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IRS to Lay Off 50%, How Trump's Tariffs Are Working · The Accounting Podcast

• Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding! Blake Oliver: [00:00:04] Economic optimism among CPA decision makers has dropped significantly after the election. It went down from 67% to 47% from before the election to after the election. 20% drop. David Leary: [00:00:22] Coming to you weekly from the OnPay Recording Studio. Blake Oliver: [00:00:29] Hello and welcome back to The Accounting Podcast, your weekly dose of accounting news and analysis. I'm Blake Oliver. David Leary: [00:00:36] And I'm David Leary. Blake Oliver: [00:00:39] David, what are you doing? Why are you looking at your phone? I'm. I'm starting the show. David Leary: [00:00:44] I'm taking something off my to do list that's been on there for months. I no longer have to file. We don't have to file, boy, so I don't need to have it on my to do list anymore. Blake Oliver: [00:00:54] That's right. Fincen has halted enforcement of Boi reporting requirements for US businesses, the Treasury announced. They're not going to make us do it anymore. And it effectively eliminates boy reporting obligations for most small businesses in the US. The Treasury is finalizing an emergency regulation to formally suspend the rule for American businesses, but foreign entities will still be subject to the reporting requirements. What do you think, David? David Leary: [00:01:24] Yeah, I mean, it feels like it finally has some sanity because they say that they're only going to penalize people they think are at risk. So just the people that they're pretty sure are criminals are the people they're going to punish. Instead of the average American owned business that's not doing any criminal activity. Blake Oliver: [00:01:42] I think this is great. I tweeted out weeks ago that this is something that Doge, the Department of Governmental Efficiency, should come after. I'm glad we procrastinated on this and we didn't do it. As David says in the live stream, procrastinators declare victory! Exclamation point, exclamation point. Over 32 million small businesses were formerly obligated to comply at the beginning of 2024, with an estimated 5 million more added annually, and I asked perplexity to estimate the cost of BOE reporting the initial cost. The first year was going to cost the US economy $23 billion, and the ongoing annual costs were projected to stabilize at 5.6 billion. So think about that one paperwork filing requirement that in the first year would cost the economy $23 billion, going to filing paperwork, hours spent filling out these reports, gathering information, not being productive, not creating jobs, not creating products, not providing services, just doing filings and then ongoing. $5.6 billion. So this is great. We just saved a bunch of money. But I do have one concern. And my concern is that Congress wrote this law. And it's not the role of the president or the executive branch to just ignore laws it doesn't like. So it's really important that the administration gets Congress to repeal the law for this to stick. That's what needs to happen. David Leary: [00:03:24] Yeah. Because we don't want to like reinforce this behavior of. Blake Oliver: [00:03:27] No, the. David Leary: [00:03:28] Ignore Congress, ignore Congress, ignore Congress. That's just not good for the country. Blake Oliver: [00:03:32] The president as a king is not something that we want in this country. The president enforces the laws that Congress passes. So well done, Treasury, but there's more to be done. So we keep talking about the Trump administration. Our numbers are way up. David, have you noticed that 25% up since we started talking about Doge. David Leary: [00:03:53] Doge. Before we do that, we should thank our sponsors this week. So our sponsors are Onpay and Bluevine. Appreciate all of you supporting our sponsors because it helps keep the show alive. So thank you very much. Blake Oliver: [00:04:03] Welcome. Boring accountant. Welcome. Hazardous items welcome seg V, CPA. Great to see you here and everyone else joining us live on YouTube. Let us know what you think. Put a comment in that YouTube comment box. If you've never done it, I challenge you to do it today. Tell us what is top of mind for you. How's your day going? How's busy season treating you? If you've got a busy season and if you've never joined us on YouTube, it's a lot of fun. Go to YouTube and type in the accounting podcast. You'll find us, hit subscribe, hit notify, and you'll get a little ping on your phone. If you've got the YouTube app that tells you when we go live and you can join us for a few minutes, or for the whole hour, or sometimes two hours. David Leary: [00:04:45] Every single week. Like boring accountant who is here again this week. Blake Oliver: [00:04:48] Number one live stream Livestream viewer with three coffee emojis this week, and that's because we're getting started a little later than usual. We just had so much to digest that David and I were sitting here for an hour together, figuring out, what are we going to talk about? And I have my list. I know David has his list. On my list. At the very top is IRS layoffs. The IRS is planning to cut get this 50% of its workforce screaming face emoji. Perhaps for the tax pros listening in for the taxpayers, perhaps who have to work with the IRS. This is scary. And I did an interview with Jeff Johnston, a revenue agent who just got laid off from the IRS, and he talks about that experience. We will play it in this episode if we have time. If we don't, it's going to go in the feed on the podcast as a bonus episode. So stay tuned either in this episode or after as a bonus episode, to hear that his experience. He talks about some of the computer systems they used, how antiquated they are, how difficult it is to get trained, the impact this has on him, what he thinks about it. So we'll, we'll we'll cover that as well. David, what's top of mind for you this week? David Leary: [00:06:08] Well we have the strategic Bitcoin reserve. Might not buy bitcoin after all. Um we have well I had the IRS laying off as well. And then I have two takes on tariffs. One take is from your favorite politician of all time Ronald Reagan. And the other is looking at Trump's usage and results with tariffs. Blake Oliver: [00:06:29] Hmm. Well, let's do this in order then. Let's do the IRS layoffs and then let's talk about tariffs. David Leary: [00:06:39] It works. Blake Oliver: [00:06:40] According to Accounting Today, the IRS is reportedly planning to lay off up to 45,000 5000 employees. That's half of its 90,000 person workforce. This comes after 6000 to 7000 layoffs last month, primarily of probationary employees. Jeff, who I interviewed, was one of those probationary employees. Many of these laid off employees, like Jeff, were experienced tax attorneys and accountants recently hired to audit wealthy individuals and corporations. And that's what Jeff was. He's a lawyer and a CPA, and he was a revenue agent assigned to large corporations, not small businesses. So what is the impact on this? Well, we can expect that ongoing audits of wealthy taxpayers will be abandoned. There will be fewer of them. Jeff told me that they didn't have enough as it was. Here's the good news. He did say that he doesn't expect service levels on the phone lines to decline because there is not interest internally at the IRS or the Treasury to make that experience worse. So this is primarily primarily layoffs of revenue agents. David Leary: [00:07:54] And it's interesting that I didn't think about that. If the initiatives of the IRS, the last 18 to 24 months have been to hire people to audit complicated rich people's tax returns. Blake Oliver: [00:08:06] Big companies, wealthy. David Leary: [00:08:07] People, and all those people that they probably recently hired in the last 12 months are probably all on probation. Blake Oliver: [00:08:14] Exactly. David Leary: [00:08:14] Completely. Just. I didn't even think. Blake Oliver: [00:08:16] About. David Leary: [00:08:17] That before. Blake Oliver: [00:08:17] Yeah, you're on probation for a while before you get. I don't know if there's, like, a tenure. It's something to do with, like, the way the union negotiates with the federal government. You get more protection when you've been there for a while. But, yeah, these people are all new. And they were hired under the Inflation Reduction Act when the IRS got that extra money. The NAACP, National Association of Tax Professionals has created a dedicated job resource page to help affected tax professionals find new opportunities in the industry, and you can find that via the link that we will put here in the chat actually. Yeah. Here's basically Natpe has classified ads with job related positions or tax related positions if you are looking for work. So I'm going to post that here in the in the chat. David Leary: [00:09:03] And did you see in the the Associated Press article, apparently there's a chance of the 45,000 that are left, some of that talent, those bodies might be lent to the Department of Homeland Security still to do immigration enforcement. Blake Oliver: [00:09:18] So was that a joke or are they serious about that? I think, you know, that was like it was Trump or Elon Trump blurt. David Leary: [00:09:25] Yeah, you never know if the