Bloomberg Audio Studios, podcasts, radio news. I've been up since like three point thirty this morning because I saw a raccoon and barked at him, and then we have to go outside and chase the raccoon.
And that took.
That just woked me up, and then I just didn't get back to sleep. I get it pretty early anyway.
That's brutal.
My kid's got to boss them. Mostly, I have always been pretty good sleepers. The dogs turn today.
I feel like we should note that we're in two separate places right now.
We're in two separate places. I'm in the Bloomberg podcast studio, which is really cool.
I'm at home, so I actually feel somewhat prepared for this, which.
Is oh wow. I don't. It's gonna be great. It's gonna be all you.
I don't feel that prepared. But let's let's dive in. Hello, something huge, Oh wait, we have to we have.
To do you don't have to go ab something huge.
Happened, something huge, the introduction. People know who we are, we speak for ourselves.
Hello's Somebody's the thodcast, the stuff with the money. I'm mad, let's kitty, let's go all.
Right, let's go Warren Buffett.
Wow, I tell you it happened over the weekend. Berkshire Hathaway. Cheryloy reading Warren Buffer was like, by the way, I'm out at the end of the year, and you know, as happens on the weekend. I'm like, I got to write about this. On Monday, my WORFA was like, this really news. It's a ninety four year old man retiring.
It's like, yeah, it is kind of funny and charming. How shocking it was, I mean not shocking, but still the only theme. Everyone was surprised, even though we also knew who his successor was going to be. Yeah, because it's been teased since like twenty twenty one.
Not to be morbid, but like, if you are well regarded, successful person who is working successfully at age ninety four, people have a reason not to expect you to retire. That's like I'm going to be carried out, you know. So it's interesting that is your time.
But at the same time, I feel like one of your legacies will be how well you pick your successor.
That's true, but you're right, I mean, we knew who the successor was, but yeah, it's like having a sort of orderly transition is useful.
I kind of want to talk about Craig Abel. I mean not to be disrespectful to Warren Buffett, but he's interesting in that he doesn't have much of an investing background. Like you think about do you think about Charlie Munger, you think about Warren Buffett, you think about fantastic investors, And he doesn't necessarily have that resume. He's more of an operator, like a business operator.
It's so unique to have a big company that is sort of best known as a vehicle for a guy's stock picks, and like the guy who made the stock picks, it's really good at making stock picks, right, And so it's like there's a lot of value created in that company.
But also you know, they bought a lot of companies that they operate and manage, and it would be surprising if they took that giant company and transitioned it to like the second greatest stockpicker ever, right, Like it sort of makes sense to be like, well, like railroads and transcommusation, we should make the CEO a guy who knows how to run railroads and hopefully the stock picking will take
care of itself. But like it would be weird if they picked a guy with a stockpicking back gund because you'd have to run a company.
Yeah, that's what he's going to do. I mean, I read something I forget who it was from which publication, but you know, you think about Berkshire Hathaway. It has lessened its reliance on like the insurance side of things. It's a lot of the energy business now, and that's obviously where greg Abel, that's his sandbox. At the same time, though, it is fun to think about what Berkshire Hathaway under greg Abel could look like. There's a lot of speculation
that maybe we could see some spin offs. It's this huge, sprawling conglomerate with like four hundred thousand employees. Do you start to break things apart a little bit? So far, greg Able seems to be saying that obviously they're going to continue on the track they're on. But it's fun to imagine.
It's pretty early days for him since.
He's not in charge, you know, but he's had a long time to think about it. And it's true it doesn't take over until January first of twenty twenty six, but I don't know. I imagine in his idle day dreams, he thinks about what he's going to do.
It is in so many ways a weird company, including just being a sprawling conglomerate is not really you know, hasn't been in vogue for forty years now. And there are a lot of things that Berkshire gets away with or like is beloved for because of Warren Buffett's presence. But without Warren Buffett's presence, you know, at some point someone's gonna be like, wow, we could use capital more efficiently.
