Episode 3: Annette Nellen

The Accidental Geographer’s Vincent del Casino speaks with Professor and director of San José State University's graduate tax program, Annette Nellen.

In this conversation, we cover a variety of topics related to the history of taxes and why certain taxes exist in the United States. Nellen challenges the current tax system with her research and outreach and raises a number of important questions about what a more fair tax system might look like.

Episode Transcript

Vincent Del Casino: Have you ever sat back and asked what kind of tax structure we should apply to work in outer space? Well, San José State University Professor Annette Nellen has. In our wide ranging conversation we covered not just outer space, but a variety of topic related to the history of taxes and why certain taxes exist in the United States. Dr. Nellen challenges the current tax system with her research and outreach. And raises a number of important questions about what a more fair tax system might look like. In addition to our discussion of taxes, we touch on Dr. Nellen's passion for the history of San José State University. I'm sure you're excited to join us for this conversation. I'll be your host Vincent Del Casino and you're listening to the Accidental Geographer.

[ Opening Music ]

Vincent Del Casino: Alright well, here we are. Annette thanks for joining me in this podcast.

Annette Nellen: My pleasure, thanks for asking.

Vincent Del Casino: You work at San José State but you're also a degree earner from the Cal State system, so you're a Californian, is that, are you a native Californian? It's so rare to meet one sometimes, you know.

Annette Nellen: I am not a native California, I was actually born in Michigan, but I've lived in California for a very long time. And I've now lived longer in northern California than southern California. I am a graduate of Cal State North Ridge.

Vincent Del Casino: Oh that's awesome. And tell me a little bit about like that journey to North Ridge and into business administration. Those degrees, business and administration and I don't know how like new they were, but bachelors of science and business admin I think started in the 1970s or 1960s, I mean, before that people tended to get liberal arts degrees and so forth. But you found yourself interested in business early on?

Annette Nellen: Actually I started at Cal State North Ridge as an undeclared major, wasn't quite sure what to do and I'm glad I had that option to do that. I was thinking seriously about going into teaching, because I was doing a fair amount of that actually in high school even. I ended up taking econ, because I know that was required and GE out of the way and I kind of enjoyed that. And then I took my first accounting class, which is actually oddly enough it was taught by an engineer who had gone into accounting. I always remind students as well, if you really loved your first accounting class, you need to major in accounting. If you don't like it, you need, you will become a client of an accountant. That's a good distinction. So, I decided I'm going to accounting, I really did enjoy that and after college eventually went into the tax field by actually taking a job with the IRS about a year and a half out of college.

Vincent Del Casino: Accounting as well as things where you can get a bachelors degree and then take a few more classes, get certified, there's lot of accountants don't really go on for more education necessarily. It's not essential right, to be in the field at all right?

Annette Nellen: Well, and actually since I have graduated I did, I'll admit I graduated from Cal State North Ridge in 1980, if anybody, as I was working full time going through that, went and got an MBA while I was working, then decided while I was working at the IRS, which was the last 40 hour week job I've ever had, was going to law school. This is not unusual path for a tax person. I did become the CPA and an attorney, still active license in the state of California and very active in the professional organizations.

But, starting I guess in late '90s the state started going through, oh to become a CPA you're going to need have a 150 units of education and finally California was one of the hold outs on that and we adopted it back I think 2015 or so. So, yeah someone is going to need to get their undergrad degree, either with a lot of units, or get their graduate degree and so if they're going to tax, it makes a lot of sense to get a MS taxation degree, which we offer, this is a program I direct at San José State. Because tax is complicated and to really get a good foundation you do need that masters level study, attorneys do the same thing. They'll get a LLM in tax.

Vincent Del Casino: Yeah those legal masters degrees, which have become very popular, right, as a kind of a pathway. So, the IRS, I just got to ask, what's, I want to go into this other stuff too, but, you know, working for the IRS, I mean, I would think pretty interesting job. I mean, here you are, this is a critical part of our economy, is the taxes. You know, for some people that's 25, 30, 40% of their income in theory, right? Goes towards this enterprise. What is it like to work for the Internal Revenue Service?