Trump blurts are real or not real. Blake Oliver: [00:09:28] Is that what you're calling a Truth Social post? Now, remember in the last episode you couldn't figure out what to call it. You wanted to call it a tweet, but Trump. David Leary: [00:09:34] Just blurts things, right? He just blurts it out, and then sometimes it becomes real, sometimes it doesn't. It's a Trump blurt. That's the easiest way to say it, but then it gets reported as news and that's when it gets confusing. Blake Oliver: [00:09:44] Right, right. Yeah, it's hard to know what's what's real and what is just bluster. I've got some more IRS news before we get to the tariffs. David Leary: [00:09:52] One more to add on to this article. Apparently the IRS and other government agencies need to submit a reduction plan or report to the white House by March 13th. So it's still not clear when these 45,000 what the timeline is on this, and neither the white House, Treasury Department or IRS responded to the Associated Press for comments. So this is like two, um, unnamed sources that were familiar with the situation have put this out there, but there's no confirmation. There's no idea of a timeline. This could be next week. It could be six months from now. It could be eight years from now. That the reduction takes time. We just don't know. Blake Oliver: [00:10:26] Other news from the IRS. Irs Chief Operating Officer Melanie Krauss has been named acting commissioner while they wait to approve the nomination of. I guess we're waiting on Senate approval of Billy Long as the next commissioner. So in the meantime, Melanie Crouse is the acting commissioner. I don't envy her job. She has been the IRS CEO since April of 2024, following her position as Deputy Commissioner of Operations Support starting in January of 2024. In her role as CEO, she oversaw various operations including finance, risk management, facilities, human capital, procurement, privacy and analytics, and she started at the IRS in 2021 as the Chief Data and Analytics Officer, leading research activities and implementing AI and advanced analytics. And she also served as acting Deputy Commissioner for Services and Enforcement in 2022 and 23. And before she joined the IRS, Crouse spent 12 years in federal oversight roles at the Government Accountability Office and the Department of Veterans Affairs Office of Inspector General. She's also a registered nurse and holds bachelor's, master's and doctoral degrees from the University of Wisconsin, Madison. David Leary: [00:11:42] She seems like the perfect person to Trump and Doge would go after to get out of government based on her resume. Blake Oliver: [00:11:48] I'm not going to be nominated to be the commissioner as an insider, that's for sure. All right, David, let's talk about tariffs. David Leary: [00:11:56] Tariffs. So I have two takes on tariffs. So to set the context for the Ronald Reagan take in the mid to late 80s Japan was apparently subsidizing some semiconductor manufacturers. I don't know all the details in the sake of this. It doesn't matter. Right. Blake Oliver: [00:12:12] But when are we going back to. We got to. David Leary: [00:12:13] The mid mid to late 80s. Blake Oliver: [00:12:15] Okay. So we're going back in. David Leary: [00:12:18] Time mid to late 80s. Japan. You know this is when semiconductors and computer chips were really coming into their own. And Japan apparently was subsidizing the manufacturers. And in retaliation Reagan had to implement a tariff. But he does not like tariffs. He's against tariffs. He's anti tariffs. And this video we're going to play about 2.5 minutes of it. He would address the American people. And he explains basically his thoughts on tariffs and why he doesn't like them. And I think we should listen to this. Blake Oliver: [00:12:47] Okay. So this is President Reagan's radio address on free and fair trade from 1987 1987. David Leary: [00:12:55] April 25th. Here we go. President Ronald Reagan Clip: [00:12:57] You see, at first when someone says, let's impose tariffs on foreign imports, it looks like they're doing the patriotic thing by protecting American products and jobs. And sometimes for a short while it works, but only for a short time. What eventually occurs is first home grown industries start relying on government protection in the form of high tariffs. They stop competing and stop making the innovative management and technological changes they need to succeed in world markets. And then, while all this is going on, something even worse occurs. High tariffs inevitably lead to retaliation by foreign countries and the triggering of fierce trade wars. The result is more and more tariffs, higher and higher trade barriers, and less and less competition. So soon because of the prices made artificially high by tariffs that subsidize inefficiency and poor management, people stop buying. Then the worst happens. Markets shrink and collapse, businesses and industries shut down, and millions of people lose their jobs. The memory of all this occurring back in the 30s made me determined when I came to Washington to spare the American people the protectionist legislation that destroys prosperity. Now, it hasn't always been easy. There are those in the Congress. David Leary: [00:14:14] And that's Ronald Reagan. And I think I'm kind of aligned with his point of view on tariffs that if you start subsidizing your businesses in your own country, eventually they get lazy and bloated and they don't innovate and they don't compete on the global scale. And it comes back to bite us in the long run. Right. And I know you have this tax czar or tariffs or taxes stance. Yes. But as an opposing point of view. Actually, I'll let you comment about Reagan before we leave because he's your your favorite. He inspired you to become the president of the Young Republicans. Right. Or something like that. Blake Oliver: [00:14:49] Yeah, yeah. I mean, he's he's the best, right? So. And I love his voice. It's just so soothing. He's an actor. Wonderful. David Leary: [00:14:57] A real actor. Blake Oliver: [00:14:58] A real actor. Not a reality TV actor. Yes. Um, you know, I completely agree. Right. Like, tariffs are taxes. It reduces competition. They are useful in certain situations. A great example is when this country was founded, we used tariffs to protect the nascent American manufacturing industry from British imports. So by raising the price of British imports, we were able to establish manufacturing in the United States, which could never get a foothold before because it was it was so much cheaper just to buy British goods. So that's an example of when it's useful. But just tariffs in general, like as a broad uh, policy without specific purposes is very bad. It really harms the economy. And take any economics class and you'll learn why this is the case. David Leary: [00:15:50] So so the other take I have on tariffs I heard a podcast. It's the New York Times the daily podcast and it's a half hour long. So I'll just summarize it. And it's about how Trump's tariffs are affecting the fentanyl production in Mexico. So a New York Times reporter that is based in Mexico, she was able to get into a fentanyl factory mid-December. So this is before Trump. So she went and tours not the right word but she was able to gain access. Essentially it's a it was a normal kitchen right, with the stove and some pans on it. And she talked about having the cabinets right next to you have your pantry and it's the stuff you'd normally have in a pantry, but also the chemicals they needed to make fentanyl in the pantries. And that was pre-trump then post-Trump, now that Trump got in office. We obviously know the 25% tariff because he felt Mexico was not doing enough to stop fentanyl from entering the US. So the reporter wanted to go back and visit this lab. The lab was in Sinaloa, Mexico. So she went back to Sinola, Mexico to assess the impact of Trump's policies. I went back to the exact same city and she was shocked by the change. Essentially, there's a lot of chaos in the manufacturing supply chain of fentanyl now in Mexico because the Mexican government is doing raids and making arrests. So her contacts said that there's there is now no longer any production in that city. There's still production happening in other parts of Mexico, but there's no lab to take her to. There's nothing for her to see this time around. Blake Oliver: [00:17:20] Tariffs as a threat worked, according to this anecdote. David Leary: [00:17:24] And this was the conclusion. Two conclusions. When Trump said Mexico wasn't doing enough, it's pretty clear they could possibly do more because they've done a lot in the last eight weeks to to impact it. Right. And then the tariffs, whether or not they produce revenue or economic impact, cause a recession, etc., are powerful enough to create behavior change in the country especially. I believe that fentanyl production. Yeah. So here's an here's an example of the Trump. The tariff worked. Blake Oliver: [00:17:51] I, I believe that tariffs can be effective in that situation as a negotiating tactic to get what you want. What won't work is this idea that implementing 25% tariffs will cause the manufacturing to relocate back to the United States. That is one argument that I hear all the time, that I see all the time on Twitter of people who support these tariffs, is let's raise tariffs on everything, and