We could you know, have a cleaner story to tell toone because the story you tells the investors now was like, ah, look it's Warren Buffett, right, but like you can't tell that story anymore, and then you have to tell a
story like you know, ooh or an energy company or whatever. Right, you go from having this very straightforward, very widely appealing story about Berkshire Hathlo to being like, well, we do mobile homes and you know we have candy candy, Yeah, we want a big chunk of apple for some reason. You know, it's like when it's like all of this
disparate stuff is stuff that Warren Buffett likes. Everyone, Oh, Warren Buffett likes it, but it's like all this disparate stuff that Warren Buffett liked a long time ago, then it's like a less compelling story.
Also a question maybe they'll have to confront is you know, we don't pay a dividend, which is fine because you had Warren Buffett there, But now maybe they'll start paying a dividend. I don't know.
Yeah, it's the thing I think about a lot, right, Like I write often a headline, a section header. People are worried about stock buybacks, right Like, there's this idea that like, either a company allocate's capital, right like, it has money and it uses that to invest in building factories or buying other companies or doing whatever it does with the capital, or it returns the capitol to shareolders and says you would do a better job of investing
this capital than we would. Right Nobody is agitating for Berkshire to return capital. The shit sareholders because if you're an investor in Berkshire, you're not buying a piece. You're like, oh, I'm making you like a very focused bet on like energy or whatever. Right You're not like I just want like their energy exposure. You're buying because you want Warren Buffet exposure. And you're buying it because you're certain that
Warren Buffett is a better alligator of capital than you are. Right, you're buying it because you want Warren Buffett, you know who has the giant cash pile. You're willing to wait around until he finds what he wants to do with that cash pile because you're certain that he's going to do a better job invest in that cash pile than you are. But like most companies, there's some shareholder agitation to say, look, you CEO of a company, if you hang on to a lot of cash, you'll probably to
play it in some wasteful way. You'll probably like do some vanity project or like invest in some dumb idea. You should returned the cash to shareholders, and the shareolders will do a better job of figuring out what to do with the cash then you will. Yeah, and once Warren Buffet Lelys called those normal pressures kind of come into play.
For those keeping track at home, the cash pile is currently a like three hundred and fifty billion dollars, so it's quite a bit.
That's a big dividend.
I'm interested to see what happens to the shares in general. We talk about the so and so premium on the show frequently. Usually it's the Elon Musk premium. In this case it's the Warren Buffett premium, which ties into the discussion over the dividend nicely.
Yeah, I don't have a great empirical sense of how big the Warren Buffet premium is. I've heard people argue that it has historically been large and it's smaller now because even like three months ago, like you were discounting your relatively short period of the Warren Buffett premium, right, You're like, well, Warren Buffett will be investing this money for some period of time, but not perpetuity. But yeah, it's interesting to see what the Buffet premium will sort of watch out to be.
So we're talking about greg Abel, the successor to Moren Buffett in Berkshire Hathaway, but perhaps a less formula has also emerged this week. Can I guess, please.
Guess?
Friend of the show, black Man Bill Ackman. He's executive chairman of Howard Hughes. He finally did.
He's striking while the iron is hot, Like these are like simultaneous actions, right, like he like strike his deal with Howard Hughes to take like almost control forty.
Seven of Howard Hughes holdings. So he is weighing plans to build and insure expand the real estate company's remit and as he stated plenty of times before, he's trying to basically model himself after Berkshire, Hathaway become a modern day Berkshire. And the timing was interesting. Buffett announced this over the weekend and then this news for Bill Ackman broke on Monday. So maybe they just guess at the time their real rush.
To get get it done, Like it's like twenty four hours to start the new.
Four hour turnarounds.
Yeah, it is like Berkshire in the sense that it is not an insurance company that he is acquiring control of in order to eventually at an insurance company like Berksure. Hathway started as a textile company and then like you know, a wired insurance and insurance turned out to be a big part of Buffet's success, right because you have like the sort of like cheap non callable leverage that allows
you to make a lot of interesting bets. The Lackman would also like to do that but acquiring and ensure it would be too easy, so he acquired a real estate company to build his Berkshire out of. I don't know, Yeah, it is interesting to me as a guy who like reads and writes about like hedge funds and high ricercy
trading prims and stuff. How are the eard Warren Buffett is for doing this like really old school thing, which is like fundamental analysis, long term buy and hold long investing in stocks.
