It’s been a year since the Covid lockdown, and the future is starting to look up with vaccines, reopenings, and passage of the $1.9 trillion American Rescue Plan Act. This stimulus coupled with past relief bills means that trillions of dollars have been spent. Eventually, someone will have to pay for it, and that someone usually means the taxpayer. As an entrepreneur and business owner, what are the tax implications for you? In this episode, our guest is Dan Clifton, Partner and Head of Policy Research for Strategas. Dan is a top ranked Washington policy analyst who served as the Executive Director of the American Shareholders Association and senior staff member in two gubernatorial administrations. He is a frequent guest on CNBC, Bloomberg, and Fox Business. Join us as Dan shares his insights into the political environment and how that could impact tax policies, from higher capital gains and dividend tax rates to reinstating state and local tax deductions. Listen in as we go beyond the politics and get to the facts.
Subscribe to our podcast on Spotify, Apple Podcasts, Google Podcasts, and Stitcher.
Click to read transcript of this episode below.
Welcome to the Biz Money Podcast hosted by Lee Korn. Lee is a financial advisor and principal at Opal Wealth Advisors. Each month Lee and his guests share their path of success and how they broke through to get to the next level. This podcast is available on our website at opalwealthadvisors.com/bizmoney. To receive updates on new show releases, you can subscribe on our podcast page. Now, here’s your host, Lee Korn.
Lee Korn 0:29
Welcome to the Biz Money Podcast. I’m your host Lee Korn. On behalf of my colleagues here at Opal Wealth Advisors, we’re excited that you’re able to join us.
Dan Clifton 0:44
I think there’s going to be a broad movement of consumers out into the economy. And I think that impacts all business owners as they’re going to be able to sell to that. And the question is, after every great party, is there going to be a hangover?
Lee Korn 0:58
Our guest today is Dan Clifton, of Strategas, where he’s a partner and head of policy research. Dan analyzes trade tax, healthcare, energy and other policy initiatives to determine how these changes impact the economy and financial markets for institutional investors. He’s a renowned policy analyst who’s a frequent guest on CNBC, Bloomberg and Fox Business. Dan, welcome, and thanks for joining us.
Dan Clifton 1:24
Thank you for having me. It’s an honor to be here today.
Lee Korn 1:27
Awesome. So let’s just dig right in. We’re now at a point where… it’s funny I was talking to our team the other day, it’s been a year since I’ve gone out with my family to a restaurant. A year ago, my birthday, we were out at Uncle Jack’s Steakhouse in Bayside, New York. And, you know, then the lockdown happened. We’re actually going out again this Saturday night with my parents, because they both received their second shot of the vaccine. And we now feel like we’re ready to to get out. But a lot has happened over the last year. Most recently, you know, Biden just signed into law, the American Rescue Plan Act, you know, which is going to release $1.9 trillion into the economy on top of hundreds of billions of dollars that was issued in December, on top of trillions of dollars of fiscal and monetary stimulus. And, you know, talking to clients, a lot of our clients have questions. How does this actually impact us? What does this mean, many of our clients are entrepreneurs, business owners, what does this mean to their business? What does it mean to, you know, the economy reopening? And then ultimately, all this money being issued out? Someone has to pay for it? You know, what are the long term implications, the impacts, whether it be taxes, regulation, and an on and on? So I guess I would just ask you, you know, the $1.9 trillion dollars. What does that mean?