then companies will have to put their factories in the US. Will move them from Mexico to the US, or from China to the US. And what that fails to understand is just how much time and money it takes to relocate a factory. Not to mention, you've got to find the people who can do the work there. And then even if you do that, the cost to the good is going to be so much more here in the US than it is elsewhere. David Leary: [00:18:46] And the. Blake Oliver: [00:18:46] Other that. David Leary: [00:18:47] Theory I think people have on it is, well, we'll just have lots of tariffs. And then because of that we get to have less income taxes or pay less taxes. And I don't think that offset will ever work either. Blake Oliver: [00:18:55] Not even close. And that's the other thing. Yeah. The amount of money raised from tariffs is insignificant compared to income taxes. So that's why we saw when somebody in Congress proposed a bill to eliminate income taxes and replace it with a national consumption tax, essentially a sales tax. I forget who this was, but this happened. The national consumption tax would have to be like 23%, Or at least it is in the bill, right? It has to be a lot. And that's on domestic, not just like bringing goods in. So um, great point, David. You know, thank you for bringing some balance to the show. Tariffs do work. Threats of tariffs can work. Tariffs themselves not great economic policy okay. Where do we go from here I actually have a related story. But before that let's thank our first sponsor OnPay. And we have a special segment that I want to play for you today about OnPay. Here we go. David Leary: [00:20:00] Wait. Did you hear the news. Blake Oliver: [00:20:01] Does have something to do with OnPay because Valerie Heckman is here. David Leary: [00:20:04] OnPay, raised $100 million in funding recently. And Valerie Heckman from OnPay is here to tell us all about it and what that money is for. So Valerie, welcome to the show. Valerie Heckman: [00:20:15] Thank you. Yes, we are super excited. We've secured over 100 million in funding, which is a recent 63 million series B raise, which was led by Carrick Capital Partners. So very excited to share the news. Thanks for having me on to talk about it. Blake Oliver: [00:20:31] What are you gonna do with $100 million, Valerie? Valerie Heckman: [00:20:33] I think we're going to continue being a title sponsor of the accounting podcast for sure, for 2025, which is awesome. You guys. Blake Oliver: [00:20:41] That's great to hear. Valerie Heckman: [00:20:43] Have been partnering with us for a long time. I'm super happy to support you all and then have your support in return, which is awesome. I should say. For those who don't know, OnPay and maybe they've heard heard our name on the ads and stuff, but for those who don't know, OnPay we are a full service payroll, HR and benefit solution out of Atlanta, Georgia. And so what this is enabling us to do is to really I feel like we're one of the best kept secrets in payroll. So to extend our reach and then continue to build out our functionality. So we have a really robust solution now. Um, payroll tools that you can configure to fit a lot of different business needs. We're really known for our support. So we do like full service payroll setup for every client. We're really hands on along the way with everyone. And then we have an in-house benefits team as well and a number of HR tools as part of our suite. And so from a product perspective, really enhancing that and expanding it out, we're launching a time tracking functionality to Onpay, which is exciting. It's something that our users have been asking for. David Leary: [00:21:48] Breaking news. Valerie Heckman: [00:21:49] Yeah. So we integrate with a number of time tracking solutions. And we've got, you know, the ability to import in hours. But a lot of folks really want those employees to be able to, you know, do their profile and see their checks and clock in and clock out and manage their time off all those things in one spot. Blake Oliver: [00:22:06] Valerie, I am super excited about, you know, the investment that's going to go into the product. Um, you know, one of the things that made me hesitant about Onpay When I first started using it like it was, I didn't know what amp was right. I was like, David, who's OnPay? Why are they sponsoring us? Yeah. And I think that's because there's a lot of splashy startups that start doing payroll, and they spend a lot on ads, and they build up their brand. They do. What tech startups do OnPay is not that AMP has been around for like decades as a payroll service and added on the tech, I love it. We're getting the best of both worlds. We're getting the payroll service you can trust with real people behind it, a history, and we're getting the tech like, I couldn't be happier. And David and I couldn't be happier as AMP customers. Users for multiple businesses. David Leary: [00:23:00] A great sync to QuickBooks. Blake Oliver: [00:23:02] We use it for S Corp's use it for earmark the app. We use it for earmark media got so many companies on it. And oh yeah David mentioned the sync the integration with zero. I don't know how it works with QuickBooks, but David could tell you that. But I assume it works really well. David Leary: [00:23:16] But it works great. Blake Oliver: [00:23:17] What I love about the Onpay integration with Xero is you can choose how you want it to sync over. Do you want it to go in as manual journals journal entries, or do you want it to go in as bills? And I've always hated when apparel company only gives you the option to sync the bills, because then you have to match up two different deposits to a single bill, and zero, which is not for inexplicable reasons, is not easy to automate, but I can use the manual journals. I can send that on over. It all matches perfectly in the bank feed. Like I just click okay and I'm done. It's it's it actually is one of those things that like makes me happy every two weeks. Valerie Heckman: [00:23:51] So another exciting piece is that we're continuing to grow out our partner community. Right. Obviously expanding the team, expanding the resources and tools that we have for accountants and bookkeepers. We're also going to be out in the wild more this year. So if you haven't seen us at events and conferences in the past, be sure to keep an eye out. I'll be at most of the ones that we attend this year. If you're at like AICPA or scaling new heights, please find me. Please come say hello and we'd love to connect with you. Blake Oliver: [00:24:18] One more thing. Where can people go online to learn about Onpay and sign up? Valerie Heckman: [00:24:21] So OnPaycom we have a tab for accountants and you can find all of our great information for accountants and bookkeepers there. Connect with us for a demo or attend one of our webinars or whatever. Looking forward to connecting with everybody. Blake Oliver: [00:24:34] See you soon, Valerie. Valerie Heckman: [00:24:35] See you soon. Thank you. Bye bye. Blake Oliver: [00:24:37] And if you want to support our show, go to. What's that URL? David Leary: [00:24:41] David The Accounting Podcast dot promos onpay. Blake Oliver: [00:24:46] Thank you so much. Onpay. All right. Going back to tariffs. I've got a related story here. Economic optimism among CPA decision makers has dropped significantly after the election. It went down from 67% to 47% from before the election to after the election. 20% drop. David Leary: [00:25:09] What survey is this? Blake Oliver: [00:25:11] This is a survey published in the Journal of Accountancy. Okay, so they do these. David Leary: [00:25:17] I see that survey come out every quarter and I and it comes to my feed. And I never really read it because it feels like there's never any changes in it. But now it's very steady. Blake Oliver: [00:25:28] It's usually very steady. It's put out by the AICPA and they survey leaders in businesses who are CPAs. So executives optimism about their own organizations is about the same. Held steady. But global economic optimism declined from 41% to 29%. And the survey responses were gathered in February before the recent tariff implementations and delays. But after that policy had been promulgated by the administration that they were going to do this thing. 