Right.
I mean he also, you know, as we're talking about, like he also runs a conglomerate, right, and there's a lot of operating businesses there. But like he's famous for being like ooh, I like coke. I'll buy coke and coke COO's op. Right, and he holds it for decades. And when you look around it like people who are financial celebrities these days forty years ago, like Warren Buffett was the best of a group of people who are competitors in that business. Right, Like you know you would
comp him to like celebrity mutual fund managers. Right, but you look at it like financial celebrities these days, there's not a lot of that, you know, It's mostly like people who run hedge funds and are not giving you long exposure to large cap equities, but that they are doing some more complicated, more market neutral, more like alpha generating thing. Stockpickers not stock pickers, and certainly not like
very long term stockpickers. And the guy who has really positioned himself as being that is Bill Ackman, right, Like you look at his fund and it's you know whatever, it's like twelve or fourteen names that don't turn over that often, right, And I'll tell you know, they do derivative stuff on the side to the kind of like smooth returns, but like the main business is like long
term fundamental stock picking. So it is interesting that he wants to get into the Warren Buffett game and he's like the only person who's doing the thing that Warren Buffett was doing, which I think is you know, kind of passe in many respects, but you know, it still has an obvious appeal.
If you thought the Berkshire Hathaway was an unusual company not a normal company, boy, do I have a corporate structure for you? Open ai.
See I think that open aa is a normal tech company, Like I think open a is totally normal. Open Ai is a private tech company that is backed by venture capitalists.
And also Microsoftware is a big stake and like Softing, Right, so the classic capital structure except for Microsoft like venture capitalist and has like a giant slug up money from Softing, and it is run by a charismatic visionary CEO, Sam Altman, And the explicit proposition of the company to like investors is, look, we're not going to like be focused on maximizing profits for you in the short term. We're not going to
be run as a business. We have a vision about what is good for humanity, and we're going to pursue that long term vision. And when I say we, I mean Sam Altman has a vision for what is good for humanity and he's going to pursue that long term vision and shareholders will not have much ability or desire to meddle with that in the pursuit of short term profits.
And that's like very explicitly the proposition that like Facebook put in its ip of perspectives, and that has become like standard in Silicon Valley, right, It's like what you want as a venture capitalist is a visionary CEO with a like mission that is not the short term pursuit of profit but has some grand vision of like humanity's future and you want to invest in that and kind of like take your hand off the wheel and let the visionary CEO cook. And that's what's happening here. But
it's like it's like a nonprofit. There's like all this stuff, but like that's what's happening, right. Like the news is that like open Aye is a nonprofit that controls a for profit basically, and they were going to convert to being a regular for profit and now they're not, and instead they're gonna be you know, there's gonna be like a for profit company and it's gonna be pretty normal, and it's gonna have shareholders and one of the big
shareholders will be the open AI nonprofit. But the nonprofit will control it, right, it will have I've said it'll have super voting shares something that like rhymes with that, right, Like maybe it'll have super voting shares. Maybe it'll have a contractual right to appoint the board, but it'll appoint
the board of the for profit. And you know who will run the nonprofit, Well, there's a nonprofit board and like the board will sort of perpetuate itself, right, Like the current board will pick future board members, and like the board is like I don't want to say handpicked by Sam Altman, but like there was a nonprofit board that fired Sam Altman and then he came back, and as a condition of him coming back, he fired that
board and replaced it with his board. So you know, who's gonna disagree with his vision of what's best for humanity? Like SoftBank probably not so. I just think it's like a very normal tech company with like a lot of weird like thing. Yeah, it's a story that like you've heard before about Facebook.
You know, I find it a little bit exhausting, Like the lip service. Maybe it's not lip service, but that these visionary founders pay to like bettering humanity makes a little bit more sense when you're talking about the mission of open Ai. The mission of Facebook is pretty rich. I mean when you phrase it that way, it just sounds like another form.
I believe it in some form, you know, it's.
It kind of it rhymes with it.
