Tariffs, Taxes And “All That Government Stuff” (Podcast)

00:33
I'm sitting down with three of my colleagues from Palisades Hudson to take a deeper dive into some of the topics you've likely heard about in the news: tariffs, taxes, and — as one of them put it to me — “all that government stuff.” If you've ever been curious about the way financial professionals talk about the economic headlines, today, this is your invitation to listen in. On the mic with me today are, as I said, three of my colleagues. First up is Larry Elkin, Palisades Hudson's president and founder.

00:59
Thanks for kicking off the third season with me, Larry.

Larry Elkin
Hi, Amy. Delighted to be here. And I guess one or two things have happened so far this year that are worth all of us talking about.

Amy Laburda
I think we'll find something to land on here and there. Second, we have Paul Jacobs, Palisades Hudson's managing vice president. Welcome back to the podcast, Paul.

Paul Jacobs
Thanks, Amy. Good to be here.

Amy Laburda
And rounding out our lineup is vice president and chief investment officer Ben Sullivan. Hi, Ben.

Ben Sullivan
Morning, Amy.

Amy Laburda
So, Ben,

01:24
I'll put you in the hot seat first. We're recording this just before the Federal Reserve's Federal Open Market Committee, sometimes abbreviated FOMC, meets. So our listeners will know more than we currently do about the decisions the committee has made this time around. But even so, I think it's fair to say that the Fed is going to be navigating a pretty complex financial situation for the foreseeable future. So when our listeners hear about the Fed, and the central bank's decision making about benchmark interest rates,

01:52
they may not always have a great, sort of intuitive sense about what that actually means on a practical level. As a financial planner, but I'm sure also in your personal life, since people know what you do for a living, you probably get some questions. What are some of the ways that you see central bank decisions filtering down on a practical level towards individual Americans and families?

Ben Sullivan
Well, that's a great question. There's a lot to unpack there. I think any area

02:16
that we talk about today, we could have an entire podcast on, essentially, just that one question. So I'll try not to get too deep into it. But really, I find that interest rates are underpinning a lot of decisions in the economy. I think most obvious to everyone is really the interest rate on mortgages. So the Fed does not set the interest rate on mortgages, but it sets the short-term rate that banks are borrowing at, from the Fed.

02:43
And then that is kind of the basis for, where all other interest rates are keying off of. So recently we've had relatively high interest rates compared to the past 20 years. And that's been kind of slowing the economy a little bit. So if the Fed was to cut interest rates, that helps spur the economy a little bit. Lower borrowing costs kind of make it cheaper to borrow money. So it makes money flow more quickly through the economy.

Amy Laburda 03:10
Ben, you're in Texas. Are you seeing anything specific in your local environment that's complicating, or pulling against or pulling with that national picture?

Ben Sullivan
I don't know that it's specific to Texas. I think it really is throughout the entire country. So when I think about interest rates and think about mortgages and everything, it's a little bit of an example of how two people with similar situations might actually wind up in a really different place. So I was lucky enough to buy a house pre-pandemic.

03:39
And then, during the pandemic, I was able to refinance to 3%. So I have a 3% interest rate on my mortgage. If someone was to want to purchase my house right now, they would be paying 6.5%. And if they were borrowing earlier in the year, it would be 7%. So in order to be able to afford the house, it's quite a bit more expensive at 7% than it would be at 3%. That just changes someone's financial picture entirely. While I can afford my house without a problem right now,

04:07
it's a luxury that I have, that if someone was buying today, [they] would not have that luxury. So your money doesn't go as far when interest rates are higher.

Larry Elkin
So Ben, that 6.5% current interest rate, compared to your 3%, that actually has two obstructive effects, in terms of something happening in the housing market, right? It makes it harder for someone to come along and buy your house, but it also means you have to sacrifice that 3% mortgage rate

04:33
if you want to move your family somewhere else. And that's part of what's upsetting the current administration, is that current interest rates are gumming up the works in the housing market.

Ben Sullivan
That's exactly right. As a financial adviser, I can't bring myself to give up my 3% interest rate. I will do what the other people do, is lease out my house, if I was going to have to move for work purposes, or any reason. It's just… It's such a valuable — You don't think of an interest rate as an asset,

05:03
but it truly is.

Larry Elkin
But even renting out your house, it still means that, unless you're going to be a renter in your next abode, you're still dealing with that same 6.5% mortgage rate, if you're trying to get in there, which creates one of the conundrums for policymakers, doesn't it? That the Fed only can push on short-term rates, and specifically the rates that it will lend to banks at,

05:30
but mortgage rates don't really follow short-term rates as closely as they follow, say, the 10-year Treasury note. So I guess we can toss this to Paul, who in the past has been our chief investment officer, and now is sitting there in Atlanta with a much-impacted housing market at the moment. Things have really changed in Atlanta over the last couple of years. Paul, the way we see it, are mortgage rates or really the 10-year Treasury rate…

05:57
Is it more directly impacted by anything the Fed does, or is it more impacted directly by what people think inflation is going to look like over the medium term?

Paul Jacobs
So I think there is minimal connection between the fed funds rate, you know, the fed rate that is set by the Federal Reserve, and mortgage rates. A lot of people think that the two go hand in hand, but they really don't. We had a stretch of time where there was serious government intervention into

06:27
longer-term bonds, driving down interest rates and kind of distorting markets. We're closer to normal now, although still not totally normal. But obviously, Treasury yields are set by markets and investors and their expectations, not only of inflation, but credit risk, issues — concerns about ballooning deficits and things like that. And because of that, we've seen rates rise significantly, and mortgage rates have gone up in lockstep.

06:56
In order for things to go back down, the Fed… Like you said, the Fed is really handcuffed with what it can do there. There are other tools in the toolbox that the government can use to drive rates down. But the Fed cuts rates a quarter percent or half a percent. I wouldn't expect that to do much with longer-term interest rates.

Ben Sullivan
I was actually going to say that it's one of the signs of the markets. So we've already seen that

07:20
95% of people are expecting that the Fed is going to cut rates, and we've seen mortgage rates go down already. So 100% agree with Paul. It's the market that's dictating it, but it's informed by the Fed as well. So last time you saw the funds rate get cut, mortgage rates actually went up. So it's kind of anticipating what's going to happen in the future.

