Executive Benefit Strageties Inc.

A Rose, By Any Other Name

Ronald Reagan won the White House in 1980 partly by campaigning against incumbent Jimmy Carter and partly by campaigning against the 70% top income tax rate. Reagan preached a new gospel of "supply-side" economics, arguing that tax cuts would put money back in the pockets of ordinary Americans and unleash a wave of new economic activity and growth. And while Reagan's own running mate originally mocked it as "voodoo" economics, for forty years, that philosophy has influenced American tax policy, leading to more recent rounds of tax cuts in 2001, 2003, and most recently, 2017.

Of course, tax cuts aren't the only way the government can pump money into the economy. Sometimes it's more direct. For example, we spend north of $700 billion every year on national defense. That money doesn't just disappear into a black hole. It pays the salaries of 2.2 million active duty military personnel, 750,000 civilian personnel, and countless defense contractors. If you run a diner or a hardware store or a dental practice near a military base like Ft. Bragg, Ft. Campbell, or Ft. Hood, you benefit from that spending.

But sometimes Uncle Sam pumps money into pockets less directly, effectively passing a tax cut without actually cutting taxes. Businesses across the country may soon benefit from one of those moves.

Google and Meta — formerly Facebook — are drawing increasing fire for dominating the digital marketing space. Together, they hoover up 54 cents out of every digital advertising dollar, like a desperate partier doing lines in a nightclub bathroom. But Meta's tone-deaf responses to their endless string of scandals have won them no friends on Capitol Hill. (We call them "outrages"; Facebook calls them "days that end in 'y'.") Seriously, if you can put Republican Senator Marsha Blackburn and Democratic Senator Richard Blumenthal on the same side of an issue, you're doing something.

Now Congress is considering antitrust action against the digital giants. How would that translate into "tax cuts"?

Well, if Congress and the DOJ break up Meta — specifically, separating the Facebook and Instagram platforms — competition should go up, and advertising costs should go down. That means thousands of small-to-medium-sized businesses will enjoy higher net profits, either because they spend less to get the same customers or get even more bang from their current ad spend. From where we sit, government action that puts money into business owners' pockets sounds an awful lot like a tax cut.

Ironically, while we can characterize shifting income from Silicon Valley to Middle America as a tax cut, it would actually mean more for Uncle Sam. Why? Because business owners generally pay a higher percentage of tax on their profits than Big Tech. Multinational companies like Google and Meta are famous for sidestepping tax on their billions in profits. From 2011-2020, Meta paid 12.7% in tax on $132.5 billion of income. But even if they paid the maximum corporate rate of 21%, that's significantly less than the maximum 37% for the small business owners who would benefit from lower ad costs.

As Congress starts to pressure Meta CEO Mark Zuckerberg, he looks more and more like a James Bond villain. (Don't be surprised if next time they haul him in to testify, he shows up petting a white cat on his lap.) But really, if Uncle Sam's antitrust action puts more money in your pocket, do you care if he keeps some of that windfall in the form of some tax dollars for himself?

THAT'S HOT!!

Back in The Good Old Days, fame was something you earned by throwing a ball, selling a million records, lighting up a cinema screen, or landing on the moon. Then Paris Hilton decided she wanted to be famous without all that bother. So, armed with little more than a famous family name and fortune, a s*x tape, and some good old-fashioned moxie, she set the dial on her transporter to "celebrity" — and probably much to her surprise (and certainly ours), she actually got there!

What makes the whole thing even more amazing is that Paris started her climb before today's social media. Today there's an entire economy of YouTube "creators," Instagram "influencers," TikTok "stars," and whatever you call the people hanging out on Twitch. They're making names and creating fan bases for themselves in niche communities across the internet. A recent Morning Consult survey found that 86% of millennials and Gen Z-ers would post social media content for money. (If a star has lunch at Soho House and it doesn't get posted on Instagram, did it even really happen?)

On Veterans Day, an impossibly old (40!) Paris finally got married, to a venture capitalist, at a Bel-Air estate once owned by her grandfather. Naturally, cameras are trailing her for a new docuseries called Paris In Love that premiered last week on Peacock. (Peacock?) Now, Paris might think the world is breathlessly hanging on every move she makes. But for the most part, the world greeted the wedding with a yawn. That includes the gossip fans working in Washington at the IRS.

Getting married (or divorced) used to be a pretty big deal as far as taxes are concerned. There was the so-called "marriage penalty," which meant that most married couples paid more tax than they would if they were filing singly. And if the couple split, there would be a nice tax deduction for any alimony payments flowing from one ex-spouse to the other.