It's like very grandiose, right, Yeah, it's in many ways like one person's idiosyncratic vision of benefiting humanity. Right, there's a broad category of ways that AI can go where Sam Altman will be like that was great for humanity, and everyone else will be like, no, it wasn't right, Like that's like a distinctly possible outcome.
Yeah, so how it stands right now? So Sam Altman wanted to completely separate from the nonprofit board his nonprofit over verseers. That's not happening. They're now a PBC, which it seems like wasn't a common structure until you started seeing these AI labs.
Yeah, there were a bunch of them. Like it's been a thing for like more than a decade.
Nap.
Yeah, the non open AI AI labs got really into being public benefit corporations. The idea of a PBC is that you can run the company. The board can run a company with like the explicit ability to consider things other than shareholders right to consider the good of humanity, which I kind of think companies can do. Anyway, I don't know how material it is to be a PBC, I mean, reading between the lines, just the teeny bit.
They wanted to be a for profit company where the nonprofit board owned a minority of the shares and a majority of the directors were elected by normal shareholders, and what they have now gotten is that, except that the nonprofit board controls the for profit board controls the you know, as a majority of voting stake in the for profit company, and so it gets to a point the board of the for profit company. But it's a pretty minor difference, I think, well, sorry, it's not a minor difference. It's
a minor structural difference. It's a major difference whether the company is sort of alter controlled by a board answerable to shaholders, or ultimately controlled by a board you know, answerable to the good of humanity as somewhat filtered through Sam Maltman's visions.
I don't know. Again, it kind of reminds me of ESG because you think about oil companies getting dinged for not prioritizing shareholders and starting to like care about the environment. Maybe if they were PBCs, they would be insulated from those critiques.
Yeah. I think it'd be hard to convert a whole company to a PBC, but it would be interesting to try.
Yeah, it would be fun. If I were starting a company right now, I would probably structure myself as a PBC. It seems like it just gives you a layer of protection.
Yes, yes, exactly like a PBC. This is what I'm saying about. Like the vision if you're any like a PBC at the margin, makes you less answerable to shareholders and gives you more ability to be like, no, we're considering other stakeholders or other interests, right, and like that's always additive to the flexibility of a CEO and a board.
Right.
It always gives you an ability to say no to something you don't want to do because you're like, oh, we can a difference stakeholder, right, Like it's insulation from pressure, right. And it is phrased or interpreted as like, this company has more obligations because it has obligations to humanity as well as sharelders, But in fact, it means it has fewer obligations because it means it doesn't have like a binding obligation to shaolders in the same way that a
regular company does. And like the obligations to humanity are not particularly binding, and so you just get to make more decisions based on what you want to do rather than what the s shelders want. This is my cynical take.
I like this, so, I mean, I don't know, it's just it's a it's humanity is a broad church, and what's good for it is open to interpretation.
I do. I'm gonna say two other things about this. So one, I'm saying that open AI is now in a position where it can do what it thinks is best for humanity based on Sam Waltman's vision or what
is best for humanity. That's not quite true. So first of all, there is a board, and the board you know, has to exercise its own independent judgment, and like you know, it's not totally under the control of Sam Waldman, who is not a sheldering, because only whatever moral power he brings to it, and like one board seat, moral power is quite big because when he got fired, all the
board got fired too. But anyway, but the other person who has a lot of say over open AI's vision for humanity is the Attorney General of the state of California, also other attorneys like Delaware, but like largely California. Because open a is controlled by a nonprofit, the nonprofit is subject to like state attorney general jurisdiction, and the attorney generals, particularly of California, had a lot of input into this
this for profit conversion. And I think still do like get to sign off on like the current structure, and they presumably have some power going forward. If, like open AI, the nonprofit says we are going to appoint Skydeat to the board of the public company so it can slay humanity, the California Attorney General can be like, no, that's not in the best interests of humanities who don't do it right. There's some oversight of nonprofits that exists here that wouldn't
exist if it was just a regular public company. So I don't know how that's going to work. I don't normally think that's super activist oversight, but because of all the weird, you know, stuff that has gone on with open AI, you know, you know, the California Attorney General is paying close attention, and so there is some opportunity for that oversight to matter. The thing I think is interesting is, like, you know, I've said, this is a normal company with a founder with a vision, blah blah blah.