Annette Nellen: It was a terrific job. You see so much variety, in fact the job I had before I was in, working for a Fortune 500 company in their accounting department. It was all very interesting but after a while you realize, well every months the same we just got different numbers. But at the IRS you were seeing such a variety of different taxpayers. You also have a lot of autonomy where you're giving these cases, you figure out the issues are, you make the appointments to go meet with the business owners and you resolve the cases. But you get such a variety.

And often when you start one case it kind of grows to, oh you had that issue last year as well, going to pick that up, or you got these payroll issues as well, or do the owners of the company have these issues and you really get very, you know, I say exposed, you meet some very interesting people as well, different kinds of business activities. And I was involved in all these small business, where you know these folks you're talking to started this business and just a whole variety of exposure you get. My last year at the IRS I'd gone into management, I was teaching for them full time. Training the revenue agents.

Vincent Del Casino: Is that what kind of sparked your interest in, you know, so you thought about teaching early on.

Annette Nellen: Right.

Vincent Del Casino: You found yourself in accounting. You end up at the IRS, is there a linkage here or is just coincidental, like, you know?

Annette Nellen: No there's a linkage and what really got me, because I was actually doing a fair amount of tutoring as, you know, helping make money in high school to pay for my cello lessons every week. It was somebody evaluating at the IRS, she said, you know what, Annette that's your natural talent is teaching. I thought, yeah it is, I should go into teaching. So I kept doing a lot of part time teaching, but I took still a few more years, which was great getting experience, because I went from IRS into public accounting. Then decided, you know I'm doing so much part time teaching, I want to move that into full time and been a terrific career. I've been at San José State 30 years.

Vincent Del Casino: That's amazing, that's, it's nice that you were able to kind of merge all of these interests together. And I want to touch on later your interest in just history as well, because you have a passion, right, for the history of our university and everything. I know as well so, I know there's all these interested linkages and connections. But, so you're at the IRS, you're doing this great interesting work and the tax field must be a real challenge to teach because, when I was at my previous job we built an MS in accounting. And for an online environment, the problem is, every year they change the laws, it's not easy to have evergreen content, you know, content you can use all the time. So constantly moving the bars on some of this stuff right?

Annette Nellen: Right. No it's a very complicated field and I remind our graduate students, probably the more so than doctors have to keep up with changes. There's more changes going on regularly in the tax field that you have to keep up with. And it's often time that you're not necessarily getting paid for, you got to factor that in somehow. On how to keep up with the constant change.

Vincent Del Casino: What kinds of subjects really caught your attention early on because as you evolved and moved into the academy, right, you had to develop a research agenda as well on and obviously tax policy and so forth with your law degree and your business degree was going to be an obvious area. But you seem to have quite a breadth of interests across tax law. So, how did you start thinking about that and translating that work into, alright I've got to kind of develop an academic agenda around this as well.

Annette Nellen: Starting off full time in teaching and coming right from practice I was still focused on, of course I'm teaching graduate tax classes where we are very technical far more than we would happen in the undergrad tax course. All that technical knowledge I had in practice was very helpful. But then it, I started to realize, you know, I can spend some more time in the policy area. Things that clients in essence I pay you for but, works well in academia. So I was gradually moving in more and more into policy.

At the same time, you know, one thing I wanted to make sure I was careful of of moving from full time practice to teaching full time and not having any practice area was, how can I teach these mostly practitioners we had in our graduate tax program if I'm not actually practicing and knowing what kind of issues people are seeing? So I continued to stay very actively involved in professional organizations, so I continue to do that today. But I actually still the past chair of the AICPA tax section, which is a big deal, this chair for 2 and 1/2 years. Very active with ABA, the California bar tax section, so I spent a lot of time with practitioners.

But even there there's certainly work for policy items on, for example, giving comments to Congress on legislation, proposing items where, hey now this would be how'd you really fix the tax system, this would be the way to go. I'd have opportunities to testify before Congressional committees and state, including California and some reform commissions as well. And that's where I'm like, wow this is great to be in academia where I can spend a lot more time on the policy aspects. Including making some effort which I continue to try and ramp up, I'd like to continue to be helping practitioners to spend, you know, understand that because they have limited time in delving into some of the reports that come out and policy considerations. As well as of course helping our students to understand all of that as well.

