Watch Julio Gonzalez discuss the economy, tax policy and the US recovery efforts on Jimmy at the Crossroads with Jimmy SengenBerger.
Jimmy SengenBerger 0:12
As a country, we are facing significant economic malaise, more than 40 million Americans now out of work. And just as businesses were starting to reopen hundreds upon hundreds of them have now found their reopening delayed across the country because of writing that has done significant damage to businesses, again across the country. It's horrific. It's sad, it's tragic. We need to get the economic gears rolling again. But how do we do that? And is the tax code one way to accomplish that objective? Let's talk about it with tax reform experts someone who was deeply involved in the tax cuts and jobs act of 2017. He's the founder and CEO of engineer tech services, Julio Gonzalez joins us here on Jimmy at the crossroads. Julio. Welcome to the show, sir. It's good to talk with you.
Julio Gonzalez 1:10
Thanks for having me on. I really appreciate it.
Jimmy SengenBerger 1:12
Thanks for coming on. So let me ask you first sort of a just a broad, big picture question. As I mentioned, we're seeing major significant economic strife across the country seems to be worsening in certain respects, even as we're reopening. What's your overall sense for where things are at economically right now?
Julio Gonzalez 1:32
Yeah, it certainly is a mixed bag. You know, we're here. We're used to it here in Florida, getting consecutive hurricanes that come through us and then having to deal with that and come back from one after another. And what a contract one, the COVID and then followed up by the writing and super difficult for these small businesses to come back from consecutive hits. But fortunately, we had good tax policy coming into this virus and we had a great economic Like activity. So we were at a high point, and certainly this co virus has been tough but cares package came out and did some good heroes act, you know, came out of the house, which was dead on arrival at the Senate. But really, I think we're looking at new economic tax policy, which is the payroll tax holiday, the payroll tax holiday for both business and individuals to spur economic activity, one to get people to hire the people that are unemployed, and to to get the unemployed who want to come back to to work versus staying at home again, $600 a week. So tax policy is important. It was in the 2017 when we lowered the income tax rates so that we could give businesses a chance to survive that partnership with the government and lessen regulation and that work, right, we got to an all time economic high.
Jimmy SengenBerger 2:50
But one of the things that's interesting about the tax cuts debate, is this idea that you are essentially just benefits The rich only to the exclusion of average, everyday Americans. Let's go through some of the fallacies here as we talk about the the tax cuts and jobs act and some of the taxation policies. And also we'll get to the payroll tax cut possibility in just a moment when it comes to the idea of simply tax cuts for the rich in the 2017 tax cuts and jobs act and then only benefited the wealthy are among us. What say you to that?
Julio Gonzalez 3:26
Well, there's no doubt that we saw consecutive records and money going to Treasury go into the IRS because more people were paying taxes. So it works, right, you lower income tax rates, get more people to work, increase wages, because the demand supply, and all of a sudden, you got a lot more money going into the market and going into the collections. So it obviously worked well. I mean, it paid off. We lowered the regulation. We lowered the income tax rates. It got people to invest in their small businesses that brought employment back and people were making money. We had the supply and demand route the wages up. And obviously that paid off every, every month when we saw much more money going into Treasury.
Jimmy SengenBerger 4:07
But when it comes to money in increasing, I mean, what you're talking about is supply side economics here this idea that if you unleash the potential for the private sector businesses, to invest in new opportunities to hire workers to build, construct new equipment, purchase new equipment, and what have you that that is the key to economic growth, more than say the idea of you know, we have a lot of talk about consumer demand in our economy, it's not really the driving forces job creation that comes from investment that then produces new opportunities in the private sector as far as businesses are concerned.
Julio Gonzalez 4:47
Yeah, we saw that work. Well, I mean, you know, tax reform shouldn't be every 30 years. Right. We should do it, you know, routinely, like we do with the interest rates. Right, but that's difficult. I know that the President wanted to have tax reform, two point No, because you always have unintended consequences, right? And sometimes you just want to work those out, but you don't want to work them out every 30 years. But clearly, tax reform, lowering the income tax rates for both individuals and businesses, gave a great boost to the economy, you know, getting rid of the regulations or creating some terrorists to give us a fair advantage here at home. Those were things that were working well.
Jimmy SengenBerger 5:23
I don't want to get off track into the tariffs. I would disagree with you there and although maybe maybe later on in the in the program or in their conversation, we'll jump into that. But in terms of the the tax cuts and jobs act and what that did in terms of reducing the tax burden. One of the things for me that's important to keep in mind is that first and foremost, the money that goes into the federal treasury is not the government's money. It is the taxpayers money, you've actually earned that yourself and so a lot of times we hear about giveaways Oh, these tax cuts and JOBS Act was a giveaway to the rich or giveaway To special interest groups or giveaway to this group or that group, we're not talking about giveaways though, are we? Julio Gonzalez, we're talking about enabling people to keep more of their money, which they're not then going to just put under a mattress. They're going to put it to work either spending or investing.