But the one thing that makes it not normal is that Sam Altman owns zero shares of this company, and I don't know how that plays out, right, Like, one possibility is that he will get some shares, right, like, at some point during this reorganization, he will say, as he sort of said before, like in previous iterations, he will say, the shareholders, you know, Microsoft SoftBank, However, the shows really want me to own stock so that I
have properly aligned incentives, and so over my objections, I'm taking you know, twenty billion dollars worth of open a stock, right, Like, that's a pop thing that could happen. But it's hard with this reorganization because now there's this two tier structure where the nonprofit controls the for profit, and historically open ai is nonprofit board has not been allowed to own stock in the for profit in order to keep its
incentives pure, and that reasoning still applies. I don't know if they'll still do that, but like it still makes sense to say, if you're on the board of the nonprofit that is trying to make sure that open ai does things that are best for humanity, you shouldn't have a huge economic stake in the for profit subsidiary, because that would, you know, lead you to make decisions in the best interests of profit rather than the best interests
of humanity. So I think it actually would be kind of hard to give him a big slug of stock now though I don't really know, and then like, you know, how else can he get paid? I mean, my impression is that he does not want for material comforts for a variety of reasons. You know, he has that a career as a you know, founder and venture capitalist before
open Ai. But he also like you know, like has all sorts of stakes and also it's of ai j's and business like, there's a lot of ways for Sam Altman to fund his lifestyle that are you know, kind of float around open ai and compose potential conflicts of interest. So it'll be interesting to watch that because he's not Mark Zuckerberg er Elon Musk or whatever, where his wealth is a you know, twelve digit steak in Open Ai.
I don't know Sam Almon at all obviously, but I do wonder if like he had a time machine and he could go back to the founding moments and he alone was making the decisions, how would he have set open ai up? Would he have just completely skipped all this nonprofit drama they're PBC now, But does he wish that, you know, he had just founded it or it had been founded as a normal company and he was a normal startup CEO and it exploded this way.
It's hard. I think that probably he would have liked to skip all this drama and like getting sued by Elon Musk and being subject to the oversight of state attorneys.
General, getting ousted and then brought back in.
Yeah, getting ousted and brought back happened to a for profit ceo as well.
That's true, and it probably helps with your ORO points.
Oh yeah, it definitely entrenches his power when he's asked it and has to be brought back in twenty four hours because like otherwise the company would collapse. Like that
makes him like pretty essential. But no, I think it was a mistake to start it as a nonprofit in the sense that they thought it would be less capital intensive to build large language models than it was, and so they you know, we're like, we're going to do this research funded by donations, and then they realized, oh no, we need like tens of billions of dollars of donations and we're not going to get that, so we have
to be a for profit. So I think in that sense very clearly they would have rather started as a more normal company so that they could raise money efficiently without getting sued. By Elon Musk. The only caveat to that is, like I do think that, like, especially in the early days, and I think even a little bit now, the overlap between like top AI researchers and people who
worry about AI alignment is pretty significant. And I think early on it was like important to be a nonprofit in order to attract people and like motivate people to say we're not just like a company, We're building AI for the benefit of humanity. I think is good for getting researchers. I'm not sure it is anymore. I think it was helpful early on, and I'm not sure that they would have had the success they have had if
they are a pure for profit. But you know, there's enough like counterexamples where like you know, Google also building ahead, so I think probably it would have rather started as a for profit.
One thing I was curious about as I was reading one of your columns about this was that this caped profit model. The company said that it worked when there was really only one company building generative AI, but in this era where you have, you know a lot of companies who are doing this, that they need to switch to the PBC model. I wasn't quite sure how to read that, Like, why wouldn't the PBC model make sense from the beginning? Why would a capped profit model ever make sense?