59% of these CPAs who responded believe tariffs will negatively impact their businesses. Only 14% say there will be positive effects from tariffs. For them, 57% of businesses expect to expand this year, and large businesses with over $1 billion in revenue are the most optimistic, with 80% planning expansion. Small businesses, though, have reduced their expansion plans, and we do know that tariffs tend to hit small businesses harder because they struggle to get exemptions from tariffs and to absorb the costs associated with tariffs. So there you have it. More evidence that the CPA world is not we're not big fans of tariffs. And now David I'm going to let you choose where we go from here. Do you want to talk about the strategic crypto reserve. Or do you want to talk about how Elon called Social Security a Ponzi scheme. David Leary: [00:27:03] Let's do the Bitcoin reserve. And then I think because you have the Ponzi scheme and then I'll get your take and we can discuss that a little. So go for it. I think last week when we recorded it was breaking news. Trump blurted that he was going to establish the strategic Bitcoin reserve and on Friday it officially got signed. Blake Oliver: [00:27:21] It's now called the Strategic Crypto Reserve. David Leary: [00:27:24] Striped strategic crypto reserves. Blake Oliver: [00:27:25] Because it's more than just bitcoin. David Leary: [00:27:27] More than just Bitcoin. Blake Oliver: [00:27:28] Well that's what I had heard. David Leary: [00:27:28] And not everybody is happy about this. You think the crypto voters that put him in office would be jumping up and down about this? But they're not, because there's one detail that's now been disclosed in there. It's only to keep the crypto and the bitcoin that the US already has. So, you know, they've been busting criminals the last half a decade and they've been collecting crypto. And now they have a bunch of it. So they basically there's no there's no plans in this order to buy more crypto. Blake Oliver: [00:27:58] So the order just says hold on to the crypto that we've already seized from criminals and don't sell it. David Leary: [00:28:04] Correct. And I think people in the market, this is why the prices went up so much when the announcement came. Because I think people thought, finally, it's the top of the pyramid. We figured out who can sell all our crypto to right. And right now there's no plans to do it. So the price dropped on Bitcoin a little bit as a result of this. Um, but I think these crypto voters should still be happy because another option the government could do, they could sell, I think it's $17 billion in crypto that they have and take the entire market. Just put it all in the market one day it would just crash the entire thing. So they should be thankful for this because they're still getting some benefit from this. It could be a lot worse these crypto. But there's greedy. These crypto voters are so greedy like they want the moon. They just can't. It's not good enough to not lose all their money. They want it to go up more. Blake Oliver: [00:28:53] Well, why else do you buy bitcoin? I the only reason that I know of why any individual would ever buy bitcoin is speculation that it might go up in the future. And what's the best way to ensure that it goes up to get the government to buy it, at least to hold it. But as Senator Cynthia Lummis proposed to buy it every year and set a floor on that price, basically. And I am not I mean, this this is probably let's just say I'm not a fan. That's a very mild way to put it. I think a strategic crypto reserve is probably the stupidest idea that anyone has ever come up with in when it comes to the government, when it comes to this sort of thing. I did an interview with doctor Jack Castonguay. He's a CPA and a professor at Hofstra University. It's in the accounting podcast feed as a bonus episode. Go listen to it if you want to hear all the arguments against why the United States should establish a Bitcoin or a crypto reserve. Um, to me it just feels like a giveaway to millionaires and billionaires who already own a ton of crypto and bought it really cheap. And I'll leave it at that because you can go listen to that episode. And if you disagree with me, I'm interested in hearing your opinion. I would actually be happy to interview a CPA who wants to take the other side, and I will listen. Um, send us an email The Accounting Podcast at earmarked me that's The Accounting Podcast at earmarked me. David Leary: [00:30:20] Or send us a bitcoin one of the two. Blake Oliver: [00:30:22] Yeah send us some crypto while you're at it for AirDrop us um, Elon Musk attacked Social Security on Joe Rogan's podcast. He called it, quote, the biggest Ponzi scheme of all time, unquote. And he claimed that Social Security obligations in the future far exceed the tax revenues funding the program. Which is true. He attributed the problem to people living longer than expected and declining birth rates. A may report from the Social Security and Medicare Trustees indicates that the program will run out of money and will be unable to pay full benefits starting in 2035, which is not that far away. A little over ten years from now. Ten years, that's what it is. So benefits will have to drop to 83% after that date. David Leary: [00:31:11] So the argument is we have population. We have ten people in the population set. They're all going to need to be paid out of retirement. And previously we would have the next generation. There'd be 15 people paying. It'd be bigger. So we could pay those ten. And then now we've been shrinking the other direction. So that baby boomer generation, there's not enough workers below them to pay enough for the Social Security because they're not being paid out just from the investments, like a Ponzi scheme. They're taking the current funds that are coming in and handing it out over to the previous investors. In a way, they are they're the if the you invested in Social Security and now you've retired, you're the previous investor. Blake Oliver: [00:31:49] Yeah. The original pitch was we're going to take this money out of your paycheck now in the terms of payroll taxes, and we're going to invest it and then we're going to give it back to you when you're older. If you make it, if you survive to 65 or whatever it is. And that money has run out because benefits have increased. But we haven't raised taxes to fund the program. So currently it's just the payroll taxes that you and I pay today are going to directly to Social Security beneficiaries. Um, pretty much. Right. And so the question is what's going to happen? And I have always felt in my gut that the American people will not allow Social Security and Medicare, at least Social Security, to become insolvent or for benefits to decline, because who votes a lot? Who's the most likely to vote? David Leary: [00:32:41] So are people collecting Social Security? Blake Oliver: [00:32:44] Old people, old people. They vote a lot and they collect Social Security. And they are not going to vote for politicians who cut Social Security benefits. And so taxes are going to go up within the next ten years in order to fund Social Security. Politically, that's what is going to happen. And I finally have some data that supports this gut feeling I have. A survey by the National Academy of Social Insurance revealed that 85% of Americans prefer raising taxes to maintain or increase benefits. 85% this is way across party lines. Republicans and Democrats all support raising payroll taxes to keep Social Security solvent, to keep paying benefits. The most favored option is to remove the $176,100 cap on wages, subject to payroll tax. So that could address 70% of the shortfall just on its own. A majority oppose raising the retirement age. They favor adjustments that reflect elderly spending patterns, which means cost of living adjustments. They want those to continue, and increasing the payroll tax rate has significant support, even among Americans, even among Republicans and higher income households. So just I would I'm betting on this. So if there's tax planning that you are doing for clients, that has to do with the payroll tax rate, expect it to go up. I expect it to go up. So it's interesting though, that just raising that cap, eliminating that cap would do so much to fund the program. Um, I'm curious like why that cap was in there in the first place. I get this because if you earn more than the cap, like Social Security benefits cap out. So it's it was considered unfair to tax people above that because you're never going to get proportionally what you put in because the original idea was what you put in is what you get out. It's at least there's some relationship. David Leary: [00:34:54] If you're wealthy and you're hitting that cap. In theory, you're saving for your retirement. Outside of the Social Security world. Yeah, but you have this, uh, this these assets, right? And so, in theory, you weren't going to be an anchor to Social Security in the future, right? You weren't going to, like you said, withdraw all the funds that you put in. Yeah. So that's. I get that argument on an individual, an individual's personal finances. I get the argument. But as for society, on the whole, I don't know if that's a great argument. It feels like we're not just a bunch of greedy assholes in this country. Or are we? Right. Are we just greedy? Blake Oliver: [00:35:32] Wait, what? What makes us greedy? Well, I understand that argument. David Leary: [00:35:35] Well, you don't want, I want mine if I'm going to make that much a year. Blake Oliver: [00:35:38] Right. David Leary: [00:35:39] I want mine capped because I'm never going to get that much back out of Social Security. Right. Why should I contribute so much? Right. Right. Blake Oliver: [00:35:46] Yeah. I mean, I get the argument, but if somebody. David Leary: [00:35:49] On a personal finance basis, it's a very logical argument. But we live in a society and like we participate. Blake Oliver: [00:35:56] If somebody is going to have to pony up to keep Social Security funded, who's it going to be? It'll probably be a combination of raising that cap and slightly higher payroll taxes, whatever people are willing to tolerate. And maybe it happens over time. So this is why I exclude Social Security and Medicare from any discussion or debate about the national debt, because they really are separate programs that are not part of discretionary spending, and they will get