Dan Clifton 2:50
Well, I’ll tell you, this is a crazy world where we use the word trillions and treat it like it’s no big deal. And it’s a very big deal. In terms of the dollar amount, I just think that because we’re using it so much, we’re becoming desensitized to just the sheer volume of it. Let me start off by saying, there’s a lot to be thankful for. On March 11, of 2020, the NBA shut down its season. I think that was a real message to policymakers in Washington, that the lockdown was going to be bigger than just people staying home for four weeks, and everything was going to be back to normal. And I think that changed the debate in terms of what the economy would be needing. If we were going to have a complete shutdown of the US economy in the way we thought about stimulus in 2020 is that trillions is a worthy number $2 trillion. Because you’re telling us we have to sit home or that our business has to shut down. And I think it worked, I think it was very successful. Now, there are a lot of small business owners I know who unfortunately couldn’t survive. I have other small business owners who thrived in that environment, because of the nature of their business and the services that they were able to provide while people were locked down. So it impacted businesses differently. But overall, we had a very light recession, considering that we had a shutdown of the entire US economy. I think what’s very exciting to us is the speed at which the vaccine is being deployed. The last vaccine took four years. On average, it takes about 10 years to get a vaccine. We had a vaccine done in nine months. We added distributed in less than a year. And as of last weekend, we have more Americans, with two shots in their arm from the vaccine than we have the number of confirmed COVID cases. We believe that we’re going to have herd immunity amongst adults by late April or early May. And by the way, American consumers are going to respond before we get herd immunity. As more and more people start to get vaccinate, you just talked about being able to see your mother, your parents because they got two shots in their arms. My wife and I and our kids were able to go see grandma and grandpa for the first time two weeks ago. And that was really the first activity that we add to our lives. Over the course of the last year, we didn’t even get vaccinated. So as the older population gets vaccinated, the risk comes out, you’re going to have more and more people starting to go out and engage in economic activity. My parents live in a senior neighborhood. And I couldn’t believe how many people were at Jersey, my I couldn’t believe how many people were at all the different stores in the strip mall, because now they’re vaccinated. And so we’re already starting to see that happening. I think it’s gonna be good for everybody. As that starts to happen. Yeah, I’m giving you this context in relation to the stimulus. Because the question is, was there enough stimulus before this vaccination happened, you mentioned the $900 billion that we passed in the month of December, I view that as a bridge, a bridge to get us to the vaccination rate that we’re getting to right now. And it would have been successful on itself. Congress this week passed a $1.9 trillion stimulus on top of that $900 billion. And I think that that’s going to be a very, very impactful stimulus, because now you’re going to have a trillion dollars entering the US economy $700 billion, which goes to US consumers, at a time, when they are now able to spend on services for the first time, meaning restaurants, bars, sports and entertainment. I mentioned clothes, because hey, if I’m going to the bar, I gotta go look nice when I go to the bar, and I haven’t bought clothes in a year, right? That’s going to be the mindset of the American consumer. And so I think there’s going to be a broad movement of consumers out into the economy, I think that impacts all business owners, as they’re going to be able to sell to that. And the question is, after every great party, is there going to be a hangover, because now you’re going to have very large deficits. And at some point, we’re going to have to pay for that. But the goal here is not to undershoot by policymakers, the goal is to overshoot for policymakers, and then deal with that hangover effect later on. And we’ve probably done more than enough than we need to do. And the next few months are just going to be a tremendous time in America, you often hear the example the roaring 20s, when we came out of the last pin, that 1990 pandemic, the goal is to make sure we have the roaring 20s, but not have the 1970s inflation that was associated with it. And that’s going to be the challenge for policymakers. But this is going to be a really good time for the US economy, we could be looking at the fastest economic growth since 1957. Or at least since 1983. If we have a bad year, I’ll take that bad year, any day, given what we’ve been through over the last year.
Lee Korn 8:05
Yeah, it’s true, truly amazing. You know, when you talk about the statistics of the amount of people that have shots in their arms already, we were talking earlier, you know what it was that it took two days to actually sequence the virus and 41 days to have phase one trials that’s just mind boggling when you think about how long it took in the past to develop vaccines for some of the worst, you know, worst viruses that we’ve encountered.
Dan Clifton 8:31
Right. So let me let me just let me just build on that point. for one second, though, right. Think about how bullish this is for America, we have the innovation, to do these types of things. Now that technology, we think the vaccine technology can now be applied to gene therapy and cancer. So we’re going to get some longer benefit off this research that we were forced into due because of the pandemic. But think about this. If you look at the distribution of the vaccine, it goes in a straight line from the bottom left to the upper right. And you see no difference in the vaccine distribution between the Trump and Biden administration. So think about how polarized our politics are, and how everybody says, Oh, this party is bad or that party is bad. When it came to the vaccine. There was no kidding around. And even in light of a presidential transition, one that was very contentious, the vaccine distribution has gone as well as it could. And I look at that I say what’s important, what do people need to understand that what’s important? when America is challenged, we rose up to that challenge we delivered. And I think that is a good lesson that despite all the Twitter 24 hours 7, the political polarization, we have been able to overcome that that polarization and be able to deliver for the American public. And I think that’s going to be a very important lesson as we start to get into deeper crisis’s. Maybe something had happened to you politically? Maybe that’s something that happens economically is that we are standing up and doing what’s right at the end of the day. I’m sorry, I didn’t mean to interrupt you.