I love the cap profit model I've written about Sam Alban I've described, but you as a business negging, like a lot of what happens at open ai is they're like, oh, you know, we're just gonna make too much money and it's gonna like destroy the meaning of money. And so we're just warning you about that if you invest with us, we're gonna give you so much money back that like
money will lose all meaning. And people are like, oh, that sounds really good, right, And so there's a lot of ways to express that, and one of them is the cap profit be like, guys, I'm really sorry to tell you, but once we hit a trillion dollar valuation, we can't give you any more money. And people like, wow, that sounds pretty good, right. But then, like you know, you have all these computing AA companies and they're like, well,
we're aiming for a ten trillion dollar valuation. You get all of it, right, And then it's harder to sort of use the cap profit model. But when open ai was the only game in town, those warnings were so like grandiose that I think they were appealing to investors also, like you know, even if they weren't appealing, even they were bad people, Well, this is the only game in town. Like if you know, if I want AI exposure, I'll get this AI exposure up to a cap as opposed
to nothing. Right, but if they're not the only game in town, people rather not of the cap.
Now they're competing with anthropic to learn like thirty billion dollars from soft Bank, so soft Bank would want something cleaner. Yeah, absolutely, that makes sense. Shall we take a hard left turn and talk about medicaid?
Right, like the other end of the spectrum.
What a great racket state governments and hospitals have going on.
I used to be an equity of his banker, and one thing that I did. I'm not going to get into the details convertible bond call options over this, but like what you do is you're like you go to a company and you're like, we're going to sell you it's a product, right, and then it costs you like sixty million dollars. You're ready to check to us for sixty million dollars and the irs will cut your taxes
by eighty million dollars. And also the product has other nice features, but like you know, the IRS will more than pay you for the product. This is always true, but it is occasionally true sometimes that iOS would pay for half of the product. Derote as banker for years before I figured out what I was doing, But like when you sort of figure out what you're doing, like, oh my gosh, Like all products should be like this.
All products should be like two people get in a room and one of them is like, I'm going to sell you this thing, and someone else is going to pay for it, and then like you know, like you have a great time because like you're not like fighting to divide the pie because like someone else is like providing you the pie. That's what's happening in Medicaid, right, So, like what I wrote about this week is like there's a Times article about Republicans in Congress trying to get
rid of the Medicaid provider tax racket loophole. One state government calls it meta scam, but basically the idea is like Medicaid is like hospitals or doctors or frequently like managed care organizations provide medical care to people who can't afford it under or insured under medicaid, and they charge the government for that. And typically the way it works is that the state government pays some portion of the cost and the federal government pays some other portion of
the cost. It's like, I think it averages to the federal government pays sixty percent, the state government pays forty percent, and the state is sort of like in charge of negotiating with the hospitals. And so someone figured out that if the state is paid more, then the federal government would match more, and then the state would have, you know, a higher cost, but it would get more money from
the federal government. And then what the state can do is it can tax the manage care organizations or the hospitals or whoever is provided in care. It can impose a special tax on them that takes back the money that the state paid. So ultimately the state is paying less and the federal government is paying more, and like there's like a refund or a payback from the hospitals
paying the tax to the state. And someone figured this out, and someone figured out in the eighties, and like in the nineties, Congress passed laws basically regulating how you could do this, and the states have gotten better and better at gaming the regulations ever since, and they like cheapen the cost of Medicaid to the state by like finding ways to make the federal government pay more than it's
supposed to. And now Congress is looking again into eliminating that because it does look like cheating.
Apparently House Speaker Mike Johnson has backed away from this because it would be so politically toxic for Republicans in swing states.
Yeah, because it's like a scam. Yeah, but it's a scam in the service of providing medical care. Like, it's a scam, but it's not like the state governments are using it to buy Lamborghinis, right, It's like they're using it to provide medical care while like not squeezing their budgets too much.
Right.
And if you take away this scam, then the states that do it have to either like cut back drastically on Medicaid or like raise their taxes. And yeah, nobody's that excited to do that. And so that's why this this scam has persisted because it achieves a basically acceptable
political outcome. Right, either someone has to pay for this care or it has to not be provided and like either of those things are sort of toxic, and so making the federal government pay for it is kind of like the easiest choice, and they're doing it in a scammy way. And you could imagine a world in which the federal government said, you know, instead of all this like gamesmanship, what we're gonna do is federalized medicaid and we'll just pay for all of it and will negotiate
the prices ourselves and it'll be easier. But that doesn't seem that likely to happen in the near future, and so you.