fixed because there is the political will to do it. So just like CPA, licensure is finally getting fixed because 80% or more of CPAs believe the 150 hour rule is terrible, this will get fixed over 80% of Americans support this solution. Once you have 80% of anybody in politics supporting something, you can actually get it done and you get it done pretty quickly. So we've got ten years. I think it will happen. The question is just which party is going to do it? Which president is going to do it? Maybe, maybe we'll get like a moderate president at some point in the next ten years. Who who does it? It reaches across the aisle to, to make it happen. David Scully liked your comment. David, we live in a society. It's true, I mean, but I wonder, what does that mean? We all live in a society, right? Isn't every unless you live out on an island in the ocean by yourself, or on top of a mountain by yourself? You live in a society. I guess you could live in a family but. David Leary: [00:37:30] Participate in the society. Then you get benefits from being in the society. Do you want a bunch of homeless old people all over our country on the streets? That would not be good to. Blake Oliver: [00:37:39] Send them to Florida. They can hang out on the beach, you know. Um, I kid, I kid. All right, so I mentioned the 150 hour rule. So that means I get to talk about the webinar that I hosted recently on earmark. We did an earmark webinar with the leaders of six CPA societies from six states. Representatives from New York, California, Texas, Pennsylvania, and Florida all join me for a discussion. David Leary: [00:38:07] And those are the biggest states. What percentage of CPAs was probably represented? You had to be breaking 60, 70%. Blake Oliver: [00:38:13] So Jen Kreider said it might be 70% or more. I asked perplexity this, and it calculated 40%. So somewhere in that range, it's a lot. David Leary: [00:38:26] We'll say half. Blake Oliver: [00:38:27] I mean, New York and California and Texas are enormous for CPAs. So like, yeah, it's a lot. My guess is at least half and many CPAs are licensed in multiple states. So that kind of throws things off. It confuses it. Cfo.com did a really nice write up about takeaways. You can go watch the video yourself on the earmark channel on YouTube, and we'll put the link in the chat. But or just register for the webinar, watch it on demand. But you know, the big takeaway is just that. There are over 30 states at this point, including those six that are advancing legislation to replace the current 150 hour rule with a bachelor's degree and an accounting concentration, two years of relevant work experience and passage of the uniform CPA examination. So bachelor's degree with accounting concentration not necessarily an accounting degree, but an accounting concentration. Two years of work experience and the uniform CPA exam. The 150 hour rule will remain an option for people. And if you get a master's that counts for one year of work experience all these states, that is the general rule with very tiny little differences. Blake Oliver: [00:39:44] Now, one of the questions that came up at the end of that webinar was around pay and hours, because we know that the 150 hour rule is not responsible for all of the problems that we have in the profession when it comes to retaining talent and attracting talent. The number one and two reasons is pay and working conditions hours. And I guess you could just summarize them both under working conditions. Right? It's what you get paid and how much you're expected to work. And in the big firms it is not great. And the pay has not increased in years. And I saw a post from Erica Goody on LinkedIn. Erica Goody, CPA, said, this can't be right. Doing my own taxes and found my first big four Chicago audit associate W-2. I was making $55,000 in 2007. Riddle me this. The Google tells me current Big Four Chicago Associates are making between 45 and $65,000 a year, the same range her salary in 2007 is smack in the middle of what audit associates at the big Four in Chicago are getting paid today. So what's inflation been over those years? David Leary: [00:41:00] 20 years later, it hasn't changed. Blake Oliver: [00:41:02] It's the salary hasn't changed. It has declined in terms of inflation dramatically. And so I'm a big proponent of streamlining initial licensure. But if we want to actually solve this problem and get more people into accounting and become CPAs in particular, we got to fix this audit associate salary problem. And so the question is what is causing salaries to have stagnated? Why can't we pay associates more and. David Leary: [00:41:31] Pause you right there. And we're going to insert an ad. It'll be a cliffhanger. People have to listen to find out what this why is. Blake Oliver: [00:41:37] Okay, great. 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So in some states, the CPA supervision or the supervision or the work experience requirement, I'm going to start that over in some of the states that are changing initial licensure. You don't have to get certified. Your work experience doesn't have to get signed off on by a CPA, but in some states it does. And that's one of the big differences in California. It's got to be an active CPA who signs up on your work experience. So that means it can be really challenging if you don't go into that traditional audit or tax path to get your work experience requirement, so that in some ways could be subsidizing the lower wages, it could be forcing audit associates to take those jobs and so the firms can pay them less. I've also heard arguments. Oh, the firms are greedy. The partners are greedy. They pay their people as little as possible. You know, I don't really buy that because you could say that about any business. In any business, the owners of the business are going to pay the employees as little as they can to get the quality of the work that they want. It's just that's how economics works, right? You're not going to. Why overpay unless you want to just hire the best people and that's you have a reason for doing that. Why overpay? And in audit, you know, because of the way we have regulated the profession, I think it incentivizes firms to hire people to just get the work done. And the quality doesn't really matter that much. So there's not a lot of, uh, there's not a lot of pressure to hire, to pay more, to get really good people. You just need people. And that's why. David Leary: [00:45:08] Invest in them either through growth or actual salary. Because guess what's coming in next year? A bunch of new bodies that you can pay cheap wages to, and you could let half the people you can leave every year and you just have new bodies constantly coming. The model's been set up for this, right? Blake Oliver: [00:45:23] You just need people in the seats doing the job. You can offshore it. You can hire people cheaper here. You can boot out the existing people, bring in new people. We have regulated audit so that every audit report is identical. Investors can't tell the difference. You know who cares which big four firm audited this fortune 500 company? It doesn't matter to any of those investors. I would be curious to see a study that finds out if it matters if Deloitte or KPMG or EY did it, but I don't think it does. And then same thing among the regional firms. And so there's no differentiation there. So when your product is commoditized or is not differentiated, then the only way that you can compete for new business is on price. So you compete on price. And when you're selling time or when you're calculating how you price all this based on time, you know, the only way to make more money is to work your people more hours. That's why we get a lot of hours required and you don't pay them more. There's no there's no reason to pay them more. And we don't have worker protections for audit associates. So there's like nothing that stops these firms from working people more than 40 hours a week because there's no unions. Um, that's one potential solution. But I prefer the solution where firms have a business reason to pay people more. So that means making audit quality matter more, not just be like a check box. And we've talked about this on the show over and over again with the PCAOB. Blake Oliver: [00:46:56] Doesn't really feel like it's actually doing anything to increase audit quality. So, you know, that's not a big deal. There's no reason to pay people more to get better quality people. Um, and then even more big picture accounting financial statements have not really changed over the past decades. We're doing pretty much the same thing that we were doing when Erica Goody started in the Big Four in Chicago in 2007. What has changed since then, really? We got lease accounting. We got revenue recognition. But I don't meet a lot of CPAs who say, oh, this was so great. This really changed things. And I definitely don't meet investors who say this made financial information more useful to me. But meanwhile, our economy has shifted and almost completely inverted to where the market value of the S&P 500 is driven 80 or 90% by intangible assets. And we are still doing accounting like we are in an industrial economy with factories. And yes, we have factories, but the cost accounting that we all learned to do is just not nearly as relevant as it used to be. And financial statements have