And that's goals I'm still working on and seeing how I can continue this policy work. Trying to even, I'm hoping in some project, I have it written out, just not time to finish it but, how to help the public better understand the tax system from a policy perspective. There are certainly times where the public might think, oh, like mortgage interest deduction, that's a great thing. Probably not, probably not for most people. It primarily just helps higher income people buy a more expensive home.

Vincent Del Casino: And two of them.

Annette Nellen: Yes.

Vincent Del Casino: I mean when I found out that one can actually deduct two homes, I almost fell off my chair. You know like, wow, I mean, a second home not a two families living in two different places.

Annette Nellen: Right.

Vincent Del Casino: Right, the mortgage interest deduction is, there are many many interesting kind of things that we do in the United States from a tax perspective as well. That other countries don't do, they use much more flat rates, progressive sorts of tax structures. We're very complicated, right, in terms of all the things that we bring to bear and how we think about the world of tax.

Annette Nellen: Right and I think a lot of it stems from not enough broad understanding of what the tax system should look like. Just a basic personal income tax would not have all those deductions in it. It would be your income, less, like a standard deduction and personal exemption to reflect some of your income should not be taxed because you got to live on it. And then a deduction for the costs of producing that income. Our federal in California system is moved from that. But it's so far removed that most people think, oh no that's, every income tax would have to have a mortgage interest deduction, charitable contributions, then American Opportunity tax credit, all these things. No, all those things do is distort behavior, distort economic decisions and cause us to have higher tax rates.

Vincent Del Casino: That's right, it inflates certain things but also now having lived in the United States and earned money here. I mean the fascinating thing is the rate and then your realized rate as someone, right, who takes deductions. And the privilege that deductions come with, right? Of being able to reduce your tax burden relative to other things and it's, you know, many people with wealth are actually paying well under 20% let's say in the federal space, right?

Annette Nellen: Right, I'm glad you mentioned that because, again, with the lack of broad understanding of our tax system, you'll hear these things about, oh look all these benefits of taxes and gifts to low income individuals. It pales in comparison to what's given to the high income. Just, you know, the high income most of their income is from capital gains, which are taxed at lower rates. Also fringe benefits, one they'll tend to get more fringe benefits and they're not taxable. The mortgage interest deduction is allowed up to $1 million, it was recently dropped to 750.

But you have to have pretty high income to qualify for a million dollar mortgage. So if you've got one of those, you're getting a big deduction there. If you really totaled up the deductions being claimed by the higher income, they're getting greater tax benefits than lower income. Of course they're typically paying more tax as well, but they have far more income. I mean, one thing that's also missing from everyday discussions is just the incredible income gap. And if you look at the very top 1% of individuals, there's a gap there. If you're in the bottom part of the top 1% you'd be telling Congress, don't love me with those people at the very top of the 1% because they're making maybe over $300 million a year, I'm making a mere, you know, 300,000 a year.

Vincent Del Casino: Right.

Annette Nellen: It's weird and it's not enough focus on that unfortunately.

Vincent Del Casino: So your career has been to kind of engage, I want to talk to you about sales tax, I know you've written about that, very interesting. And then all the way to space, which I totally, I really intrigued to that conversation. So, but, you know what's interesting as I read through your very very accomplished career on your curriculum, you know, the fancy words we like to use for resume. You've done a lot of, you mention this policy work, engaging in kind of everyday conversations. But your professional work and a lot of pro bono work as well working with the American Bar Association and other sorts of organizations that, to try to bring some intellectual dialogue, right, to our tax system.

Annette Nellen: Right. I hope.

Vincent Del Casino: Doesn't sound like they listen very often, but you know, not your fault.

Annette Nellen: Once in a while, sometimes. Can't give up.

Vincent Del Casino: No, that's right, absolutely not. So, when I think about, by the way the AICPA, I think a is American and CPA is professional accountants.

Annette Nellen: American Institute of Certified Public Accountants. Four hundred thousand member organization, you know, global organization now. And they do a lot of, a lot of good work for their members as well as, you know, trying to make the tax system better and if I'm able to do actually for over 20 years a fair amount of policy work in my volunteer role with them too.