Lee Korn 10:08
No no, you certainly didn’t interrupt me, valuable information. Alright, so all we talked coming into the fall, we talked about two big headwinds, right, the election is now behind us. We now have a medical solution to the medical emergency. We’ve had unprecedented amount of money put into the system. I think we saw it, you know, after the December stimulus, you saw retail sales jump up, I think it was 5%. You know, although the saving rates are at all time highs, people were spending this money, right? $1000 dollars, $1400 dollars are going out. They’re spending it they’re spending it just at a time where the economy is reopening. It’s amazing. Now, let’s turn the corner and say how does this get paid for? You know, where we’re sitting in Washington where slimmest majority, right, we’ll talk? Try not to talk politics third rail, though, we have a very slim majority of the houses, you know, not dead even but you know, the Democrats have a slight advantage. It’s 50-50. In the Senate, the Vice President Kamala Harris, makes up the tiebreaker. It’s, you know, we’ve been hearing it’s hard to get things done. I’m amazed that they actually got this $1.9 trillion through. What is the impact? You know, taxes have to go up, right? I mean, what is the impact in the future?
Dan Clifton 11:27
So let me let me start off by just thinking about the election, Joe Biden, one by 8 million votes or so is the highest voter turnout since 1900. We like to look at what are called the tipping point states. These are the states that make the difference in the Electoral College. In 2016, Hillary Clinton won, Hillary Clinton lost to Donald Trump in the three tipping point states by 77,000 votes combined. That is a Sunday football game attendance that separated Donald Trump and Hillary Clinton from the presidency. The 2020 election, with even closer than the 2016 election, just 65,000 voters separate it, Donald Trump and Joe Biden, in Arizona, Georgia, Wisconsin, and the Nebraska congressional district. If those 65,000 voters voted differently, Donald Trump would have been President of the United States. And that gets lost in understanding the dynamics of the US political system. Because the race was so close in those areas, which really exclude out Biden winning California, New York by so much. But when you do that, it creates very slim majorities in the House or Senate. So the Democrats today have their smallest House Majority that we can find in 140 years on record for the Democratic Party. Literally, Pelosi can only lose three or four Democrats. And if she loses more than that, no bill passes. That’s how slim that majority is. Think about the Senate. This is the smallest majority a new Democratic president has had since Grover Cleveland in 1885, by having a 50-50 senate with Vice President Harris breaking up that top. And there is a wide divergence in opinions between Bernie Sanders and Kyrsten Sinema in Arizona, a wide difference. So why did a $1.9 trillion pass so easily in an environment like that? Because no Democrat wants Joe Biden to fail, coming out of the gate, because Joe Biden said, “This is what I want my priority to be.” So Bernie Sanders, you’re not happy that the minimum wage isn’t included, you need to bite your lip. Joe Manchin, you’re not happy with the dollar amount that’s included in here, you have to bite your lip. Because COVID is bigger than anything you’re complaining about right now. And we got to get money in the schools, we got to get money in the vaccines, we got to get money into consumers’ hands. And the political window created by COVID allows the Democrats to do that. Now, if you read the Wall Street Journal editorial board this morning, they’re talking about the idea that this money is bigger than just COVID. And it’s actually not about COVID. It’s not about relief, because there’s all these other goodies that were included in there. You use the “you never let a crisis go to waste” and the Democrats achieved that, they’ve expanded Obamacare, and they’ve done some other things. Now, we’re talking about what can happen moving forward. And I just thinking that whatever we’re going to do moving forward will not be as easy as what we just did. Because as you mentioned, COVID is behind us. The first bill is now out of the way. The issues that we’re going to be dealing with, which was your question, paying for this is never going to be easy. So I call it the candy and spinach theory, the COVID bill was all sorts of candy, hey, well, this money, you know, we can fight over how much money we want. That’s what they just did. Now we’re going to have candy and spinach, and we may end up having a lot more spinach and candy. And that becomes a lot harder process. So that’s the background of what these political negotiations will be, as we start in the spring and into the summer.