just gotten longer and longer. They're harder to read. I don't know anyone who reads them on a regular basis, because who wants to go through 200 pages of financials and footnotes. So one way that we could increase our value as accountants is to actually make financial statements simpler, easier to read, and with information that investors care about. David Leary: [00:48:33] Well, to move it from something that they have to buy from us versus something they want to buy from us. And that's the problem right now. They have to buy an audit report. They need it. They don't have a choice. They don't really care who does it. I just need it versus I like what you're producing for me. I want to pay you for it. I might pay a premium for it. We're not delivering, uh, a market. Good. I guess if that makes any sense that the market actually wants or there's no demand for your. There's artificial demand. That's it. There's artificial demand because of policies and procedures. Blake Oliver: [00:49:05] The requirement to have an audit and to have audited financial statements, how many companies would actually produce them and purchase audits if they weren't required to do it? I think that's a very interesting question. You said it really well, David, and that's why salaries have not increased. Because the it's not that the financial information isn't useful, it is, but it has declined in importance relative to other metrics that investors now use. A great example is software as a service metrics SaaS metrics. Those in the subscription economy are far more important and useful to investors than anything in the financial statements. And that's what I encountered when I worked in a tech startup that was growing and had venture money. Nobody looked at the financials. The investors didn't care. We just did them for compliance reasons. So one way that accounting as a profession could become more relevant is to actually standardize SaaS metrics and to start requiring companies that are subscription businesses, like Netflix, to report those metrics and to do it in a comparative way, in a way where we can compare the number of subscribers of Netflix and the lifetime value of Netflix customers versus, say, Amazon Prime customers, for example. Blake Oliver: [00:50:17] That would be really fascinating and useful information that investors would want to have, I think, but we haven't done hardly anything. Now, the good news is that the FASB, the Financial Accounting Standards Board, is now asking for input on intangible assets, which they have basically ignored for decades. It's like they are completely asleep when it comes to this massive change that has happened, where our economy is now driven by intangibles. So they have issued an invitation to comment an ITC, and they are soliciting feedback on potentially improving accounting practices and disclosures for intangible assets. Examples include brand recognition, copyrights, patents, trademarks, trade names, customer relationships and customer lists. But I would hope that they would think about like subscribers, that sort of thing. And maybe, maybe I'll make the time to actually comment on this. I'm going to go ahead and put the link here in the chat for everyone who wants to comment if you are interested in doing so. And to close this out on this, I want to play a video of Steve Jobs talking about cost accounting and Apple Computer. Speaker5: [00:51:33] You're 21. You're a big success. You know, you you have no you just sort of done it by the seat of your pants. You don't have any particular training in this. How do you how do you learn to run a company? Um. You know, throughout the years in business, I found something which was I'd always ask why you do things. And the answers you invariably get are, oh, that's just the way it's done. Nobody knows why they do what they do. Nobody thinks about things very deeply in business. That's what I found. I'll give you an example. Um. When we were building our apple ones in the garage, we knew exactly what they cost. When we got into a factory in the apple two days, um, the accounting had this notion of a standard cost where you'd kind of set a standard cost, and then at the end of a quarter, you'd adjust it with a variance. And I kept asking, well, why do we do this? And the answer was, well, that's just the way it's done. And after about six months of digging into this, what I realized was, the reason you do it is because you don't really have good enough controls to know how much it costs. So you guess, and then you fix your guess at the end of the quarter. And the reason you don't know how much it costs is because your information systems aren't good enough. So but nobody said it that way. And so later on when we designed this automated factory for Macintosh, we were able to get rid of a lot of these antiquated Concepts and know exactly what something costs to the second. Um, so in business, a lot of things are, I call it folklore. They're done because they were done yesterday and the day before. And so what that means is, is if you're willing to sort of ask a lot of questions and think about things and work really hard, you can learn business pretty fast. It's not the hardest thing in the world. It's not rocket science. It's not rocket science. No. Blake Oliver: [00:53:41] I love this story. Steve Jobs asked the accountants, why are we using this standard cost? And his answer that he got back was always done it this way. This is how we do it. And yeah, the answer was this is how we've always done it. And he realized the reason they're doing it that way is because they can't think of a new way to do it. And the information system sucks. So if we just get a better information system, we can know exactly what our cost is on all of these Apple two computers that they were making. And this feels like where we are as a profession, where we've been producing financial statements and audits the same way, because that's how it's always been done. And we aren't stopping to think about can we improve the information system? Accounting is an information system, and we've been gathering information and reporting on it a certain way because that's what the industrial economy needed. But the subscription economy and the economy that is built on intangibles, on knowledge doesn't need that kind of system. David Leary: [00:54:47] But if you're in a firm and you want to innovate, you just can't say, like, we're going to invent a new way to audit and we're going to publish financial statements that are different from everybody else's. Is that are there legal constraints around that, or is it just social and social norms and the reason that does not happen? Blake Oliver: [00:55:05] Yeah, no. It's like there have been auditors who have written about this and talked about providing more value in an audit, but that's really hard to do because why are people buying the audit? Because it's required. They don't want more. So it's really up to the regulators to modernize financial reporting and audit reports. We need FASB to make accounting less complicated and more useful, easier to understand and provide more useful information by simplifying accounting standards. Accounting standards have just gotten more and more complex over the years to the point where. David Leary: [00:55:43] So you're advocating that you want a government agency or a pseudo government agency because FASB is not are they officially an agency or not? Blake Oliver: [00:55:50] Fasb is another one of those nonprofits that was set up by the government. David Leary: [00:55:54] So you're advocating for them to simplify things? Blake Oliver: [00:55:59] Yes. David Leary: [00:55:59] That's not in their best interest. They're not going to do that. Blake Oliver: [00:56:02] So somebody from outside is going to have to do that like a Doge. If Doge really wants to turbocharge the economy, they should tear apart our accounting standards. Take it down to what is really necessary. Uncomplicate this thing, just like people have tried to do with the tax code. And maybe someday, eventually somebody will. I know there are people laughing as they hear that, oh, it'll never happen. It'll never happen. Well, until it does, there will be a moment when people will say this is not useful anymore. So it's up to the regulators, it's up to the SEC, it's up to I mean, that's the regulator. That's that. That's who decides what audit reports look like through the all the different sub departments and agencies and entities that it controls, the Treasury and the SEC. And maybe it can start with the accounting professors who are listening to this show and the students who are listening to this show. There's a lot of really smart PhDs in accounting, and I just don't understand why none of them are looking at this. I don't see any papers about this. It's all about, like, nitty gritty little things that nobody cares about. But big picture. This is what's missing from the profession, and you can get an idea of what kind of reporting matters. Because if you go to like CPA firms or non CPA accounting firms that are producing management reports for small business clients, you will find that they vary. They are vastly different than what you get in a public company report. And if that's the case, if what the management is using is different than what the investors are getting, that's an