Vincent Del Casino: Yeah it's right, I just wanted to make sure because you mentioned and I was like, ah I probably could dissect this actually, but maybe not completely. Before I get into some of the academic work that you've been doing, I also noticed from looking at what you're doing is, the interesting intersection of technology. And you've picked up the kind of role that technology plays in education. As part of your career as well and kind of early on, right, a little earlier than some I think in this space. What drew you to some of this work and why the intersection of technology and education and for you and thinking about how we talk about tax law, or any of the other topics that you cover?

Annette Nellen: Well it's just a general interest in technology. Also, I probably came into this in mid '90s doing some research when, this seems so dated, when e-commerce was new. There was a lot of tax issues being raised there. And that's actually how I kind of moved from being solely a federal tax focus person to also state and multi-state, which is quite fascinating, I'm glad that happened. But when there are new uses of technology, often the laws just not clear enough how will the tax law apply to that?

Plus we should be looking at some of this technology, how could it improve the tax administration process and the tax compliance process. I mean if the IRS could be having more modern systems where they were more like how we order from Amazon, how we do online banking, it would be a much different system. The technology exists today, that instead of you figuring out your paper return and you think, oh it's not really paper because I'm e-filing, it's still based on paper. When we go to Amazon we're not filling out an order form that then they process, we're just clicking stuff and it gets ordered. And think of all the data you have including your W2, my W2 in digital form. At the end of year you're going to get a piece of paper, you're going to take it and type it into your tax prep software.

This is archaic. So the technology exists, the IRS still is using 50 plus year old technology like mainframe computers for part of what they're doing, so they're way behind. But you could have a system where all your digital files just go, I say like up into the cloud. You identify what software tool you want to prepare your return. And it just grabs the data on a daily or weekly basis, you look at your phone and you have your tax app there, it's connected to your bank account, any moment you can look at, well how much income tax have I, do I owe so far this year and how much has been paid in. And you would just adjust it then. We wouldn't even have due dates anymore, it would just be a just in time filing system. That is the technology exists to do that.

Vincent Del Casino: Well what happens all the dot matrix paper? You know, those really cool printers, you know, with the holes on the side. Then who uses that anymore then?

Annette Nellen: Probably be some other use for it, I'm always surprised to sometimes see at a store or online that they're selling old record players, well not old one, new ones. You know record players. And some kids like, I want a record player. I'm like really?

Vincent Del Casino: Well, you raised a really interesting question not only, yeah the record players come back, yeah there's absolutely, I know there's probably an entire art community now using dot matrix printers with the cool, you know, things on the, I love that there was something like tactile about ripping the pages apart too.

Annette Nellen: Yeah that's right.

Vincent Del Casino: Made you felt like you accomplished something after you printed. I don't know, now it just comes out and it's all perfect. But you raised a really interesting question. Something I hadn't thought about when I was going through your work. But something I'd been thinking a lot about, which is labor. So right now there's obviously a very big accounting industry. I use an accountant, I've had multi-state sorts of things. We have a very complicated tax code, I want to take advantage of as much as possible. I mean, how much to this automation has the potential to replace the white collar work of accounting? You know, and it that a question we should be asking or thinking about?

Annette Nellen: I don't think it'll replace a lot of it. And some of it has slowly been replaced in that, yes a lot of this digital data already feeds into software programs, we're not having people, you know, typing in a lot of this stuff, though some of that is still happening. But we've been hearing for many years, you know, your students need to enter the workforce with a higher capability of getting in and like reviewing items, identifying problems.

Now that's also a challenge of, you do learn a lot by actually preparing returns. In fact if you prepare them by hand that's actually a great way to learn something as opposed to magically the software got this whole return done. But that still have to be some of that, but it's a higher level thinking's going to be needed. And there is plenty of work. You know, I was thinking of instead of telling your client, yeah I spent 20 hours figuring out this very complicated provision and the answer is, you can't deduct this much of your interest expense.

Wouldn't that time been better spent helping that client grow their business or find out how to better manage their money? Because accountants can do a lot more than figure out some complicated tax rule that maybe didn't have to be that complicated in the first place. So, I think there is additional work that could be done that probably also better for the economy. Because this kind of a dead weight loss of all this time calculating this number, which perhaps could've been some other simpler way to do that and spend time helping them understand their finances and the accounting. And how to improve their business.

