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Jeffrey Gundlach, DoubleLine’s Founder and CEO, joins Yahoo Finance’s Julia La Roche to discuss his thoughts on taxation and wealth inequality, as well as what the future of work will be like for both employers and employees.
JULIA LA ROCHE: I'm Julia La Roche here at DoubleLine Capital headquarters with DoubleLine's founder and CEO, Jeffrey Gundlach, having a wide ranging-discussion. And, you know, Jeffrey, one of the things that we often have talked about is the division in our country, inequality. And now you're starting to see-- you know, with the stimulus checks that have been going out, how can we afford these sorts of things? And you're seeing proposals around capital gains tax, for example, wealth tax. So what do you make of it? And how can we solve it? Would taxes even be able to help that situation?
JEFFREY GUNDLACH: Well, it incrementally helps. But I don't really think the tax proposals that have been floated come close to paying for the spending. I mean, I'm going to repeat that we-- government spending is more than half paid for by deficit. It's an incredible fact that most people don't know. In fact, for the fiscal last year, it was 56% of all government spending was borrowed.
Now, one thing about the stimulus checks is on the surface of it, people might think, well, if we give money to the poor and we take it from the rich, we're going to help get rid of wealth inequality. But there isn't any historical reason to believe that that would be the outcome. Once we go into an unmoored, [? cut ?] type of monetary and fiscal policy, which is territory that we've entered, we can go back in history and look at what happened in prior examples.
And they're pretty-- it's pretty depressing to do that. Because the outcomes are often civil wars, revolutions. Like the French Revolution, they went off the gold standard in the 1770s. And by the late 1780s, there were basically riots about food. And there was the Woman's March where they started at the bread market because they couldn't get any bread. It was too expensive, or else there was a shortage of it.
And they were so upset by it, they finally couldn't take it anymore. And they marched. The women started it. They started marching towards Versailles, where Louis XVI and Marie Antoinette were. And they did it in the pouring rain. And many of them, I suspect, didn't even have any shoes. So why did it come to that? Well the money printing and the giving away ended up making the middle class poor and the prior poor class was starving to death.
And at the other end, the people who were controlling the levers of the money printing became more wealthy. So it's not-- it isn't really the case that these tax increases will pay for this spending. And if we go to another level of free money, I think the wealth inequality will get worse.
[? Why ?] don't we think about the stimulus that's happening? It's this being-- it's being very beneficial to US consumption, but it's not really developing our productive base at all. So we have more consumption, but the consumption is stuff coming in from China. So Chinese GDP is booming, because we're buying all their stuff. And so that's exacerbating that problem as well.
And it comes through-- and I'm oversimplifying here-- it comes through Amazon. Amazon does a very large share of this business. So we've got this-- one of the richest people in the world, Jeff Bezos, is getting made fabulously more wealthy because of the governments' giving money to the people that they are. And so that's kind of how the mechanism works. So the stimulus hasn't helped our productive base. It's helped China, and it's helped certain very rich people in Silicon Valley and the like. And that's where it is.
I think the wealth tax is primarily vengeance, really. I don't think it raises very much money. And it just seems like it's-- I am in the camp that wealth taxes ladled on top of our current tax system basically punish success. Now, having said that, I would love to have a wealth tax, but only a wealth tax. I think wealth tax makes more sense than income tax.
The income tax system is so convoluted that it's almost nonsensical. And it's completely unfair. In 2012, Mitt Romney ran for president. And he put his tax return out. And he paid something like 14% in income tax relative to his income. I made about as much money as he did in that year, and I was paying 50%.
So I don't like the idea that the income tax system is completely unfair, even at equal income levels, because of tax shelters and carried interest and all of these things that are just, you know, crony capitalism, essentially, through the tax code. I would get rid of all of that and just have a wealth tax. But to put a wealth tax on top of the income tax, that's really problematic.
You mentioned the capital gains tax. For those making $1 million or more a year, you know, the proposal is to take it to basically 40%, which would really affect things very dramatically. That would be sort of a shock to the financial system, sort of like the pandemic was to the health care system. And if you put capital gains tax together with a wealth tax, then you've really got a problem.