Julio Gonzalez 6:17
Right, just like you said, with good tax policy. We were able to invest in equipment, we were able to invest in machinery into buildings, we were able to grow the infrastructure to bring in employees, because we had a less of a tax burden that allowed us to take that money and invest in our employees and our businesses. You know, when we're in business, you're in business with the government, and you want that partnership to be a good one. And for a decade, it was a poor relationship. We couldn't save money. We had bad tax law. We had high income tax rates and we couldn't grow. We couldn't expand and, you know, when we changed that tax policy, we really just wanted to bring down the income tax rates. So that we could be competitive, right? We know that we weren't competitive globally. And we couldn't retain good jobs here in the United States and the companies moved offshore. Because the tax rates and the tax systems there were much easier for them to profit and invest in our own companies. So at least we were able to level the playing field. And I think that did a lot of good for our country.
Jimmy SengenBerger 7:20
Again, we're talking with Julio Gonzalez, founder and CEO of engineer tech services. joining us here on Jimmy at the crossroads. You keep using the term partnership to describe businesses and the government. I understand the notion of public private partnerships in certain ways. But can you define that term? Because I have never really thought of the average day to day relationship of business owners and the government is a partnership. So what do you mean by partnership?
Julio Gonzalez 7:46
Well, we understand that, you know, we're going to have an income tax, right, and that we're going to contribute to the money that goes into the system. But when we're contributing at 35% versus 21%. It's too onerous. We can't grow and we can't, you know, accumulate cash to bake those investments. And I, that's what I mean by that partnership, that when you're in business, you understand taxation, you understand that there's going to be a price to pay with the revenues that you generate, whether it's employment tax, whether it's health insurance tax, state tax, and federal tax, but think, thank goodness, when we did the tax reform, we lowered that income tax rate to 21% for businesses, so that we could at least retain some cash and invest in our companies.
Jimmy SengenBerger 8:33
Let's talk for a moment about the idea of the payroll tax cut or the payroll tax holiday for the rest of the year. This is something that President Trump has proposed. Some are suggesting that at the minimum, what you do is you offer that for businesses that have 100 or fewer employees, others saying it should be across the board throughout the economy. And of course, the payroll tax is the tax that we pay for Social Security and Medicare. It's 15.3% total If you're a sole proprietor, for example, you have to like a self employed individual, you have to pay the full 15.3%. But if you work for an employer, then it's split 5050 between you, the worker and also the employer. So talk to us a little bit about how you view that possibility in terms of what it could mean for the economy and what it means for workers in businesses.
Julio Gonzalez 9:24
You know, I view it as what is the worst of the two evils? Right. I mean, certainly, you want money to keep continuing to go into the Social Security system, but not at the expense of small businesses never reopening. That's, you know, that seven and a half percent, that's significant, right? So we're saving that that's a big boost to our cash flow and is also a big boost in cash flow to the employees that would drive them to come back as well. So I think, you know, we had a look at it. We're saying hey, government, invest in us say that, you know, we're going to take this payroll tax holiday and that you will Believe that based on that we'll be able to reopen our businesses preserve cash, invest in hiring, getting equipment back up, getting our businesses back up, and that ultimately that investment will pay but pay off as we get back into, you know, 2021, two, and two and a 2021 as well and pay back the system.
Jimmy SengenBerger 10:22
Early on, when we talk about the payroll tax, I mean, a lot of people will say, hey, and you kind of address this, you're not going to have money going into the Social Security and Medicare systems because of the tax holiday. And therefore that may put a bit more of a strain on two programs that are already struggling fiscally right now. But you also got to a point of saying that small businesses are suffering right now. And if they're not able to come back to work, because say COVID-19 hit and then maybe their business was decimated by the riots, or even it was just COVID-19 in the shutdown, put them behind and it's difficult to get back. You have that extra burden, then that means That if a business goes out of business, they're not gonna have workers paying into the Social Security or Medicare system come 2021 because that business isn't even around.
Julio Gonzalez 11:10
Absolutely right. I mean, I think we have to, as a country say that we believe that this tax holiday is a great investment for everyone to get back on their feets and get businesses back, get the employees back. And that savings is really could be the difference between the ability to hire more people and get back on our feets in a substantial way or not. And you know, every penny every dime, every dollar counts when you're a small business owner.