Larry Elkin
That's right. So it's all forward-looking based, really, on expectations for inflation, which are tied together with expectations for the economy.

07:49
Earlier this year — Ben, correct me if I'm wrong — we had the 10-year Treasury interest rate approaching 5%. I think it may have even touched 5% momentarily at one point. And as we're having this conversation, which is 23 days before this segment is going to air, rates are actually just a little bit above 4%. I would posit, if we are the shadow Open Market Committee discussing interest rate futures, I would posit

08:19
that the biggest reason why rates have dropped so much in just a few months is signs of weakness in the economy. The labor market has been soft, even though the unemployment rate hasn't gone up dramatically. It hasn't gone up dramatically because there's a lot fewer workers available who are looking for jobs. So you've got this softening economy that is bringing down mortgage rates, indirectly, through the 10-year Treasury rate,

08:48
which is something that people want. But now, if you're going to cut interest rates, particularly as sharply as the administration would like the Fed to cut [them], you're trying to prop up the economy, which is going to tend to push up inflation expectations. And any increased economic activity kind of pushes against the interest rate direction that you really want. So what is the...

09:13
What does the Fed do when it tries to balance these things? If you were on the Open Market Committee right now, would you be pushing for bigger and faster rate cuts, or taking a slower approach on the grounds that things are moving in the direction you want them to move anyway?

Ben Sullivan
You know, I always like to have an opinion and control of certain things. So I like that opportunity, but I also like to delegate that to the Fed. I would say that you want to move slowly.

09:42
You have to weigh the competing concerns. And then the thing I always think about, as well, is that the interest rate policies might not be the policies that are impacting the economy as much as other government policies.

Larry Elkin
OK, like what in this case?

Ben Sullivan
Well, you could talk about the immigration policies. You could talk about the taxation policies. The government is influencing everything. But at the same time, you're seeing that it's balanced by the market too.

Amy Laburda 10:08
So to relieve you from the pressure of being imaginarily on the Fed Open Market Committee, let's zoom back a little bit. I know that a lot of news outlets have been talking about the squeeze on the middle class. I've seen similar language in The Wall Street Journal, NBC News, Bloomberg. “Squeeze” is a very popular verb right now. And we've touched on a lot of reasons why; I'm sure we'll touch on more. But I just wanted to, while we were in the universe of

10:34
housing and interest rates… Do you think that housing is one of the main, sort of, building blocks of that squeeze? Do you think it's the entire big picture? Do you think it's things we're going to get to further on in the conversation, and we should just skip ahead? But I figured while we were here, let's touch briefly on what the middle-class-specific squeeze is, if you have a diagnosis for that. Paul, I'll ask you first.

Paul Jacobs 10:59
Housing is important, although it's not the only piece that's important, obviously. There's just so many different parts that make up our financial lives. For many Americans, their home — if they own their home — tends to be their largest asset. So it is very important. Over the years, we've also seen many Americans… you can use your house as a piggy bank, you can withdraw from your equity. And that can be OK, as long as it's done in a reasonable way. So it matters.

11:29
We have major problems in this country with affordable housing. This is not an issue for everyone, but it becomes harder and harder for younger generations to get that piece of the pie and get homeownership and get skin in the game like that. But if you're a builder, there's just so many incentives towards building higher-cost housing that tends to be more lucrative. Interest rates play a role, obviously, in all of this as well. So you can't ignore housing.

11:57
Obviously, it's a very important piece of the pie. But there's so many other pieces that, you know, when added up, you know, may be more important. So it's something to pay attention to. But, you know, there's plenty of other issues out there besides housing.

Larry Elkin
You know, for people… Most people are wage earners. And a couple of years ago, we were going through what everybody called “the great resignation.” Companies that had dramatically scaled back their workforce

12:24
when they didn't know what was going to happen next during the pandemic suddenly realized that they were understaffed. And everybody was desperate to staff up. And as these things often do, this pendulum swung too far, and now companies are kind of caught in between. They are not reducing staff aggressively in many industries, but they're not hiring either, which is making a lot of workers feel like they're stuck in place. And their costs

12:54
across the board, in many areas, not just for buying a house, but for insuring a house, for repairing a house, for paying for childcare so a second member of the adult household can work. Those costs are all piling up on them, but people feel like there's not a lot of upward mobility that they can control in terms of their wages, as well as the other general inflation we've experienced in the last few years.

13:21
So that, I think, contributes to a lot of the malaise in the middle class. And for the entrepreneurial set, they are looking at a diminished labor force, with no near-term prospect of things getting better. It had occurred to me that 30 years ago, I wrote an article in our newsletter about the first baby boomers turning 50, and what its implications were for the economy.

13:49
Well, next year, the first baby boomers are going to be turning 80. And that is the age at which a lot of demographers say you go from being the “young old” to the “old old.” Things tend to start sliding downhill faster as you get past that age. And for the next 15-plus years, we're going to have large numbers of people who have not only already aged out of the workforce,

14:16
but requiring more and more help to get through their daily lives. The pressure on the workforce is going to be immense. People who are starting businesses and running businesses are asking themselves, where is all the labor going to come from? Particularly in an era when we are not attracting net immigration. It's a problem, and people are feeling squeezed, both whether they get W-2 wages or whether they're running small or medium-sized businesses.

Ben Sullivan 14:45
I kind of feel like the economy has bifurcated a little bit, between the people who have been pretty successful and the rest of the people. When you look at consumer spending right now, the top 10% is generating 50% of the consumer spending. And the top 10% is doing fairly well. So I think it's interesting, when you think about the squeezed middle class, they definitely are being squeezed, but I think more people start to identify as being part of that middle class

15:15
than are really in there. So sometimes it's uncomfortable to have higher expenses, and you're not really used to spending as much as you've been spending, because of what's happened with inflation. You're used to lower prices when you go to the store. You're expecting things to be cheaper than they really are. So you feel that pain. But there's a difference between feeling the pain and taking a little bit more out of your pocketbook, and feeling the pain and really not being able to make ends meet.