Lee Korn 15:37
Right. And if you think about the process of getting those bills passed, right, you hear the term reconciliation thrown around often, it really means anything you give has to be paid for. Right? That has to be factored in. And there’s only a few ways that you can pay for it on top of, you know, you’re probably going to you’re definitely going to be bumping into raising the debt ceiling issue. Surprised they didn’t try to attack it in this bill, because it’s gonna have to happen, right? So now, so yeah, so let’s talk about business owners that we’re talking to, right? Where’s that money gonna come from? So you know, we’re hearing thrown around a rising corporate tax, a rise in capital gains tax, dividend tax, a rise in the, you know, the highest bracket on ordinary income taxes. And we’re talking about, you know, tax tax tax, which ultimately means less money in pockets, which impacts individuals, entrepreneurs.
Dan Clifton 16:29
Yeah, we’ve been fighting World War II, called COVID. And it was spend whatever it takes, there’s been no consideration of the deficit and the debt. And by the way, Washington is just basically ridden out that deficits matter. Usually, you get a problem when people don’t think deficits matter. And we’re coming up to that point, I think what you just said, is very insightful. Congress has to raise the debt ceiling, the Democrats had a window to do that in the COVID bill, and they chose not to do that would have been a lot easier to do. Now, we’re going to have even larger deficits, and they’re going to have to raise the debt ceiling in this next bill. So they’re going to have to pass a budget, open up a reconciliation window, then actually raise the debt ceiling as part of that, and include how much money we want on infrastructure, how much money we want on green infrastructure, do we want to include health care? Do we want to include immigration, and then we’re going to have to put tax increases included in there. And I think this is important debate for small business owners, because most small business owners pay the individual income tax, not the corporate tax, corporate tax is 21%. The top marginal tax rate is 37% on individual income. And so we made a very important change in 2017. Trump’s tax reform that allows small businesses to deduct 20% of their income so that they have a tax rate that would be very similar to that lower corporate tax rate. And what we’re watching to see is whether the Democrats try and remove that tax deduction for small business owners, by the way, it was part of Joe Biden’s tax plan. You mentioned a divided Congress, I think it will be very, very difficult to be able to get that tax increase through that would remove the deduction for small business owners. So I do anticipate that the top marginal tax rate will go from 37 to 39.6%. And I do believe that Democrats are going to at least try to lower the value of all tax deductions, right now you take a deduction, it’s the equivalent of your individual income tax rate, they want to make it less generous. Okay. Now I know you’re you may have clients who are in New York or California and high tax states, there is likely going to be a move to reinstate the state and local tax deduction as well. So Nancy Pelosi from California high tax state, Senator Schumer’s from New York, a high tax state, they’re going to try very hard to be able to bring that back. So those are, those are, there’s always going to be offsetting factors there. But the small business deduction is the holy grail, the small business community right now. And I do think that that’s going to stay, so higher income tax rate, maybe less deductions, reinstate reinstatement of SALT, and possibly a higher capital gains, and dividend tax rate somewhere in the range of 25 to 28%. Because when we talk about taxes, we’re usually talking about revenue. The Democrats are trying to solve for income inequality as well. And they believe raising taxes on income and capital are ways to solve the income inequality crisis. In a way, that’s very much the way they were thinking about 1968 and proved to be wrong, but I’m not here to tell you what’s right and wrong. I’m just telling you, here’s where they’re coming from when they do this. The other big issue that small business owners are asking us about is the estate tax, the estate tax taxes income right now over $11 million, not income wealth over $11 million. And if you’re married, you could transfer to your spouse upon death. So it’s really $22 million. The Biden plan seeks to raise the estate tax from 40 to 45%, seeks to cut that exemption in half from $11 million to $6.5 million, change the way assets are transferred to the heir from a step up in basis to a carryover basis, which means that if your children inherit your business, they have to pay the original basis on that, on that on that ownership, very big deal. And then on top of that, is the fourth component to it, which is an unrealized capital gains tax upon the sale upon the inheritance of that estate, which is just a wealth tax built in under the estate. I don’t believe most of that will go through. The estate tax is a very, very difficult thing to go through. But I just want people to be aware, these are the issues you’re going to see on your screen coming over the next couple months. And these are the proposals that are out there. When I say to my colleagues, which I talked about, they’re like, “Oh, you got to talk about all these tax increases that are out there.” I don’t want to scare anybody. But I do want to make people know that these taxes are out there. I don’t think they’re all going to go through, but you’re probably gonna see a lot more information about it.