Jimmy SengenBerger 11:41
It really does. I mean, that's the thing when we're talking about this economy is such a significant player is small businesses. Now, you mentioned regulation before, because that that can put a significant strain on businesses across the country, which is why we've seen the unprecedented deregulatory regime. Under this Trump administration, that is to say what they've been doing with deregulation is literally unprecedented, significantly cutting the burden of the of the restrictions and the costs that come along with it. Whenever the government puts a regulation on a business, that means they have to spend more money for compliance to follow through to get verification. All sorts of different things get opened up with regulation, which can put a significant drain on the economy, which also can then result in lower tax revenue, can it not?
Julio Gonzalez 12:34
Hundred percent, like I said, that partnership, you want it to be a good one, right? And with the regulation, you know, reduced, right, you saw manufacturing coming back in a significant way. You saw mining coming back, transportation coming back, bank services, financial services coming back in a big way, because we release these burdens that were so onerous to a lot of us in our a lot of our small business. says.
Jimmy SengenBerger 13:02
So Julio Gonzalez, when we look at the tax cuts and jobs act of 2017, as we go into this 2020 election cycle for the general election, what do you think are going to be the key messages that the President and his campaign or supporters should be talking about when it comes to the tax cuts? And what you know, I mean, we get a lot of information that gets thrown out that the tax cuts and jobs act weren't beneficial to the American economy. And as I alluded to, before, just a very narrow stretch of say, top 1% or so what are the things that you think really needs to be expressed to the American people in the coming months? And how do you boil it down to average folks who may not be so in tune with the complexities of the tax code, surprise, surprise?
Julio Gonzalez 13:48
Well, like you and I discussed, I mean, tax reform 1.0 was really the start of what was hopefully going to be tax reform 2.0 which was going back and getting lower income tax rates for me vigil. So phase one was really focused on significant income tax rate reductions to the businesses. Phase Two is going to be tax reform 2.0 getting income tax rates lower for the individual. So that's no doubt what's going to be key. The other thing that's going to be key is long term stability. A lot of these tax benefits that we put into 2017 expire, a lot of the income tax rates expire, a lot of the deductions expire, a lot of the tax credits expire and they expire anywhere from two to 10 years. We need permanency as individuals and businesses, we need everything permanent to the extent that we know what tax code we're dealing with and what tax laws that we're dealing with, so that we can run our company not knowing if something's going to expire and never be extended. So I think those would be two really big pieces that the administration should frame the upcoming tax reform for the elections.
Jimmy SengenBerger 14:58
So a few minutes left with you who will Gonzales, our guest, founder and CEO of engineer tech services. And I mean, one of the things that is just so essential for the American people to recognize, also, I think, is the notion that when you get to keep more of your money, that's how it should be. Because it's going back to my point before it is literally your money. It belongs in your pocket, except insofar as it is needed by government, in order to pursue whatever objectives are necessary in order to provide security, protect individual rights make your life better. And instead, what we've often seen is when you have higher taxes, that could promote bigger and bigger government more expansive programs, although some would say that that's kind of balanced out by the borrowing that happens that is to say we have government grow massively, with or without high tax rates, because if you don't have higher taxes, potentially you have less revenue they say, and therefore, you need to Far more we have seen a heck of a lot more borrowing in the past few years. So what do you make of those dynamics?
Julio Gonzalez 16:06
I think you bring up some good points. I think when you have a good tax system, a good tax economy, and you're having lower income tax rates, you're saving that cash. But that cash is never sitting idle, right? It's going into the stock market. It's going into the banks, it's going into consumption. It's going into buying products and services. And so that money, again, never sits idle. And it's the one thing that keeps the economy going, it's just kind of like a snowball effect, right? We're spending more or investing more, we're putting our money into the stock markets, more money into the banks and financial institutions. And we see when that happens, that the economy is at an all time high. Unemployment is at an all time low. And we got to hope that that continues.
Jimmy SengenBerger 16:54
And final question for you. Julio Gonzalez, look, the reality of tax cuts. And the reduction of the burden of taxation. And also the reduction in the burden of regulation on the American people is that it promotes individual liberty and economic prosperity. The toughest thing, though, and this kind of goes to question I asked a few moments ago, the toughest thing, though, I think for our side often, which is the side that believes you should keep more of your hard earned money and that it's better for you and better for the overall economy. The toughest thing is, I think getting the message across effectively. What do you think are maybe the the two things if you boil it down to a way that we can be expressing it out there in short videos and ads and what have you? What are those things that you think the top two items that you think can be succinctly expressed to the American people in an effective way? From a messaging standpoint?