Because if you have a company that's worth $100, and they tax it between California, who's proposed 1%, and some talk in Washington of around 2.5%, you have a 3.5% wealth tax, and the tax collectors are the judge, the jury, and the executioner. They're going to tell you what your private business is worth.
It's really worth $100. They might say it's worth $200. They're probably going to estimate in their favor, which makes the wealth tax 7%. So if you paid six years of wealth tax, it would be 42%. And then you sold your company for $100, you basically pay all of the proceeds from having done it previously with the wealth tax and then with the 40% capital gains tax plus California's tax. It's all gone.
JULIA LA ROCHE: Well, you mentioned California. And I live in Miami now, so I'm seeing a lot of Californians come in to that city. So in that scenario, you're a business person. You employ people. You have a business here in California. What would that mean for someone like yourself?
JEFFREY GUNDLACH: Well, I think it's one of these situations where you look around, and it seems like a lot of smart people who are wealthy that made their start in California have already left, you know? Elon Musk, Joe Rogan, Ben Shapiro, Oracle, Hewlett-Packard, big companies.
I can tolerate it for now, I guess. But I'm at 13.3%. If they take it to 16.8%, which is proposed in Sacramento, and the federal goes up, it's going to be hard to really endure the California taxation. Plus, California services are among the poorest in the country.
So you're paying a very high tax, and what we're receiving is an explosion in the past 18 months of homelessness, the infrastructure is crumbling, and crime is soaring. And yet, you're paying ever more increments of taxation. At some point, I think, basically they're going to realize everybody's going to leave.
JULIA LA ROCHE: What would be the first thing you would fix?
JEFFREY GUNDLACH: I would run a balanced budget.
JULIA LA ROCHE: There you go. One of the things we talked about last summer was you were talking about this kind of impending wave of white collar layoffs. Where do you stand on that as it relates to a future of work, and has that view been adjusted as we've seen kind of anecdotally more people who are in white collar jobs who are just kind of saying, you know, forget it, kind of taking off and resigning? Where do you stand on that prediction of the white collar [? wave ?] layoff?
JEFFREY GUNDLACH: I think it's still coming. I think it's-- middle management is what I'm thinking about. I think when you do things virtually, when you're working virtually, you don't almost need middle management. You kind of-- you're organized in a way where everybody is interacting. And I find that the Teams meetings and the Zooms, they give us an extra perspective into who's really working and who's just kind of watching other people work.
And that's the basis for my thesis that sort of middle management, we'll probably be thinning the ranks of that. So we'll see. I think there's a lot of question marks relative to California, where we've been locked down more than other places. And there's a lot of confusion and varying ideas as to how to go back to work.
We polled our employees, and we're not very different from the broader surveys nationwide, a lot of people want to work from home a couple, three days a week. And that's a big shift. And I just think part of figuring out the plan of going back to work at offices, at least hybrid model, I think part of that will involve right-sizing your middle management force.
JULIA LA ROCHE: And I suppose one final question. We often-- I'm a millennial, and I often talk to you about my generation. We can even bring in the younger generation, the Gen Zers. And when we talk about the economy, and the markets, and all the spending that's been going on, and the consequences or what it might mean for younger generations, you know, I hear my parents talking about 1970-style inflation, for example, things like that that they had to go through. What does the future in your view kind of look like for my generation?
JEFFREY GUNDLACH: Well, the millennials were not born at the greatest time. I mean, I think this is wave three of problems. There was the dotcom bust, there was the global financial crisis, and then we have this outrageous contraction here. I think psychologically-- and I'm just conjecturing, I think psychologically millennials probably have a little bit of despair, or a lack of the idea of possibilities and potential.
Because every time things seem to get rolling along in a nice way, the bottom drops out again. And so I think I've read that there's this idea that you're going to be, you know, better off than your parents type of American dream stuff, is not really deeply believed by the younger generations.
JULIA LA ROCHE: Jeffrey Gundlach, CEO and Founder of DoubleLine Capital, I thank you so much for your time today.