Lee Korn 21:20
Yeah, I think I was reading Joe Manchin, and he voted or was pushing to eliminate the estate tax. So certainly will be some horse trading in the government level. Great. Want to bring up the idea of retroactivity? Right. So we’re looking at possible possibility of taxes being increased significantly? Does it get done this year? Can it be retroactive? I know governor Murphy in New Jersey, they raised taxes made it retroactive for last year, a lot of people are concerned. I mean, it you know, people were trying to think if they have large embedded capital gains do they sell and recognize this year? Or if they do it now? And then they raise taxes? And it’s retroactive. They’re stuck, and they have no flexibility? Just some historical perspective, what are your thoughts on retroactivity?
Dan Clifton 22:10
So I want to give you some examples, too. But let me give you my big picture thought is that in 1968, in 1993, taxes were raised in July in August, and they went retroactive to January 1 on individual and corporate income. So I have seen retroactivity done. I think you mentioned a great example. Governor Murphy passed a tax increase in September, and then made it retroactive to January 1. I don’t believe that these tax increases are going to be retroactive. There’s a possibility they could be if Congress needs revenue inside their reconciliation window. But it’s not our base case, on corporate income. If we actually did a retroactive corporate tax increase, it would be about a $40 billion hit to S&P 500 earnings in 2021. And the markets are not priced for that. Treasury Secretary Yellen understands this, and has been guiding the market into a January 1, 2022 with a possible phasing of the corporate income tax rate over the next couple of years, depending on their income tax structure. So that’s corporate on individual. There have been some great examples in history. And January of 1994, we had a Medicare tax go up. But the tax increase didn’t get enacted until months before that. And guess what? Guess what people did? They pulled forward their income into 1993 to prevent the 1994 tax increase from hitting them. So there is some reluctance about having a individual income tax increase start on January 1, if a bill passes in September, they’ll say the effective date will be right around the time of that bill passing into law. And so it creates a little bit of an accounting snafu for some of the for your tax accountants who have to figure out how to do it on an annual basis. But we’ve done that with capital gains and dividends before and I’m going to give you these two examples. In 2012, President Obama won reelection. Six weeks later, we were facing something called the fiscal cliff. You had a massive automatic tax increase coming in on income capital gains, dividends, just about everything you can imagine. We had 1100 companies in six weeks, pay a special dividend between Election Day and December 31. Because they knew on January 1, that dividend tax rate was going up. So Biden wins the presidency and the Republicans keep the Senate, which that’s the way it looked on election night, right? And it was like no company paid out real special dividends, I think there were four, three or four that actually paid out a special dividend. So then the Democrats win the Georgia election. Now it’s like whoa, tax increases can happen. And you still haven’t seen companies paying out those special dividends. In 2008, when Obama won the presidency, for the first time, you saw a wave of family owned businesses sell their business. And their equation was very simple. The capital gains tax rate was 15%. In 2008, the risk of that going lower was like zero, or the probability of that happening going lower resume, but it was a high risk that that rate was going to go higher. And so there’s these great stories of Dow Jones, Wrigley. So you can look at like sports owner teams selling their business to get ahead of that. And my point here is that we still have a couple of months left, before we start getting into this real tax debate. If you have tax issues, you should see your financial advisor immediately and figure out what’s in your best interest. I’m not saying make decisions because of taxes, you have to make them for various other reasons. But we are getting to the point where those tax increases could start being effective if they are going to be enacted. Let me give you one example. As soon as you have your first committee hearing on a tax increase, Congress could set the effective date around that day. So for capital gains, or individual income, that could be one of those dates, let’s just say they hold their first meeting in June. It may not be that day, but I would have anything done before that first committee hearing. So that’s why I think it’s important now to meet with your financial advisor and see what’s best for your own personal financial setting as we get into this tax debate, because this stuff can be very, very meaningful. And the example that some small business owners who want to sell today have a much lower hurdle rate than they would once that capital gains tax rate goes up. And so then the economics changes when you impact taxes.