Have this scamming no, and in the meantimes, it seems like, you know, they're happy to just let this persist as it is. It's funny, so forty nine states employ this. I mean New Hampshire, I think, is the one that calls it meda scam but basically.
Invented in New Hampshire. Yeah.
Do you know the one state that does not use medicaid providers taxes?
Isn't it Alaska?
It is Alaska? And I find that charming. Yeah. I was reading a CBS News article about this, and I thought this was interesting. I think in the article, one of the health providers they talked to said that we're still losing money on Medicaid patients, but it goes from like sixty percent coverage to eighty percent coverage or how
much they're actually getting paid. But they quoted a Colorado based health system, link in Health saying that it paid five hundred thousand dollars in provider taxes, but it netted more than three point six million dollars extra from Medicaid according to its CEO, which is like fifteen percent of its budget.
And that's how it's supposed to work. Like, the regulations around how states are allowed to do this are complicated, but the basic idea of the regulations is that if you have a provider tax, you're supposed to redistribute money from like non Medicaid hospitals to like Medicaid hospitals. So it's supposed to actually improve the allocation to Medicaid. Right, it can't just be a refund from Medicaid. It has to be helpful to the hospitals that tread a lot
of Medicaid patients. States have found ways to abuse that, but that's not even true. But like, that's the basic idea is it's supposed to be good for the hospitals that treat a lot of Medicaid patients.
I just like this as an example of a tax that hospitals or anyone else is happy to pay.
I love it as an example of like gams and ship right, and like I do the analogy to like cope assistance programs, which is like drug companies. If you have insurance to buy like traumaceuticals, and you have a twenty percent COPE, then a drug company will be like, well, we'll make the cost of the drug ten thousand dollars, and then you'll have a two thousand dollars cope, and we'll just give you the two thousand dollars cope. We'll
just we'll pay it for you. And then the insurance company will pay the drug company eight thousand dollars and the drug company will be better off than if it had just charged to do a normal and that for the drug. And like that's also regulated, but it's also like a thing you can do a little bit at the margins.
Right.
But the other analogy I was thinking of, and this is like a tax that people are happy to pay sort of is a salt tax deduction. Right, So like historically Americans have been able to deduct their state and local taxes on their federal taxes. So if you pay ten thousand dollars or state taxes, that reduces your federal income by ten thousand dollars. And in the first Trump administration, I think they capped that at like ten thousand dollars.
If you make a lot of money and live in a high tax state, you can't deduct all of your state taxes, and people, you know immediately got to work figuring out how to game that. And one classic effort that I've written about is that the state could set up a charity, right, and the charity is in the
business just like providing state programs. Right, the charity is just an arm of the state, and you can make a donation to the charity, and if you make a donation to the charity, it's deductible from your federal taxes. And it also reduces one for one your state taxes, because they'll say, oh, that just counts a state taxes, so like, it's not a state tax for federal income tax purposes, but it reduces your state taxes. People tried that and the irs said no, So that doesn't work.
But it's a good effort. But the one that I really like is if you have business income in that pass through a business so like most classically, if you're a partner at a law firm, partner at law firm, you get your share of the partnership's income just as your personal income. Like that's normally how it works, Like it just goes on your personal tax return and you pay taxes on it. But states figured out that they could make the state tax live at the business level.
So the business pays the state tax, the business can deduct the state tax for federal purposes because it's a business expense, right, and then you as a partner, get lower federal taxes and so like, law firm partners and like some other partners of businesses can sometimes avoid the state and local tax deduction cap by like a negotiated
tax that they've worked out with their state. So like, there's a lot of this where like state tax authorities and people and businesses try to work out ways to maximize their own take at the expense of the federal tax take. And this is one of them.
It's just another example of that that game and ship.
As I started by saying, like this is my career for I love I love people. Dividing up text.
Benefits our listeners can't see. But there's a certain sparkle in math. As he describes this, it's.
Like a lot of tiredness in my eyes. And that was The Money Stuff Podcast.
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