Larry Elkin 15:44
That inability to have a cushion, to feel like you have a safety net, which generally comes from having owned something and having had a chance to build equity. In my experience, every generation coming up when they're starting out, you see it now with Gen Z, but you saw it with millennials, and still do to some extent. And people don't remember this who weren't around, but you saw it with baby boomers too. You're starting out without equity, without savings, maybe with debt, although

16:14
you know, student debt has mushroomed over the years since the baby boomers’ time. And you don't have that cushion, and it takes time to build it. And if you're fortunate, not everybody is, but if you're fortunate, you know, at a certain stage in life, either because you've had high wages or you've done well in the housing market or in the stock market, you've built up a cushion. So an unexpected bill doesn't inspire panic. It might inspire chagrin, but it doesn't inspire panic.

16:43
I'm always struck by the statistics about how large a percentage of households would be unable to just pay, from savings, an unexpected expense of $400 or $500 or $1,000. A broken air conditioning system will cost more than that. So you've got a huge fraction of the population that's literally living paycheck to paycheck, without having a margin for error. That's constant stress.

17:11
If you think about these things at all, you have to constantly be worrying about it. And that's a big impact on quality of life.

Amy Laburda
Absolutely. So with apologies to the three of you as tax professionals for this transition, speaking of stress, let's move a little towards taxes. Among your other skills, all three of you are tax professionals. And I know you kept a close eye on the One Big Beautiful Bill Act that passed back in July. And as listeners who

17:39
are especially news-sensitive or who have been paying attention may know, the final law was hundreds of pages long. So I will not make you go through all of it. That would take more than one episode, probably. And there's no need to dive quite that deep. But Paul, I will ask you, if you would, to break down some of the headline provisions that are most likely to affect a lot of our listeners, or to have bigger effects in the economy as a whole, if you would.

Paul Jacobs
Sure. So let's talk a little bit about the One Big Beautiful Bill Act.

18:07
I call it “the triple B,” although it's not really catching on. So like you said, almost a thousand pages long. It touches virtually every sector of the U.S. economy. And because of the scope of this bill, I'd say that it may take years to play out. We're not really even feeling hardly any of the impact that we will in the future. It covers a lot of different parts of our lives. And there's a cost to this bill. And I think that kind of summarizing the costs and the offsets may help

18:37
explain just what's in it. There are different estimates and numbers out there, but this bill is estimated to cost over $3 trillion over 10 years. When accounting for interest expense on the debt, it's estimated to cost over $4 trillion, actually, in total. But it's important to understand that this is not just all adding costs. There are offsets, as well. There are deficit-reducing provisions. Actually, over $5 trillion of costs, with over $2 trillion of deficit-reducing provisions to offset it.

19:07
So what is leading to such a large cost? Well, the biggest piece, with over $4 trillion of cost, is tax cuts. We're going to have an episode specifically to cover tax rule changes. So I'm going to spend a couple of minutes on the major changes involved here, but rest assured there will be more coming in the future on the many changes to the tax code from this bill. There are other things that add to costs as well. Two of the biggest pieces include additional defense spending

19:36
and also immigration and border spending. So again, this is not just a tax bill. This really does touch many parts of our lives. There are also deficit-reducing provisions. Over $1 trillion is related to health care and Medicaid reform. So again, if you're following the news, you're seeing a lot of different opinions on how all that will play out. But there was an effort to reduce the costs of the tax cuts and other changes with some of these other steps.

20:04
Also over $500 billion of deficit-reducing provisions from repealing the Inflation Reduction Act credit. The Inflation Reduction Act was obviously one of the centerpieces of legislation during the Biden administration. So, things like electronic vehicles and renewable energy credits, much of that is repealed in the triple-B. Other major focus areas included student loans and also SNAP,

20:30
which is the Supplemental Nutrition Assistance Program. So there's a lot of offsetting pieces here adding up to still a large cost. Two things that are not included in this bill though, because while many things are affected, two things that are not touched [are] Social Security and Medicare. And obviously, you know, those are huge social safety net programs in our country. There was a lot of concern that they would be affected or damaged with this bill. They were not really touched, and

20:57
I think during the election cycle, it was pretty clear that neither party was particularly interested in going down that road. Also, I'll just spend a couple of minutes talking about some of the key tax changes that played a major role in the large cost of this bill. The biggest piece is making the 2017 tax cuts for individuals permanent. So, if nothing happened here, then the 2017 tax cuts for individuals were scheduled to expire. And in 2026, we would have seen a significant

21:27
tax increase. However, this bill takes care of that. The standard deduction is increased, for individuals and married couples, significantly. So again, more and more Americans are able to take the standard deduction and get a healthy reduction to their taxable income, while others are able to itemize. One of the other big changes was the increase in the state and local tax deduction from $10,000 to $40,000.

21:51
This does not apply to everyone. Your income has to be below $500,000. But I think we saw, in 2017, the tax cuts for many of our clients, especially those living in blue states with higher state income taxes — for a lot of them, the 2017 tax cuts, some of them, it turned out to be a tax increase. For other people, it was a pretty neutral impact. So far, what we're seeing is with these new rule changes, this is basically a tax cut for everyone. I'm not seeing winners and losers the way I did with the last piece of legislation.

22:21
A couple other items: Estate tax, the exemption was increased to $15 million in 2026, and it'll be indexed for inflation afterwards. So again, this is a tax that applies to very few people, and with this rule change, it'll apply to even less people. $15 million. And so obviously for married couples, that's $30 million that can be shielded from estate taxes. The last note is there was a lot of talk on getting rid of taxes on tips and overtime.

22:50
There is some language on this in the legislation, but it is important to understand that this does not apply to everyone. There are exceptions, and exceptions to the exceptions. So some people will be able to exclude tip and overtime income, but it's not like we're all going to be getting paid in tips in the future to escape taxes. There's a lot of fine print, and it's important to make sure you understand the rules before trying to strip out all your tip or overtime income on your tax return. Just one last note on the triple-B.