Lee Korn 27:19
Great. We’ve been having lots of conversations with clients regarding taxes. That’s that’s a common question. So as I understand it, history shows us it can happen, hoping that it doesn’t happen, but it’s possible. So while I’m staying on the topic of taxes, I want to pivot to state taxes. Right. So a big part of this bill, I think it’s $350 billion is going into state and local coffers. I heard you quote a statistic the other day, last year was the first year since 1978 that states had net surpluses. Right. Yet states like New York, California, Chicago, a number of states are crying poverty, threatening to raise taxes, usually hear it on the highest on the higher end of the brackets. Do you think that happens? Do you think all this cash being infused and their coffers being full? Takes a pause? And then on top of that I just love to talk about you have this huge migration from high tech states to low tech states? I think New York, there was a net migration of 300,000 people out, many of them ended up in Florida, whether they’ll stay there or not. They haven’t gone through a Florida summer yet. I don’t know. But you have this move? And how does that impact the decisions that they make?
Dan Clifton 28:33
Awesome questions. So first, let me say I don’t do much, well, but we understand state and local finance pretty well. It’s what my background is from 25 years ago, and I worked for multiple governors on state budgets. I now obviously work at Strategas and our goal is to look beyond the politics and get to the facts, because there’s always going to be political arguments, right. Policymakers are going to say our budget deficits are x or y to be able to get their policy initiatives through. You know, even Biden, when he came in, he was downplaying the vaccines. He’s like, “Oh, I want 100 million vaccines in 100 days.” We’re like, we’re already doing that. Right? There’s nothing new there. That allows him to then get up there and say, we met our goal. We met it early, because I believe most politicians want to have a low bar and then exceed that bar. Some politicians set too high a bar and then never made it and they feel it. But think about what states just went through. We just had a pandemic, we had a 40% decline in the S&P 500, and 20 million Americans lost their jobs. All of that impacts tax revenues. And the governors got up there and said, we’re going to have deficits of 40 to 50% of the total level of spending that they’re going to do. And we looked at that we were like they’re lying. And I guess lying might be a strong word. They’re not being honest with you. Because there’s no way that California spends $150 billion and has a $50 billion deficit, which is the number that they put out. Okay, and there were two things that were happening. Number one is that they didn’t have April 15 tax collections, because the tax day got pushed out to July. And they use their April decline, which is the largest month for tax collections, and then built that number in and then added on the pandemic revenue loss, which was another 10 or 12% on top of it. Okay, I mean, it was totally disingenuous, okay? And they all did it, because they were going to the federal government, to say, we need money. Do you know that Congress was this close to giving these states like a trillion dollars of money, because of that effect, and the timing of when the April taxes agency? And then all of a sudden people pay their taxes in July, and all of a sudden those budget deficits started going away, because they weren’t, weren’t being honest with everybody. Not only that, the economy did so much better than what was built into those forecasts, which by the way, surprised everybody. So it’s not entirely their fault. California’s tax revenues are today higher than they were in March of 2020. At the beginning of the pandemic, with no tax increases, New York is $1.5 billion below where they were a year ago, when the pandemic started, $1.5 billion on $100 billion BAITs, that means our tax revenues are down 1.5%, despite a pandemic, despite everybody moving to Florida, which we’ll talk about one sec. And they’re still crying poverty. I’m giving you this background, because Congress just authorized $350 billion, and they are going to give $190 billion to state governments directly. And $130 billion to local governments directly. Andrew Cuomo in New York has a $1.5 billion dollar revenue decline. And they are going to get $20 billion or somewhere in that range from this bill. Okay, just to give you some context of what we just passed. Then the local governments get their own money as well. So we are giving those local governments and state governments more than enough money. And my point to you is, if any, if any state gets up there with a straight face today, and says we have to raise taxes, they’re being more disingenuous today than they were at the beginning of this pandemic when they were claiming 50% budget deficits, because that tells you there’s something larger going on, right? And so you think about what’s going on in New York right now. Andrew Cuomo had been insistent not to do a wealth tax. Insistent. Andrew Cuomo is basically non-existent as a governor at this point. And so the progressives in New York are starting to