Vincent Del Casino: It raises a really interesting question. I think this is one of the I think coming forward, this I like one of the big tensions we're going to see. And it's going to impact higher ed which is, how much do you bring let's say information science into the work of let's say accounting and so forth? Or financial services work which is what you're also talking about right? Where people are understanding the kind of financial economy and how to invest in it. Not traditionally the space of CPA.

But what's also interesting, we did see a big hit to law enrollments, eight, nine years ago. The first kind of wave of the technologization of some of this work. And it's impact on white collar, I think it's recovering to the point that you're suggesting, which one of the creative new spaces for human labor in here. But there is a tension there. It could produce interesting things, but nonetheless a tension between some of these technologies and how people think about.

Annette Nellen: Certainly probably artificial intelligence has been used in the law firms a little bit more, because like you see that kind of drama shows on TV, oh here's a whole bunch of boxes of documents to analyze. Well they can get those into an artificial intelligence program, which actually do probably a better job of categorizing them all, because you know the human gets a little bit weary looking at them all, the machine keeps on working.

And then human steps in and makes sure it's evaluating these correctly. We'll start seeing more of that in the accounting function as well. But again that frees up time for doing something else, plus, you know, better data. I mean a human doing tax research, we go and look at so many cases, but and there are artificial intelligence programs out there doing some tax research. Wouldn't it be better if this program went out and looked at 100,000 cases and gave you some feedback, there's no way the human can do that. But it will get to the point where that'll be required. You're not doing your work effectively if you aren't using some of this technology and got the benefit of how the machine learning handled grabbing some data from a whole enormous database in a short amount of time.

For then you'd analyze, I mean you still have that human element in there. But, probably a higher skill sets needed. And the question for education, how do we help our students going into entry level jobs have that higher skill set? What might we need to change of what we're doing in the classroom?

Vincent Del Casino: Yeah because if they don't understand some of the algorithms that go into it, it's hard to turn around and explain to a client, how did I get this answer.

Annette Nellen: Right.

Vincent Del Casino: You know, so you still need to understand that. You know, computer science now the work they're doing in the medical space, I mean you could digest hundreds and thousands of medical articles that you and I would be best lucky to take three lifetimes to get through. And they're starting to find relationships between unrelated articles that are leading to new theories and how things happen. And I think that's what you're talking about. They're not necessarily generating answers. But they're finding relationships in that information.

Annette Nellen: Yes. In a short amount of time because the machines just amazing how it can go through, we're going through 50,000 court cases. It'd take a human forever to do that.

Vincent Del Casino: Oh yeah, no absolutely. And by the time they're done they probably can't stand up again.

Annette Nellen: Right. Right.

Vincent Del Casino: Talk to me a little bit about the work you've done in relation to sort of the tax policy stuff. In particular that sales tax paper that you sent me. I'm genuinely interested in sales taxes because, again the question of equity and what sales taxes do. You know? Tell me a little bit why you ended up with an interest in this and what you're trying to understand when you're talking about sales tax and trying to think of the policy implications of sales tax.

Annette Nellen: As far as doing policy work and my policy work for, this is about 15 years now, I describe it as trying to see what's needed and promote this for helping our tax systems to meet principles of good tax policy and reflect a way we currently live and do business. That would be an ideal tax system. Sales tax is a good example of, it really fails. We have these odd sales tax systems and California's one of the oddest. Most states have updated their system, because the sales tax is suppose to be taxing personal consumption.

In California we primarily just tax tangible personal property, even there there's a lot of exemptions. For example students and students by say we like this, but they buy a digital textbook, no sales tax. They buy the one they hold in their hands, there's sales tax on it. There was no logical reason for that. They're both consuming the textbook and the problem for the state is, a couple of problems. One, it's an eroding sales tax base. Now we have in California one of the highest sales tax rates because we have a small base and it keeps on getting smaller as more and more things move from tangible, like how we use to buy records, or CDs, now we just download iTunes or something similar, no sales tax because it's digital. Same with books, textbooks, more and more things going to digital and California we never updated our system like some states did to say, well it's still personal consumption, you should have the sales tax on it.