indication that there's a problem here. The investors want what management sees. Yeah. That's where we should start. David Leary: [00:57:50] I don't think we live in a world where people are taking the GAAP financials and putting them all side by side by side. Apple, orange, banana and be like, I want the banana because their GAAP financials are better than the other two people's got financials. But their theory, that's the theory behind. I remember being in accounting 101. That was the way it was explained, right? Yeah. It allows you to compare these three companies side by side. And you have exactly fair numbers to compare. Right. But but people buy on tweets. They're buying, you know, they buy stock on a tweet, you know. Right. False. Blake Oliver: [00:58:20] It doesn't it doesn't mean. David Leary: [00:58:21] Rumors and false news that it's not the purpose of these. Don't they just don't serve a purpose. Blake Oliver: [00:58:26] Well, it doesn't mean that financial statements aren't useful and that the metrics in them aren't useful. I mean, there are plenty of people who still read financial statements, analyze them, and invest based on that. Warren Buffett did that. There are still people who follow that idea. But it's harder now than it ever was because of this. Like lack of information about intangibles, because so much of a company is driven by that intangible aspect, like the subscriber number drives future revenue. So we'll talk about this more, I'm sure, in future episodes for now. David, is there anything that we missed on your list that we have to talk about? David Leary: [00:59:03] Yeah. Before we wrap up, I want to talk about expense cards. There's a lot of action in the expense card space this week. Um, and we'll just call this app news segment right. Or expense news app news expense card app news segment. So American Express is going to buy expense card company center I don't know if you've heard of center. They sponsored us a long time ago. Essentially it's a virtual card for small business owners or card it does. You know, you're tracking your expense tracking for your employees. So American Express wants to get into that. So they're doing that ramp ramp raised $150 million at a $13 billion valuation. So ramps really crushing it. Right now, this ramp serves 30,000 businesses in the US and now powers over $55 billion in annualized purchase volume across card transactions and bill payments, up from 10 billion in January of 2023. So they've in two years have almost five x the Transaction processing they've been running, which is very impressive. Blake Oliver: [00:59:59] How many customers did you say they have? David Leary: [01:00:01] 30,000 small, 30,000 businesses. Okay, so so there's that news app. And then another card in the same space called flex. Flex raises 225 million for for their finance platform for business owners. Now the reason flex caught my eye, Blake, when you had your accounting firm, a small business owner comes in and you see they have a personal bank account and they're using it for their business and their personal finances. What do you do? What do all accountants usually tell them to do? Blake Oliver: [01:00:29] First thing is set up a separate business bank account. David Leary: [01:00:32] Yes. And we've been doing that for 20 years. And what do small business owners always like to do? They have everything in one spot. Blake Oliver: [01:00:39] Well, what they'll do is they'll set up the business bank account, but then they'll run all their personal through that. David Leary: [01:00:43] Exactly. And that's so instead of trying to fight that river, this startup flex. And this is why it caught my eye. They're embracing it. They are marketing. Here's one platform for your personal and your business. And it looks like you get two credit cards. It feels. I can't tell for sure, or if it's just one credit card, that they're smart and they figure out if it's a personal and business and route things properly so that only one, one, one relationship, you get bank accounts, you get all your stuff, and. Blake Oliver: [01:01:12] So is it all in one bank account? David Leary: [01:01:14] I can't tell, but they're they're messaging the way they message it. They say separate bank accounts for business and personal. Right. Um, but they. I'm sorry I misread that. Blake Oliver: [01:01:29] I don't like this idea of one software vendor or one fintech, using that for both personal and business. Because what if something happens to that fintech? David Leary: [01:01:41] Then everything's gone. Blake Oliver: [01:01:43] You're really screwed, right? So it's like, I always think I would rather have a separate business bank account at a separate bank, and then my personal bank accounts at like a bank that's too big to fail. David Leary: [01:01:55] Yeah. So their tagline is your whole world, business and personal in one place, which I kind of get. It's convenient, but this goes against everything accountants tell clients since the beginning of time. Well, since the computer era, anyways. Blake Oliver: [01:02:12] Since the end of time. Um, you know, it's funny, I saw a I have to remember to bring this clip to the next episode. It was like an a16z discussion podcast episode about accounting technology, and there's so much that they get wrong about it. It's like just 20 minutes of VCs who are not accountants, who have never spent any time in a finance department or in a public accounting firm talking about accounting. And it's hilarious. Uh, why did I bring that up? What were you just talking about? David Leary: [01:02:41] We're talking about startups and solving for the the separate bank accounts and tax. Yes. Blake Oliver: [01:02:48] No, I just forgot why I brought that up. But I guess that's probably my indication that it's almost time to end if I can't keep track of my thoughts. What are you. What's anything left on your list? David Leary: [01:02:58] No, I think there's a story I want to follow up on because it's kind of breaking. We have another government, state government that has misplaced $1 billion or accounted for $1 billion. The state of Oregon's Department of Transportation has messed up $1 billion in their budgets, and they're blaming it on the computer planning software. They were expecting so much income to be there, and it's not there. And now they overspent. I have to follow up on that story. We're going to find out more about that. But $1 billion just gone. Blake Oliver: [01:03:27] Probably one of those situations like with was it South Carolina where it's not like the money is actually missing, it's just that they overcounted and they overspent as a result. David Leary: [01:03:39] Yeah, I think they overspent because they were expecting money. Like a lot of times when you do road road projects, national work, there's a lot of federal funds that come in and In this app or the computer program. They just call it the computer they use to calculate the future revenues was wrong. It screwed up. So they they were spending out spending the money that has actually existed. And so to a discrepancy of $1 billion. So I will look into that. But this comes back to I think a lot of these things happen because the state governments are just not enough accountants. There's not enough people keeping track and making sure ducks are in order until it's too late. Right. Blake Oliver: [01:04:17] I want to highlight one more story before we go. This appeared in the Wall Street Journal, and it came out the day after we talked about this issue on the pod. The headline is debt has always been the ruin of Great Powers is the US next? And we recorded our episode where we talked about where I talked about how the US debt is the biggest threat to the continued existence of the United States as a world power. And then this article comes out the next day. Now, I didn't come up with that idea. I got that from David Freiberg, who talks about it a lot on the All In podcast, Super Smart David Freiberg. And so I was talking about how, like we are at this point where our debt payments are equal to our military spending. And in this journal article, Niall Ferguson, he examines the historical consequences of excessive public debt on great powers. And he says, could this happen to the United States? He asked that question, uh, and he gives historical precedents, uh, Spain, when it was ruled by the Habsburgs, they ran into this situation. Blake Oliver: [01:05:29] Bourbon France ran into this situation. Great Britain ran into this situation. And we are now there where US interest payments on our debt have surpassed defense spending. Once you reach that point and you keep going, it is really hard to maintain your military might and to maintain economic hegemony or dominance in the world as a result. And it's because when that happens, when you reach that point, your lenders are much less likely to believe that you'll pay them back. And so it becomes more expensive to borrow and you end up in this debt cycle or debt doom loop where when you borrow more money, it's more expensive. So every time you refi on your debt, you roll your debt forward, you got to pay more interest. So now your interest payments are even higher and you've got less tax money to address, you know, domestic and military spending and all that. So then your military spending has to get cut. And when military spending