Julio Gonzalez 17:48
No question about it. What a what a good point to bring up. I mean, really, and maybe we've done such a poor job with the messaging. I would say that, you know, thank goodness for people like yourself that are getting access Great messaging out there, but prosperity really I mean, it's all about what our country was built on, which was that freedom, freedom financially, freedom civilly and prosperity. I think that's what we're talking about when we're talking about good tax policy, good economics, and the the ability to start your own business. You can't start your own business if you don't have any money, right? You know that, right? You have your own business here, and it and it takes you and investing in it. But that's what it takes. And when you have that freedom, that financial freedom, you have the ability to invest in yourself. And I think that's really important.
Jimmy SengenBerger 18:39
So actually, I have a few extra minutes. So I think I want to ask you about the tariff question for a moment. Why do you say that the tariffs are good aspect to the American economy so that I'm a I'm a big free trade guy. I'm not persuaded that the trade war was particularly beneficial, but I always love when I hear someone who disagrees with that perspective. So what's your view on that? Your situation?
Julio Gonzalez 19:01
Yeah, I think on the tariff situation, I think you have to be selective, right. So I agree with you that in economic policy, free trade is really a good thing. Although I think free trade is really difficult when you have small businesses here in manufacturing in this country that simply cannot compete with low labor that we just can't have here in the United States, but they're ultimately really important to the economy of their towns. And so, you know, I'll give you an idea. We had a company that produces small posts for construction sites in Ohio, right outside of Toledo. And they were getting killed because the steel that Home Depot and everyone else could buy and these posts was just so inexpensive coming out of China, but, but there was just no possible way to get the labor down to that thing here because we have regulations. Maybe we need better regulations in combination, but I think so. tariffs management to help small businesses here in the United States that have that disadvantage is not a bad thing.
Jimmy SengenBerger 20:08
I think that in the end, what we see is that tariffs do raise costs, and they give incentive for American producers to increase their costs, and then that can get passed on. I see your point, though, and I think I think you hit on one one fundamental observation that I make, which is that in terms of the regulations, I mean, that's the biggest cost drivers when you have this regulatory burden upon small, medium, large sized businesses, you're telling them, hey, you have to spend more money in order to meet these regulations that oftentimes I would save and more often than not, are unduly burdensome and unnecessary. Like it's not like the the federal government's looking at every regulation and saying, is this absolutely necessary and what is the cost to the companies that will have to follow through with and abide by these regulations and so if you Have an excessively excessively regulatory and excessive regulatory state. That's the phrase that's the most harmful in that regard. I think that's where I would focus on.
Julio Gonzalez 21:12
Yeah. I mean, I think you bring up a good point, we certainly saw that when we did some of the regulations and tariffs that people here in the United States just raise their prices unnecessarily. And that was, you know, extremely disappointing. That's not what we were trying to achieve there. But you're right, that was the unintended consequences that hurt people here. And I agree with you, and I'm not a economist per se, but I think there's got to be a right way to combine some of that management so that we're doing something that's ultimately good for our country, but I saw that as well. And that was disappointing.
Jimmy SengenBerger 21:49
Well, Julio Gonzalez, it is important that we all keep in mind. The benefits of letting people as I say, keep more of their hard earned tax dollars, whether it's from Liberty standpoint, hey, it's your money, your property you earned it or from the economic prosperity standpoint. And I appreciate you joining us to talk about that. And more today. Well, we appreciate what you do. Thanks
Julio Gonzalez 22:11
for having me on.
Jimmy SengenBerger 22:12
Thank you stay well and be healthy, sir.
Julio Gonzalez 22:15
Jimmy SengenBerger 22:16
Once again, Julio Gonzales, founder and CEO of engineer tech services joining us here on Jimmy at the crossroads. Yes, it is a fundamentally critical point. Tax cuts or tax rate cuts is probably the even better descriptor means that you get to keep more of your hard earned money to then spend or invest in wealthier people, by the way, invest that money. I'm a believer in eliminating the capital gains tax altogether. That's a whole other kettle of fish have a discussion, kind of opening up another can of worms there. But the idea of allowing people to invest more in the economy that's gets things working. That's what's going to be needed in order to get the economic years rolling again, reduce the burden on businesses reduce the burden on investors reduce the burden on you. Especially because of the crisis that we're facing right now we need every penny we can get. Thanks for watching this clip of Jimmy at the crossroads. Don't miss more engaging, intelligent talk, subscribe today to the Jimmy at the crossroads YouTube channel. You do not want to miss our live show. Thanks for your support.