23:18
From a GDP standpoint, again, there are different numbers and estimates out there, but it is expected to boost GDP by between a half and one percent annually. So, short term, this is expected to certainly help and boost our economy. There are long-term concerns about the impact this could have because of the impact on deficits. So long term, there are concerns that this may be too expensive, but short term, it is certainly expected to help.

Larry Elkin 23:48
Paul, I want to jump in with, I think, three observations here. And the first one, you'll have to correct me if I'm wrong. But you mentioned the estimated cost over 10 years of the bill being $3 trillion after the offsets. As I understand it, that is assuming, as a baseline, that the 2017 legislation would have been allowed to expire, those expiring provisions as written into the law at that time.

24:17
There will be listeners out there who are saying “That was never the intention. That was to meet Senate budget rules for when they passed that bill back in 2017.” Plus these are estimates that assume a lot of things that will or won't happen over the next 10 years. And all I would say to that, without arguing it one way or the other, is we hear you, but I think we want to clarify

24:40
that that's the baseline from which that's measured. Am I saying everything accurately here?

Paul Jacobs
Correct. There were people arguing that that should not be treated as a cost. I think it is… There was certainly a cost to extending these tax cuts that was not included with previous legislation.

Larry Elkin
Thank you. And then the second point I would bring in here is you mentioned that the bill doesn't address Social Security and Medicare.

25:06
The great social safety net that is unfunded other than as pay-as-you-go and a lot of accounting shenanigans. And those shenanigans are going to reach an expiration date. Inside of 10 years, the projections are typically around five years from where we are. And some people will say that Congress just kicked the can down the road. I think it would be fairer to say that Congress said, “Can? I don't see any can.

25:35
There's no can here.” And they're just going about their business. But in terms of making real-life decisions, or expectations for the future and trying to plan for the future, we know it's out there. We know Social Security isn't going to go bankrupt, because that's not the way that system is set up. It just means that unless

25:57
someone does something, at a certain point, not too many years in the future, the money coming in to pay benefits is going to be less than the benefits that were projected to be going out. Therefore, those benefits going out would be reduced. So that's point number two. Point number three is: What we're seeing over the last, really 20 years at least, is this perpetual flip-flopping of

26:26
policies and policy goals based on which party controls which levers of power at any given point in time. So you get legislation like the triple-B or the 2017 legislation and several bills before that that are all projected over 10-year time horizons, but they don't actually last as policies for those 10 years. So when I'm looking at things like that, I look for, really, signals about where are the policies

26:56
really starting to change in ways that are going to impact over the longer term. And then what can you count on in the short term? So in the short term, you look at the triple-B and you say, “OK, this is what would happen over 10 years.” All I know when I'm making plans for our business, for example, is that there's not likely to be a significant adverse change in the tax laws that affect our business until at least 2029.

27:25
Why? Because there's going to be a presidential election in 2028. If there's a change in power, in the party and power in the White House in 2029, someone might sign legislation that dramatically changes what's going on right now. Now, Congress may flip one or both houses in 2026, taking effect in 2027, but unless you could get

27:50
an override of a presidential veto, I wouldn't expect any major policy change to happen in the remainder of this presidential term. So for a couple of years, I know what the tax laws will be. After that, I can guess. But there were some changes in the triple-B that I think are flying under the radar in some ways, but they may be more significant for a lot of people. One of them being 529 plans: those tax-favored plans

28:19
that you can set up, ideally for young children, to invest and grow money to pay for — originally it was higher education. But the triple-B expanded the ability to use those funds for other things. It was already the case that you could use a limited amount to pay for education before college. But now there is an expanded list of things you can pay for with tax-deferred or tax-exempt

28:48
savings from a 529 plan. Qualified education expenditures will include things like vocational training down the line. In the majority of this country, young people still don't get degrees from four-year colleges. And increased vocational training is one way that we are liable to meet some of the needs of the economy going forward. This creates an incentive and a vehicle

29:15
for people to provide for that. And vocational training is generally far less expensive than four-year degrees, whose value ultimately depends a lot on what the degrees cover. So there are policy changes in there that I think are significant where, despite the partisan bickering that you get over taxes, I think there's some emerging areas of consensus that are worth watching.

Amy Laburda 29:39
Larry, while you're speaking of short-term things and before we move on, before we get sucked into the triple-B mire for the rest of the episode, Paul mentioned we are going to be talking more in depth about tax changes later this season, but that episode isn't scheduled till early 2026. So as tax planners, and with the caveat that I have to give every episode that there's no one-size-fits-all answer for anything: Is there anything that people should be considering, tax-wise, before the end of calendar 2025 with this new tax legislation?

Ben Sullivan 30:09
I'll jump in here. As you know, I'm on a board of a charity here down in Austin, and I think about charitable giving a lot. One of the big changes in the triple-B, as we're calling it, was changes to charitable deductions and deductions overall. So high-income taxpayers will only be able to get a 35% tax benefit for donations in 2026. But right now they're able to get the full 37%. So there's incentive to kind of lump

30:37
more charitable deductions into 2025. And then that helps bring down current taxable income, gives you that extra 2% benefit. And on the other side, there's actually an additional charitable deduction for people who don't itemize starting in 2026. So it's interesting, it's kind of higher-income individuals [who] want to push more of their deductions to 2025. And people who might not be able to itemize deductions would actually be better off pushing

31:05
those charitable deductions to 2026.

Larry Elkin
Paul, there's also an interplay between the newly increased ability to deduct state and local taxes and people's taxable incomes, because above a certain threshold, that ability to take the extra deduction is phased out. So this really complicates planning for both when to try to collect income, if you have control over that, and also when to pay certain state and local taxes.

31:35
If, for example, as some places that I've experienced, you have a big property tax payment that's due in January, but you may be able to make that in December of a given year. So that's really complicated that element of tax planning for people who are near the bubble on the income side, hasn't it?

Paul Jacobs
Yes, there's… The tax code keeps getting more complicated. Every time they make changes, I always — I think we all hope for simplification. You know, just kind of

32:04
figure out how much you need to raise and set the tax rates and make life easy. And they never do that. It's always just adding on top of what is already existing. And so a lot of these changes that have been made with the last few sets of revisions have involved calculations that work off certain income numbers. And some numbers are part of the income number and some aren't. So this just complicates things further. It's been hard my whole career to just do taxes in your mind or on the back of a napkin. It just...