gets cut, your power declines globally. And military power is linked to economic power. David Leary: [01:06:34] So we should just go take over countries. And right now, before we lose our our military might, we have a window of opportunity here to just go Canada and Greenland. Right? This is the time to do it. Blake Oliver: [01:06:45] Don't give Trump any more ideas, David. David Leary: [01:06:48] 20 years from now, we probably will not be able to do it because our military will be weak because of the deficit. Blake Oliver: [01:06:52] Yeah, exactly. That's the problem. Is that. And then and then when you do have a conflict, you can't win the conflict, right? Um, or it just totally destroys you. So I think that's good for this week. I got some remote work stuff. I got some stuff about accounting professors adapting to AI amid cheating concerns. But I think all that can wait until next week. This was a lot of fun. Thank you everyone who joined us live. We got some comments that I want to go through before we go, uh, regarding audits being required. Allison said health inspections are required for restaurants. That's artificial demand, but they're also government employees, I believe. I don't know how this helps. I love comparing audits. Financial statement audits to health inspections. Because what is a financial statement audit? It's basically a health inspection of your financial reports. And I love that in the cities that I've lived in anyway, health inspections get a letter grade, and that letter grade is posted on the window as you walk in the door at that business. So you get to decide as a customer, if I'm going to go into a restaurant that has an A or a B or a C or whatever it is, or I think in some cities it's like a happy face or a merry face or an unhappy face. That's kind of. David Leary: [01:08:14] Bad enough they shut the doors. They they don't allow you. Blake Oliver: [01:08:17] To close it down. David Leary: [01:08:18] On customers. Blake Oliver: [01:08:19] So what if audit reports for investors had like a grading system. So let's rate the financials, not just pass or fail. And very few companies ever fail. So like that's not very useful right. If everybody passes the information is not as useful as if you gave a letter grade. That would be interesting, but I think to avoid grade inflation you would need to have otters be more independent. And that's why health inspections tend to work, is that the health inspectors are paid by the city, not by the restaurants. If health inspectors were hired and paid by the restaurants, you can bet that a lot more restaurants would be passing those health inspections. And so that's one option. Let's see, Darth says Darth Cookie says the job market for accountants here in Tucson is terrible. I'm a CPA who worked in audit at a mid-tier firm for over five years, and I got laid off from a local firm here Phoenix here I come. David Leary: [01:09:18] Is that you could summarize this. The job market in Tucson in general is terrible, unless you work for the university or you're in the military with Raytheon or, you know. Blake Oliver: [01:09:27] Raytheon. David Leary: [01:09:27] The military industrial complex with Raytheon or the base Davis-Monthan. But in general, yeah, the the Tucson, or you have a business that caters to retirees. There's a lot that's a good business to get into. So as a CPA you could just do retiree taxes. And I do okay. Blake Oliver: [01:09:43] Scully says what else will help the pipeline problem? Sarcasm. Letting folks in the Philippines and other countries have a path to CPA licensure. It is interesting how Nasba and the AICPA have been working really hard to make it easier for people from other countries to become CPAs. They've been really focused on that. David Leary: [01:10:03] I love this this because I was thinking about this, and I don't know how to ever introduce it to this show. And this is my window right now. Tariffs are all about products right. Blake Oliver: [01:10:13] Mhm. David Leary: [01:10:13] Right. And when we have trade deficits that just means we we brought in more product and they bought from us essentially. Right. But if you think about what we export we export culture movies. We these all these types of things. Are those counted in those equations. Or if I'm using labor overseas I don't pay a tariff on that labor. Right. Or the best example I can think of is where this makes sense. So South Korea with their K-pop bands basically hacked the US music system. If you notice, there's no boy bands in the United States anymore. They're all South Korean boy bands. Okay, so we've lost jobs. It's taking jobs away. But nobody tariffs that nobody tariffs when they come and do concerts and that musical industrial complex that's overseas. Like why is it only goods that this doesn't make sense to me. Blake Oliver: [01:11:04] So the question is should we have a tariff on services that could definitely help create more jobs in the United States? If big firms had to pay a tax, a tariff, to hire overseas workers to do the work that us CPAs should be doing. David Leary: [01:11:22] And I understand the playing field is not fair. The reason, like in order for Marvel and these movie companies or Disney, they want to show movies in China. They have to produce some of the movie in China or else they don't get to put it in the theaters, right? So it's already an unfair playing field, but the focus on products just feels like it's too much about the tariffs. There's all these situations and scenarios where the services or A. What is music, music or movie? What kind of good is that? It's a. Blake Oliver: [01:11:52] It's it's an intangible. David Leary: [01:11:53] An intangible good okay. So intangible goods are being produced. Other countries may be digest our intangible goods more than we digest theirs. But I don't think that's ever figured in the equation. Blake Oliver: [01:12:03] Is that calculated in the trade deficit? I don't know. That's a good question, Allison says. Why can't we get the AICPA and Nasba to lobby? Preventing the offshoring of accounting services for non international companies? Outsourcing white collar is the same wage deflation as manufacturing. Yeah it definitely caps wage growth because or it's an outlet. So right. Instead of paying people more here offshore the jobs. David Leary: [01:12:29] But the reason why they want that lobby lobbyists. Aicpa created that like they are they set up the structure to make this happen. Why would they lobby against this? Blake Oliver: [01:12:39] Well, it's in the interest of the managing partners at big firms to continue offshoring the jobs because you pocket the difference. Um. David Leary: [01:12:50] Big Four Newby has a good point too, on that. Blake Oliver: [01:12:53] What's that? David Leary: [01:12:54] That as they hire more staff overseas, they the AICPA gets that $400 per person. They get to hire these more bodies. It's pretty smart. Blake Oliver: [01:13:04] Big Four requires their staff to become members and pays the fees. Oh, wow. So Big Four pays the AICPA membership fee for the offshore CPA working at the firm. And then so they the AICPA still makes its money and Nasba still makes its money from testing fees. Darth Cookie says, when I worked for GTE, I was working 90 hour workweeks during busy season, living off of strawberry, Nesquik and Maruchan Ramen, but I still made sure my reports were accurate. Thank you for your service. Dark cookie. You really like that strawberry Nesquik helped you get through all those busy seasons? David Leary: [01:13:49] That's great. Blake Oliver: [01:13:50] Uh. Light em up. Says there are private companies that get audits done without needing them, but not many. Matt C says I was dropped from my consulting engagement for our global delivery teams resource literally outsourced my work right in front of me. Ouch. Allison says it'd be cool to have an The Accounting Podcast hangout, audience interaction and discussion, Q&A, etc. we should do that sometime. David. David Leary: [01:14:15] We kind of are. So we. It's in the earmark app. So if you go to earmark app, you can get details about this. We are going to have a screening of the accountant to for our listeners. Blake Oliver: [01:14:26] So in Phoenix in Phoenix. David Leary: [01:14:28] So if you go to earmarked app, you can see the event and click on it and you can register and join us if you happen to be in Phoenix on the premiere of account two, that's awesome. Blake Oliver: [01:14:37] And it's on the day it comes out in April and we've rented a movie theater. We are going to fill this movie theater with accountants going to see The Accountant two. Oh my God, I cannot wait. This is going to be so much fun. I'm gonna have to go back and watch the first one. Wait. David Leary: [01:14:53] Let's watch the first one this weekend and commit to figure out how we can do CP for it. We might have to just discuss it, but I think I want to do CP for the accountant one, and then it would be amazing if we were able to see the accountant two ahead of time. So people at the theater could get their CP for accountant two while we were there, but that's a whole nother struggle. Let's just figure out how to do it for accountant one. Blake Oliver: [01:15:14] David, I got to go. Great chatting with you. See you around soon. David Leary: [01:15:19] Fun show. Bye, everybody.