say, “Hey, this is a window for us to be able to raise taxes,” and you’re probably going to have a change, I don’t know maybe a change in gubernatorial administration. But we’ve solved New York’s budget problem with a federal bailout. Washington State is trying to impose an income tax on the wealthy in those states, or at least the capital gains and dividend on Jeff Bezos and Bill Gates and all that. They don’t need the money. And so that will tell you there’s something larger going on here about whether this is about income inequality and class envy than if it is about the actual revenue needs of the state, because none of them have any revenue needs at this point. It’s now all about class envy. Okay, so take that and say, okay, go ahead and do it. Because you know what, now I’m going to take the migration that is already in place, and you’re going to accelerate that out migration. Okay, our company is a New York company, we’re based in New York. Most of our employees are lifetime residents of New York. And I used to say, “God, New York is just not treating you guys well,” because I live in Washington DC, “Like, they’re not treating you well. Like, why are you even located there?” Now think about what’s happened. We’ve removed the state local tax deduction. We now have a work from home policy. And we have a mayor of Miami, who’s saying, “I want all the capital to come here.” You know, Miami schools are 100%, open 100%. Now compare that to LA. Compare that to San Francisco. Compare that to what happened in New York City. So it’s not just taxes. It’s not just regulation. But there’s a larger divide happening in the country where there’s a doubling down on wealth envy versus, hey, you’re welcome, I want you to come live in my area, my local jurisdiction. And so I’m seeing a massive migration out of San Francisco into the Florida into places in Texas, Arizona and Nevada, where that capital will be treated better. And we’re seeing a massive migration out of the Northeast, into Florida and other places down south. Now when I worked in the New Jersey governor’s office 25 years ago, our thesis was New York’s tax policy was New Jersey’s best economic development policy. So the more New York destroyed its own economy, the more New Jersey benefited from that. So when you look at migration patterns, what you’ll see is it’s most people moving out of the city into the suburbs, or out of one state into a more local estate, by the way that train’s been in place for 15 years. Okay, it’s happening at an accelerated pace. But people are trying to say to me, again, people who really aren’t moving out of California, they’re really moving from San Francisco to the suburbs. And that’s true, but there’s been 250 years, the big Delta, is the greatest wealth migration in our lifetime is happening right now, where the people who pay the taxes in California in New York and Connecticut in New Jersey, are moving to low tax jurisdictions. And that will ultimately affect the public service. So you are killing the golden goose. And if you saw New York, get bailed out by the federal government, and then go and pose a wealth tax, I think people are gonna move. Now, if you’re a small business owner, and you’ve been cutting people’s hair in New York for a very long time, it’s very hard to move, I get that. But where those changes could happen, on the margin, are going to happen on the margin, and they are going to accelerate. And I think it’s deeper than just taxes. It’s now a mindset about where my capital would be safest. Because people are attacking me for my success. And that’s a total game changer in terms of the psychology of how, how entrepreneurs are going to think about where their business should be located.
Lee Korn 36:56
You’ve seen large corporations, Goldman Sachs, JP Morgan, many financial institutions that started to migrate down to the West Palm area, the Miami area. Alright, so as I understand it…
Dan Clifton 37:07
And let me just get, let me just give you this, this Citadel, which handles all the securities in the market, like and they just got a bad name over this whole Robin Hood thing. But they literally rented out a hotel in Palm Beach, Florida a year ago today, okay. And basically ran the operations of the stock market out of a hotel that was empty because of the pandemic, and put all of their workers into that, to be able to run it. And you know, what the governor of Florida said, we want you here, we understand there’s a pandemic, what can we do to make you safe, because we want the stock market being operated out of Florida, because they would never have been able to do that in Illinois, in New York, right? And by the way, there’s got to be a balance here, between what is legitimate in terms of the pandemic response in keeping your business open and stuff. And that’s the mindset that I’m talking about, wasn’t about taxes or regulation. But it was, we want you here and we want you to thrive, what can we do to make you thrive, but in exchange, you’ve got to keep your employees safe. And that is the appropriate balance. And too far in this over the last year, we’ve seen the extremes in both directions, maybe not enough safety, or too much restrictions. And you need a better balance, I think we’re getting to that balance.