32:33
The more moving parts there are, the more it helps to have software and a professional who can crunch the numbers for you. But yeah, state taxes for the last few years with the SALT cap, it just was a non-decision. There wasn't much to think about. Now I'm getting the questions again: “Should I pay this in December or should I wait until January?” “Should I make my charitable — Should I bunch my charitable deductions and do two years of charitable deductions in the current year and take [the] standard deduction next year?”

32:58
And this SALT cap change can really change things for people. If you have a $40,000 SALT cap and a $30,000 standard deduction, just changes the strategy for a lot of people.

Larry Elkin
Yeah, Paul, it's not just your career. I started in this business in 1986, the year of the big 1986 Tax Reform Act. And the goal that people were touting in those days was: We're going to reduce your tax return to a postcard. And people said to me,

33:24
“Why are you getting into that career right now, when soon we're just going to be sending in postcards to do tax returns?” Well, here we are, 40 years later. Some of those postcard tax returns run hundreds of pages.

Ben Sullivan
I think one thing I just want to clarify there for everyone is we as tax planners know that the higher SALT limit starts for 2025, but it might sound like we're saying that starts in 2026. But what we're really saying is you need to plan for each year overall. So sometimes

33:53
it can make sense to lump the deductions into one year, where you're able to get more of a benefit and they're not phased out. But there's definitely… Really the takeaway is the planning is individualized. You can't just look and say, “Hey, I get a forty thousand dollar SALT deduction.” Because a vast majority of my clients have income that is too high to qualify for the $40,000 deduction.

Larry Elkin
That's a really good point, Ben. That's actually one of the oddities of this year's bill, is so much of it took effect

34:23
effectively retroactively, to January 1st of ’25. That has happened, but that's not always the case. And people who are thinking back to the 2017 legislation could easily be misled, because a lot of those provisions only kicked in in 2018, as I recall.

Ben Sullivan
Right. And then I'd also like to say that I think a lot of the Big Beautiful Bill’s changes, and a lot of the cost, was just prolonging the current tax rates, like we've said.

34:51
So that really wasn't a change. The biggest change is no change. And then beyond that, there's actually a lot of benefits for depreciation and expensing for businesses that will be highly impactful for kind of stimulating the business economy, which is the economy. And then also for the qualified small business stock deduction, or exemption from taxation for capital gains for small businesses. They've substantially changed the rules on that

35:21
to benefit small-business owners who have held the stock for shorter periods of time, or who had larger quote-unquote small businesses. So those are all major changes that should help stimulate the economy as well.

Amy
Ben, you've led us back to business, which is a fortuitous move toward the next thing I wanted to raise, which was actually to go back to a thing we touched on in passing earlier. A big part of the economy is its workforce. And one of the things that we're seeing

35:50
in the immediate term is the effects of immigration policy, and changes that we've seen to that on the workforce in the short term and potentially in the long term. So obviously it's a charged topic. A lot of people can have big feelings about it, but so we're all on the same page: Larry, can you just give us a brief overview of where things are right now with immigration and related policies, and maybe look a little towards what's ahead perhaps in the Supreme Court's upcoming term?

Larry Elkin
Sure. And this is

36:19
definitely going to be one of the more impactful Supreme Court terms that we have seen in recent years. Often there's one or two or three cases that really have long-lasting and broad impact, but the cases this year are both more numerous and probably even greater impact. So you've got, well, many issues that'll be in front of the high court, but

36:44
the two that tie in most closely to the economy are going to be tariffs and immigration. So I'll start with tariffs first, because that's the one of most immediate impact, because all the way… going back to April of 2025, you had President Trump's so-called Liberation Day tariffs. And he has asserted under two or three different statutes, essentially, the power

37:11
to unilaterally impose levies at any rate he determines on a country-by-country basis, not just targeting specific products, as was the case typically with so-called anti-dumping duties that would go after one specific industry, but broadly against countries whose trade practices the administration deems to be unfair. The question the Supreme Court is going to answer is: Can the president actually do that

37:41
all by himself, without going through Congress? Even though the Constitution says that it is Congress that has the power to impose duties on products that are imported to the United States? So lower courts have found that the president lacks this power. The administration has appealed. The Supreme Court, right before its term began, has scheduled the case for arguments

38:10
on an expedited basis. So when this episode airs, the Supreme Court will have just started its 2025-26 term, the first Monday of October. Arguments are scheduled for November, and where typically a case of this magnitude might not actually get decided until near the end of the term, next June, I would expect we're probably going to see a Supreme Court ruling months sooner than that.

38:38
So they're going to address tariffs, which is going to affect — literally affect — the American relationship with virtually every other country in the world. And it will affect most industries in this country and practically every consumer in this country. So yeah, that's kind of a big deal. Concurrently, the administration has, of course, asserted the power to remove

39:05
people who are in this country without authorization, which for the most part, you know, people don't dispute its ability to do that. The questions are more procedural. How much process must go on? How can you identify the people who will be a priority for removal? And where exactly can you remove them to, if their home country isn't prepared to accept them back? Can you just send them to any old place that's willing to take them if you hand out enough dollars?

39:36
Those cases have not really reached the Supreme Court. The one that probably is, by itself, of the greatest magnitude is the administration's attempts to reverse the decisions that the outgoing Biden administration made right before the change in power in January of ’25 to extend temporary protected status to people from certain countries

40:04
who have made it to the United States, in many cases crossing the border without proper documentation, but not always. They're… Particularly in our headquarters hometown of South Florida, we have hundreds of thousands of people from Venezuela who reside in the United States who have been allowed, beginning with a group in 2021, to both live and work here without threat of being returned to Venezuela because of conditions in that country.

40:34
The Biden administration extended TPS to that group of Venezuelans. And together there's about 600,000 of them in the United States, some who received TPS under a 2021 order, some who received it under a 2023 order. But there's 600,000 of those people, who are in this country, for whom the Biden administration extended TPS to October 2nd of 2026. But after

41:03
taking office, the Trump administration, through the Secretary of Homeland Security, has attempted to revoke that extension, declare it invalid. The law is pretty specific about the procedures, both for granting TPS and allowing it to expire. It doesn't speak to a revocation power.