Today, though, the 2017 tax act has mostly eliminated the marriage penalty except in rare cases — for example, the cap on state and local tax deductions is capped at $10,000 for singles but not doubled to $20,000 for joint filers. That same act also eliminated special tax treatment for alimony arrangements entered into after 2018, which means that in the event Paris's marriage doesn't last "until death do us part," there won't be any chance to shift the tax burden on those payments to the lower-income spouse.

Having said that, you know who the IRS is watching? All those social media "celebrities." It turns out some of them aren't just making videos; they're making bank. Ryan Kaji made $29.5 million last year for his videos reviewing toys. Not bad for a nine-year-old. (Yes, you read that right.) Over on TikTok, Michael Le earned $20 million from his dancing videos and tutorials. Most of that money comes from advertising posted on the sites — typically 1-3 pennies per view on YouTube. Others use their platform to promote brands or hawk their own merchandise.

When was the last time you posted on Instagram? (Your pets have their own accounts, too — right?) Are you doing everything you can to monetize your name and your image? Or are you letting those opportunities slip away in the name of dignity, discretion, and good taste? If you can catch that particular lightning in a bottle, we'll be here to help you keep it!

Free Advice

People have loved advice columns, in print and elsewhere, since Daniel Defoe launched the "Scandalous Club" back in 1704. Since then, we've lobbed questions to Abby, Ann, Polly, Prudence, Miss Manners, Dr. Phil, Dr. Ruth, Dr. Drew, Dr. Laura, and even Frasier Crane. ("I'm listening.") But few letters stand out like the one "Future Jailbird" sent last week to MarketWatch.com's "Moneyist" columnist, who covers "the ethics and etiquette of your financial affairs." Here are some highlights:

"Throughout our entire marriage, my wife and I jointly, upon our accountant's advice, defrauded the government by hiding income . . . . We are now divorcing after she left me for her pandemic boyfriend . . . . I say she's only entitled to our joint retirement, properties and holdings, and half of our joint business assets . . . . Yes, I know. This sounds ridiculous and yes, I know, we could both be in jail. I recommended no one do any digging, but she's adamant that she gets more, and damn the consequences of both our actions during the marriage to mutually defraud the government."

Wow. Hard to know where to start here, right? But let's dig in and give it a try.

Mrs. Jailbird sounds like a delight — a whiskey sour without the whiskey. Jailbird himself is clearly no prize, either. He sees nothing unfair in stealing from taxpayers — but doesn't want to share any of the loot with his literal partner-in-crime. He might want to rewatch the "Lufthansa heist" sequence from Martin Scorsese's romantic comedy Goodfellas to learn what happens when co-conspirators get greedy for their share of a score. (Spoiler alert: it doesn't end well.) We don't remember the kids on the playground chanting "swipers keepers, losers weepers," do you?

It's clear that Pandemic Boyfriend has no idea what sort of ride he's in for. Still, he probably deserves whatever he gets. As for the unnamed accountant, if he follows the Department of Justice's Twitter feed, , he'll see a fairly steady stream of press releases introducing readers to accountants who help their clients cheat. (Spoiler alert: it doesn't end well.)

MarketWatch's columnist advised getting a new accountant, a lawyer, and a mediator. "Your wife appears to have you over a barrel. She knows you well enough to take this gamble. The worst that can happen is you say no. What your wife does next is anyone's gamble." Still, he cautioned, if Mrs. Jailbird really does decide to Thelma-and-Louise her way into legend, "You both signed your tax returns, and you must take equal responsibility for that." (Spoiler alert: it's not gonna end well.)

Mr. & Mrs. Future Jailbird aren't the only couple turning to the Moneyist with their problems. Ex-Wife writes, "My ex-husband has a life insurance policy on me — and jokes he'll be 'Suspect No. 1' if I die. Other than haunting him, what can I do?" And Stuck writes, "My boyfriend talked me into depositing my paychecks into his bank account and paying for a car in his name. What can I do?" We suspect things won't end well for them, either.

There's gotta be a moral here, somewhere. Lie down with dogs, wake up with fleas? Keep your friends close and enemies closer? We're just sorry it's anonymous, meaning we probably won't learn how it ends. In the meantime, you can count on us to help you deliver the actual savings our lovebirds wanted, without all those sleepless nights, felony indictments, divorce lawyer bills, or public embarrassment!