Lee Korn 38:20
Sounds like lots of creative finance in the state offices. And when the New York State Legislature meets and decides they’re looking to raise taxes, I’m going to send him a copy of this podcast, let them get their numbers right. Awesome. Last question, Dan. So huge amounts of stimulus just passed $1.9 trillion. We’ve talked about the impacts, long term, are we done, you think there’s more stimulus to come? You think there’s more money? I think there’s more.
Dan Clifton 38:49
So I’m of the view that one win leads to momentum for another one. And this was a win for Joe Biden and the Democrats. Regardless of whether this stimulus passed, we’re going to get a series of positive economic and COVID related data in the next couple of weeks. The economy is reopening. It’s the biggest tax cut or quote unquote, stimulus that we could ever have done. And it’s going to happen. And the Democrats are going to see that they just passed a $1.9 trillion package and see economic stats getting much better, including jobs, and say, “Wow, we did good for the American public.” It’s because of our legislation. And we need to do more. And that’s where the push is going to come from, to do more on infrastructure and make some of the policies that they’ve done in this bill, more permanent. That’s important because the chairman of the Federal Reserve keeps saying, “Hey, as long as it’s temporary, it’s not inflationary.” I should bring him to a meeting in the Democratic House Caucus, which they’re just trying to focus on how to make the provisions in this $1.9 trillion package permanent moving forward. Those are the debates that we’re gonna have. And what I’ve been trying to argue is that there is a much bigger difference between $2 trillion on infrastructure over 10 years, and $2 trillion in a year. Okay, they’re just not equivalent. And my sense is that we’re already doing $500 billion on infrastructure already annually. And so if you went from $500 billion to $1 trillion over 10 years, you’re really talking about $500 billion over 10. I know these numbers sound large, but that’s $50 billion. And we do our economy is about $22 trillion today. So I think what we’re going into is a process where things are going to get smaller, the numbers are going to still look very large. But we’re moving into a much smaller response system here. And my hope, is that we don’t need this stuff. That we can allow entrepreneurs and consumers to thrive, and just let the animal spirits of the reopening flow its way through, and people are going to be excited. I tell you, I you know, I give this example, I played football with my nephews in the street two weeks ago, when I went to go see my family. And it was the most normal thing that I had done in the last year. And it felt so amazing, something that I would do, almost every weekend as a kid that I try and do monthly as an adult, it just been taken away from me. And I think we’re going to get a lot of joy out of that. And that joy psychologically, is going to push the animal spirits of America. So I’ve never been more bullish on America, seeing the sheer destruction that’s happened over the last year. And the way that we are being able to rise up out of this and make us stronger as a country. And if that’s true, then we don’t need a lot more of this stimulus. But politicians go there to go spend money, and they’re trying to figure out how to do it. And there’s probably going to be one more bill that passes. But it probably is not going to be anywhere near the magnitude of what Joe Biden signed into law yesterday.
Lee Korn 42:02
Well Dan, this has been great, very informative, entertaining. You know, we’re big fans of Strategas here at Opal Wealth Advisors. We rely on your firm’s guidance and information daily, and I can’t say thank you enough, and have a great day.
Dan Clifton 42:18
Thank you. Talk to you soon.
Lee Korn 42:21
Awesome. Thank you for listening. For more information on how you can take control of your finances and enjoy the life you’ve always wanted. I encourage you to visit our website at opalwealthadvisors.com. You also can find our podcast page at opalwealthadvisors.com/bizmoney, where you can subscribe to be kept in the know on what’s coming in our series. And of course, feel free to email or call me with any questions. I can be reached at 516-388-7980 or drop me a note at Lee dot Korn at opalwealthadvisors.com. Thanks again for joining us and we’ll see you next time on Biz Money.