buy candy on sale 629 00:36:06,600 --> 00:36:09,160 Speaker 8: the day after Easter. So obviously that is going to 630 00:36:09,200 --> 00:36:11,239 Speaker 8: affect sales going forward, and. 631 00:36:11,400 --> 00:36:13,200 Speaker 1: We're going to see deeper discounting, I. 632 00:36:13,160 --> 00:36:15,719 Speaker 8: Would imagine, exactly exactly. 633 00:36:15,600 --> 00:36:18,520 Speaker 1: And that will press your sales and the margins as well. 634 00:36:18,560 --> 00:36:20,160 Speaker 1: For the big companies that you mentioned like. 635 00:36:20,120 --> 00:36:22,759 Speaker 8: Hershey, yes, for sure, it's something that they are going 636 00:36:22,840 --> 00:36:27,319 Speaker 8: to have to be conscious about. It's very difficult. You know, 637 00:36:27,600 --> 00:36:30,560 Speaker 8: it's a very difficult trend for packaged food companies at 638 00:36:30,600 --> 00:36:33,600 Speaker 8: the moment because you know, they have higher costs. They're 639 00:36:33,640 --> 00:36:37,960 Speaker 8: trying to appeal to a consumer that is being a 640 00:36:38,000 --> 00:36:40,520 Speaker 8: little bit more strategic with their spending. So they're going 641 00:36:40,560 --> 00:36:42,879 Speaker 8: to have to discount, so it's it's both on the 642 00:36:42,920 --> 00:36:44,240 Speaker 8: top and bottom line. 643 00:36:44,840 --> 00:36:47,640 Speaker 1: Okay, at some point we'll do a deeper dive into 644 00:36:47,680 --> 00:36:50,359 Speaker 1: the fleas that pollinate the cocoa plants, all right. Thanks 645 00:36:50,400 --> 00:36:53,600 Speaker 1: to Bloomberg's Diana Rossero Penya. We'd also like to thank 646 00:36:53,640 --> 00:36:58,960 Speaker 1: Bloomberg Intelligences Herman Chan and Neil SIPs, Bloomberg's Kaitlin Riley, 647 00:36:59,040 --> 00:37:03,680 Speaker 1: and Bloomberg Laws Aaron Slowey and Michael Bologna. I'm John Tucker. 648 00:37:03,719 --> 00:37:06,880 Speaker 1: Stayed with US. Top stories and global business headlines are 649 00:37:06,920 --> 00:37:08,120 Speaker 1: coming up right now.