So, I can, Los Angeles their sales tax is well over 10%. That's crazy. And this dwindling base, there's also an issue in California in that local government is very dependent on the sales tax, but they don't control what's in the base. The state legislature does. So the way local government says, oh we need to get some tax, we need to get more sales tax, let's encourage a Walmart or a big box, you know, other big box retailer to form in our state. Which then is out of sync with what the state wants. The state would be saying, hey we want to bring in a lot of high wage jobs here. Local governments like, no we want people working in the retail place in our city because it's going to bring in some sales tax for us.

Vincent Del Casino: And it has the potential to be regressive, because you tax certain things. And the people who are wealthy can pay that tax and not think about 10% on x thing. But that 10% on certain goods for certain communities makes a demonstrable difference.

Annette Nellen: On the clothes if they are buying tangible items, you know, appliances in the home, all that 10%. But California we don't tax personal services, we don't tax digital goods that are used, personally we don't tax utilities. So someone with their, you know, 10,000 square foot home doesn't pay sales tax on the utilities for heating or air conditioning that home. They also don't pay sales tax on the groceries and higher income spend more on groceries than lower income. We have a lot of exemptions in there or things has just aren't in the base that are primarily purchased, or at higher dollar amounts by higher income. Making the sales tax in California even more regressive. But we don't hear enough about fixing it.

Vincent Del Casino: And what you're talking about here, sorry to impose my geography on you, as a geographer but, it varies so much state by state that it really makes it very difficult to have a consistent approach to this. I mean I have friends who live on the, one of the best examples for me is the Washington, Oregon border. So Washington has no state income tax I believe and Oregon has no sales tax.

Annette Nellen: Right.

Vincent Del Casino: So you drive into Oregon to buy everything you want and then you go home to Washington, then you really have nailed it relative to the taxes.

Annette Nellen: In Washington when they bought something in Oregon, they are suppose to pay a use tax to the state of Washington where they're going to use the item.

Vincent Del Casino: I'm sure everyone pays for that tax. I'm sure everyone's got their receipts and are really diligent about doing that every year in the state of Washington.

Annette Nellen: I'm sure.

Vincent Del Casino: Well it does, it does link to the other kinds of taxes as well. So, property tax which is another big like, well I grew up on the northeast, in the northeast. Where property taxes now are unbelievably expensive. You know, where they're as much as some mortgages in California and then you have California with this other funky property taxes, I mean what role was property tax ever meant to play in our society and what role does it play really? You know?

Annette Nellen: Yeah. Policy wise there's been a variety of discussions about, you know, property tax be like one of the main taxes though it's really used just at state and local area toward historically in United States. It does vary a lot from state to state and actually Popping, California would be one of our simpler taxes, the Constitution states what the rate can be, how you do the valuation, now we did just make some changes which happen periodically with vowed initiatives and changes to the property tax. But, in California it is fairly clear and certain and we do have a low rate, though of course in many places we have high values causing the property tax to be high, but a 1% rate for the property tax is actually pretty low among the states. That's often when there's some survey how the taxes work among the states. California usually rates pretty well on the property tax.

Vincent Del Casino: Yeah it does. No it's, it is a big difference, you know, where it, it's three times that in let's say New York and New Jersey than it is in California when you look at your average property. So I guess a big question, one of the things that I see as a theme in your writing is an interest in the history of these tax, like how we got where we are a little bit. And what that means for policy and the different ways these things get operationalized.

So, you're talking about like service versus property taxes, or sale and resale like, and all these things play out differently in different states. Because of the way our country runs, but also in the context of, you know, the local politics of which you talk about balloting issues. You know, northeast there's again not very use to this entire state voting on things like that, right? It can change the game in an instant though in California. A ballot initiative.

Annette Nellen: Oh most definitely and some of them have been very complicated tax matters there. Twice in the state of California the voters have had to vote on how should multi-state business income be apportioned. There are probably a majority of accountants that can explain that to you, but we voted on that twice.

Vincent Del Casino: Yeah, yeah.

Annette Nellen: It all comes down to the advertising.

Vincent Del Casino: Well that's what's so, I mean, yeah, you know, it's like you have to have a PhD in tax law to be able to vote, maybe that should be the first question. Do you have a doctorate, a law degree in tax and then you're allowed to vote.