41:28
Advocates for the Venezuelans have been fighting with success in the lower courts to retain their TPS until October of ’26. The case is still involved in procedural disputes in California as we're speaking here. Again, there's 23 days till this episode airs. So at this point, it's not even on the Supreme Court docket for the current term.

41:58
But by the time anybody hears this episode, or sometime after we air, it is highly likely, in my personal opinion, that the Supreme Court is going to step in. It has acted in one respect already, and that was earlier in the year. Even though the lower courts found that the administration lacked the power to remove people for whom TPS had been extended, the Supreme Court

42:27
stayed that ruling with respect to enforcement actions. So basically, people who may still have had protected status, that question has not been resolved, were subject to deportation anyway. This is also tied up in the administration's more aggressive actions to and about Venezuela in designating the Tren de Aragua gang as a terrorist organization and

42:54
moving military assets into the Caribbean, including warships that, at least at this point in one case, sunk a boat suspected of being involved in drug smuggling on the high seas. So the administration has been very aggressive at some times toward Venezuela and Venezuelans. And the battle over whether to remove people and send them back to a country whose

43:24
government is considered unfit for Americans to travel to is still playing out. All of this means that our inbound migration has dramatically dropped. And against that backdrop, the Congressional Budget Office early in September made the observation that by 2031, so just about five years out, we will be having more deaths than births in this country. We are becoming Japan.

43:52
We are following a trend that has happened in most industrialized countries in the world. We're still going to have a lot of diapers to change, but the diapers are going to be attached to old people, not young people. We're only going to be able to grow the labor force, which is a key ingredient of growing an economy and maintaining a strong society, if we let people in. But right now we're doing everything in our power, for a practical sense,

44:22
to do the opposite. So that's the issue that's going to make its way to the Supreme Court, then back down through the policymakers, and ultimately to the electorate.

Amy Laburda
While all that's going on, just to bring it back sort of to the economic side of the question, you mentioned just now, obviously, our demographics possibly shifting. You mentioned earlier in the episode baby boomers joining the ranks of the “old old” here in just a few months to years.

44:51
Are there particular areas where we're going to see this pinch on our labor force first? I frame the question that way, because I'm immediately thinking of home health care aides and those kind of caring professions. But I'm sure that's not the only one to keep an eye on.

Larry Elkin
Well, I'll take that again from the South Florida perspective, because we have a lot of construction going on. Construction relies heavily on immigrant labor. Fewer immigrants… And it's also not an industry that's typically very friendly to the elderly:

45:20
physical, hard work in a lot of cases. That's an industry that is very vulnerable to disruptions in the labor supply. Agriculture is another one. Home services, anything involving manual labor that, again, typically is not easily handled by an aging society. If you're not producing enough young people to do it, you need to import the young people or export the labor. But some labor can't be exported, home health care being an example.

45:49
You're already seeing it in many areas in the health care field, and not just in the home health care field. There is a national shortage of nurses. We're not now… And many of the nurses that we've had have come from abroad. So again, if they can't get permission to live and work in this country, they're going to find somewhere else to live and work. And with the entire world facing an aging population, in terms of developed countries,

46:16
they have a lot of options. You know, you can be a nurse here. You can be a nurse in Japan. You can be a nurse in the Gulf states. There's lots of places. We make it hard for them, they go elsewhere.

Ben Sullivan
I feel like it's kind of confusing for me. I like to play both sides of the aisle. I like being a centrist. I like things that make logical sense that are congruent with each other. And we're talking a lot about the government right now.

46:41
We're talking about the challenges of the government impacting the middle class, and the affordability crisis that we have in the country. We're talking about taxation and how the government's making it easier to have money to spend for businesses and for individuals. And then we're talking about tariffs and immigration, where the government's making it a lot harder. So traditionally, I think of Republicans as being the party that's business-friendly, but really

47:11
it's not acting in a congruent manner in all aspects of its regulation. So I love them doing tax cuts. I love them giving incentives to grow the economy in the tax area. But it seems like they're presenting a lot of challenges in other policies that they're putting out there.

Larry Elkin
Well, you're making the argument that our policymaking is incoherent and at odds with itself.

Ben Sullivan
[laughs] Breaking news.

Larry Elkin
And I don't think there's any logical way to argue against that.

47:40
The whole point of tariffs is to create more production inside this country. The whole point of restricting immigration is to keep out the workers who would make that increased production possible. So yes, when people say, I don't understand what's going on: Welcome to the club. It's because there isn't a logical framework into which we see that you can place this, which also means, you know,

48:10
people still have to live their lives and make decisions. So you try to put yourself in the best position possible to deal with changing circumstances, because you don't know which of these competing priorities ultimately is going to dominate. Nothing is going to go 100% in one direction or the other. But you've got to figure out which way the prevailing wind will be blowing and try to put yourself in a position to

48:37
benefit from that, but not be too hurt if it turns out to be coming from the opposite direction.

Ben Sullivan
Yeah, I agree with that. I think it's also when I think about Republicans, I think about the small-government Republicans. And that's not what you're seeing. It's kind of a lot of governmental control kind of dictating outcomes in different areas. And I feel like it's hard to make long-term plans, whether you're a nonprofit or a for-profit individual, when

49:04
the winds keep shifting. And it's creating friction, and I want less friction in the economy, not more friction.

Larry Elkin
Well, what you're observing is what our friend, Gabe Fleischer, who was on the podcast last season, wrote about recently in his newsletter, “Wake Up to Politics” — which, by the way, I would recommend to anyone who is interested in following developments in Washington. Gabe pointed out that political scientists see this as the horseshoe effect:

49:33
the extremes of both parties tending to converge in some areas of policymaking, leaving the middle essentially emptied. And you're seeing that, and it's being exaggerated because of redistricting and gerrymandering, making seats extremely safe for one party and unattainable for the other, which means the elections are decided in primaries, basically.

50:02
And the people who vote in primaries tend to be the most motivated and often lean toward the extreme ends of their party. So you get very, very conservative Republicans dominating in Republican-drawn districts. You get very, very progressive or left-leaning Democrats in Democratic districts. And it gets to results where you have these political extremes,

50:32
who really both want the government to intervene in the ways that they find appealing. It also leaves you with a situation where, about a month after this podcast [airs], more likely than not, the nation's business capital is going to have a socialist mayor, right? Because it is a very Democratic city, and that's the direction that the party primaries tend to lean.

Ben Sullivan
It's almost like we're all living in our own feedback bubbles, feedback loops. And I don't think social media has anything to do with that, but...

Amy Laburda 51:02
Well, I'm not going to dive us too deep in the “what social media is and isn't answering for these days” bubble. But I think that that actually leads me to my next point pretty neatly, which is that we've touched on a ton of things today already. We haven't even gotten to some things, like the wars in Ukraine and the Middle East, that could be shaping the international outlook for some time to come.

51:25
It's easy to feel overwhelmed. I know people who are in my life have certainly made this clear to me, that they are sometimes just news fatigued out. In September, The Guardian reported that 40% of people in the survey that it held across 50 different countries said they “sometimes” or “often” avoid the news. And that number is about 42 % among Americans. And it's easy to see why. There's a lot going on. Some of it can create big feelings that social media tends to amplify, in the way it works.

51:54
But I know no one on this podcast has given up on the news just yet. I'm aware of your news consumption habits enough to feel confident saying that. But when you talk to either clients in your professional life or people in your personal lives, how do you keep people focused on the stuff that they can control and the choices that they actually have in front of them, when you have the media and social media and a lot of forces in your life sort of bombarding you with the big picture, sometimes it feels a little bit relentlessly? Paul,

52:23
I'll kick the question to you first.

Paul Jacobs
So the way I respond to that question has actually changed over the years. I think, you know, a long time ago, the conventional wisdom was that a lot of what you see in the news is kind of… People overthink the impact that it has. There's, you know… Presidents, governments, you know, the decisions that they would make could take years to play out. And it was very overestimated what the impact would be. You know, what mattered more was, you know, the American

52:53
consumer, markets. Other factors were much more important than government. And so that used to be my answer, years ago, was just: There's a lot of noise. Tune out the noise. A lot of these things are not really going to have as big an impact as you think. I can't really say that anymore, but. Certainly there is still plenty of noise. There are still plenty of things that are not worth overreacting to. But I do think we've crossed a kind of a threshold where

53:21
we are in uncharted territory, in some ways. And government actions are having a bigger impact on our day-to-day lives than they used to. Having said that, you don't just get in the fetal position and give up. You don't just assume that nothing you do matters. You still, as we've said, there are still plenty of decisions that every one of us has to make of how to live our lives, how to allocate our resources, how to spend our time. So, look, different clients have different questions. Some are more concerned than others.

53:51
I think it's important to talk through their fears and their concerns. Sometimes it can feel better just to kind of get it all out of your system, and in the end you feel better. Sometimes there are small changes you can make at the margin that just help you sleep better at night. And as long as you understand the pros and cons of what you're doing, that can be the thing that helps you get through this. For other people, there may be major changes to make if they're concerned. And again, if they understand the pros and cons.

54:20
You know, I don't believe in just poo-pooing concerns about what people are seeing. If someone's in a business that is heavily impacted by tariffs or other government changes, that these things were not an issue years ago, it's important to talk it through with them and understand where they're coming from. But it's also important not to overreact. You want to have a long-term plan. You can tweak the plan. You can make changes to the plan if the situation changes. And really, just the important thing is to try to keep your cool, not go overboard.

54:50
Because the news will continue. And there may be things you agree with, there may be things that you disagree with, but it's important not to throw in the towel.

Larry Elkin
Ben, your turn.

Ben Sullivan
Sure. I think I'll echo what Paul was saying. The government is having quite an influence on a lot of different sectors, a lot of individual companies, individual businesses and nonprofits. I know the nonprofit I'm involved with might lose significant funding, might not lose significant funding,

55:20
depending on the day you're appearing, what the government is saying. So that is something that you can't ignore. You can't just tune out the news and say, “Hey, this doesn't really impact me and let's just keep going on business as usual.” That's not really an option. But at the same time, I think the Trump administration has really been a case study in the importance of diversification. I think if you try to predict and concentrate bets, whether it's on individual companies or individual industries or countries,

55:49
I think you're setting yourself up for failure. If I was to tell you that Trump was going to get elected, tariffs were going to be put in place, he was going to pursue an “America first” policy, I think a lot of people would have said, OK, let's just invest in America. And what's happened over the past year, so far this year, the U.S. market's up 13%, international stocks are up 25%. The US dollar is down 10% as we're talking right now.

56:18
So the inclination that people would have initially was not the right inclination. It's really, kind of… Keep your eyes on the horizon, pursue that balanced approach. To the extent that you're going to make changes, make them incrementally. And then, pay attention to the news. When things are happening that directly impact you, try to understand how you should react to that, as opposed to just kind of getting the overall message.

56:48
What's coming out and how it might impact the greater population might be totally different than how it impacts you.

Amy Laburda
Ben, we talked in an earlier season too about investment biases. I know you've also written about them before. I can link that in the show notes. But when it comes specifically to emotion and these kinds of choices, do you have any words of wisdom or advice to people just for the overwhelm of — You might intellectually know

57:11
that you should do X, Y, Z. But sometimes the feelings make it challenging.

Ben Sullivan
Yeah. I think that's when it helps to have an adviser. I've told many people, I wish I handed my portfolio over to one of my colleagues, because it's a lot easier to implement a strategy when you have no emotion [tied] to the money. Paul would be much better at managing my portfolio than I am. I would argue that I would be better at managing Paul's money than

57:37
he might be at some times, because the money does impact it. If you're anti-Trump, it's hard to bet that things are going to go well, but there's a lot of reason to believe that the economy is going to continue to perform.

Larry Elkin
I just want the listeners to know Ben manages my portfolio. Paul could, and would if I asked him to, I'm sure. But Ben does a great job. And what I think you're bringing up here, Amy, is that even though we have different political

58:05
perspectives, the advice that comes from all of us here converges around the same basic principles. What are your goals? What are your priorities among those goals? Don't overreact to the news. The emotion doesn't help you, to get angry or terrified over something. Control what you can control. Put yourself in the best position to accomplish your goals

58:35
without leaving yourself overexposed, particularly to a disastrous-type setback, if things go in a way that's different than you expect. Remember too, in terms of investing, that there's only a loose general correlation to the overall health of the economy and the short-term performance of the stock market.

59:03
This year being a perfect example, because there are very few people who would say that the economy is 100% robust and succeeding for everybody. But yet, as we're recording this in mid-September, stock markets, even in this country, are at record levels. And while they've been outperformed this year by markets overseas, as Ben noted, that's just a short-term reversal of what had been a trend over a number of years where we were outperforming.

59:31
So you could see that as reversion to the mean. But don't overreact. Pay attention to your goals. It doesn't mean that what's happening in the broader society doesn't matter. You shouldn't be concerned or active or do whatever it is you think you should do. But on an individual, or family, or even individual business level, it's your circumstances that are going to determine the outcome more often than not, only loosely correlated with the broader

01:00:01
circumstances. So even for all our differences that we might have, in terms of whether we like or dislike a particular set of policies or a particular administration, when we're sitting down with clients, it doesn't change anything. We all wind up giving basically the same advice. Because it's your circumstances that matter, not mine, if you're the client.

Amy Laburda 01:00:27
Returning listeners know I always like to end an episode by kicking it to my guests. We'll start with Larry. We've covered a ton of ground today and some of it pretty quickly. But do you have any final thoughts or a sort of wrap up that you'd like to give to our listeners before we leave the episode?

Larry Elkin
I'm always amused and bemused when I hear a commercial begin with the phrase “in these uncertain times.” All times are uncertain.

01:00:53
It's been that way for the half century or so that I've been in the labor force and for a long time before that, and it will always be that way. As we were talking about earlier, it's important to stay focused, to remember that everybody, whether we agree with them or not, they're really doing their best. The policies are never forever.

01:01:15
You try things sometimes and they don't work. And maybe the person who tried them reverses course, or maybe the next person reverses course, or maybe eventually the electorate reverses course. In the business world, people get up every morning, they go to work, they try to go home at night having accomplished something that was worth accomplishing. And some days they don't, and more often than not they do. So don't get too caught up

01:01:44
in the emotion, in the news, the social media vortex, in one issue or another. That doesn't mean they're not important. The people who may have their lives upended by a change in immigration policy deserve sympathy, deserve consideration and have a much harder time organizing their lives than most of us do. But even for them, you know,

01:02:11
they're making contingency plans. They're doing their best. And I trust, ultimately, that the policies are going to recognize the needs of the society and the components within it and are going to be adjusted in a way that, for the most part, will work out.

Amy Laburda
Thanks, Larry. Ben, I'll kick it over to you. Do you have any final thoughts to add to our discussion today?

Ben Sullivan 01:02:37
Sure. I feel like some of the stuff that all of us have discussed today is kind of what I'm terming now “economic stoicism.” It's kind of… Understand what's in your control, what's outside of your control. Try not to let the things impact you too much emotionally. Kind of look at it as a third party, as if it was happening to someone else and think logically about it. Control what you can control, like I said.

01:03:02
Really, a lot of the tax changes that happened have actionable planning advice that you can take. But that's not just a blanket statement that I can throw out there and tell you to do something. It's really tailored to what your individual circumstances are. So because there are constraints on money for everyone, it really is important to kind of look at ways that you can save taxes and save efficiently through the different mechanisms that are in the tax code.

Amy Laburda
Thank you, Ben.

01:03:32
And Paul, I'll hand it to you to wrap us up. Any closing thoughts today?

Paul Jacobs
So in all the years I've been doing this, I find that when you scan the news and financial media, there's always someone out there saying,”We are on the verge. We are on the precipice of just extraordinary times of explosive growth. And everyone's going to get rich. Just so much good is on the horizon.” And there's always a voice saying the opposite. “We're on the verge of something terrible.

01:03:59
It's all going to be over, folks. Just run for the hills.” And they're both always wrong, right? It's always somewhere in the middle. It's a surefire, easy way to get attention, to talk that way. But you end up being wrong because that's not how things work out. There's too many moving parts, and it is in everyone's best interest for cooler heads to prevail and for things to continue on a steady course. Same way with economic data. There's never a time where it's just all good or all bad. It's always a mix.

01:04:28
And it's just something I expect to continue. There's going to be things to get excited about and optimistic about. There's going to be things to get pessimistic about. We haven't talked about artificial intelligence, I think, this whole this whole session. I mean, it's something that may just come up on every episode. It's you know, look, it's something that a lot of people are thinking about and how, just, it could lead to a lot of positive changes in the future. Again, I think it personally… I wonder if maybe people are getting ahead of themselves. And I don't think it's it's going to turn into “WALL-E,” where we're all just sitting on our couches getting fed,

01:04:57
watching TV 24 hours a day. The only constant is change. And it is, as always, important to tune out the noise and not get too emotional when you hear these different messages out there.

Amy Laburda
Thank you, Paul. And thanks again to all three of you for sitting down with me today to tackle some pretty thorny topics. I really appreciate you being willing to dive deep with me on some of these issues.

01:05:21
I hope our listeners enjoyed a look behind the scenes at three financial professionals talking about these sorts of current events. I hope listeners will join me for more personal conversations this season as we sit down to talk about “Something Personal.”

01:05:40
“Something Personal” is a production of Palisades Hudson Financial Group, a financial planning and investment firm headquartered in South Florida. Our other offices are in Atlanta; Austin; the Portland, Oregon metropolitan area; and the New York City metro area. “Something Personal” is hosted by me: Amy Laburda. Our producers are Ali Elkin and Joseph Ranghelli. Joseph Ranghelli is also our director, editor and mixer.

01:06:06
If you enjoyed this podcast, please take a moment to rate and review us wherever you're listening. It's a simple way to help new listeners find the show, and we really do appreciate it. Thank you.