Annette Nellen: Well, it also raises another issue of why our taxes, anyways, out of line with what the policy should be. Think about for, I'll go k12 education and we're probably thinking, we want to teach taxes to kindergartners, but k12 education, there's no discussion of taxes in there. Even though I think it's eighth grade and eleventh grade you have civics. You're going to learn how to three branches of the government work, but we don't, oh we don't want to scare you I guess in telling you how they're actually funded. Or we also missed the opportunity to help people understand what their role as a citizen is of paying taxes, what comes of that. I think there wouldn't be such a misunderstanding of taxes if there was that included in, could be certainly in the math classes, in the civics classes. There should be some role of understanding basic taxes. For many people it's that first paycheck, they think oh I make $10 an hour, I worked ten hours, I'm getting$100. Uh oh, what's this, it's not $100, that's their first introduction to the tax system. That's a poor introduction to tax system.

Vincent Del Casino: It really is and actually it's, I mean, as you know in most election years, this one I think was a bit unusual, taxes sit at the top of the conversation. Now how much should we charge, how many deductions should we have. And it was interesting when President Trump was elected, one of the things that was on the table or at least talked about was the mortgage insurance deduction, which ties into a very complicated history, right, of creating the mortgage industry in the first place. Which was to incentivize a kind of single family home life. Particularly in white suburban communities, right? I mean that's what it initially did. And then we provided a tax relief against the interest on that. Right? Which was historically high, you know, 10, 12, 15% early on on some of the things.

Annette Nellen: Right. Right.

Vincent Del Casino: And now it's become a right, it's like the second amendment almost in this country.

Annette Nellen: Yeah and it started off when the modern income tax in 1913, an individual could deduct all of their interest. Of course in 1913 very few individuals actually owed income tax, also very few would actually have a mortgage on their home and it just wasn't commonly done. And it wasn't until reform in 1986 where they're trying to reduce the number of deductions to enable the rates to get lowered. So they decided, well let's just let you deduct mortgage interest on two homes.

I mean prior to that if you had mortgages on ten homes, you could deduct all of it. So they limit it two homes, your principal and a second home. But that really adequate discussion, why the second home? Now I can say something cynical, who actually owns two homes? Well how about those members of Congress that have a home maybe in DC and their home that they weren't realizing that most people don't have that. So you're subsidizing, you know, someone buying a vacation home and having a mortgage on it. Also there's other economic and other effects.

Years ago there was a group, I don't think they're around anymore, but they were focused on how different laws might be promoting pollution. But, one of the things they pointed out was many of those second homes are up in the mountains, or off at the beach and the tax laws encouraging that by saying, hey, you can get a mortgage on it to help buy it and you can deduct that. They said it's actually bad for the environment. But, it also is encouraging perhaps over investment in housing. What would our economy look like if we weren't encouraging so much investment in one sector of the economy, but instead we're saying, hey why don't you invest in some business that's going to start and, you know, improve our lives.

Also, why are we subsidizing million dollar mortgages? If you can afford a million dollar mortgage and if you can't quite afford a million dollar mortgage, then get the one that's 950,000 and get a less expensive home. Why not try and help folks to buy that first home. A first time home buyer credit, which I think we're going to see some discussion on that in the next few years. We've also reached a time in our law where actually many people don't itemize anymore because of recent tax reforms. It probably be the good time to think about maybe we get rid of the mortgage interest deduction and replace it with a first time home buyer credit.

Vincent Del Casino: You raise an interesting point too in your earlier comment about, the kind of political balancing. So, we're going to lower taxes but close loopholes. Which at the end of the day ends up trying to be revenue neutral to what the government brings in. So, but they get a political win on saying, look I moved you from 39 to 36%, but the truth is what I've done is closed off a bunch of these loopholes. Those people who make some money, who tend to start to get squashed by this, when you think of, you know, some of the flat tax rate issues that have been floated over the years. Is there a simpler way to organize our taxes? That can do the work we're trying to do, but create more equity I guess in the system of access to both the privileges of what the taxes bring, but also the fair share that one might need to have?

Annette Nellen: A tax is more like an meet principles of good tax policy being more fair, equitable, more neutral, simpler. If it has fewer special rules, now special rules are like special deductions, exclusions, special credits. And then that would allow also for a lower rate, that would be a better way to go. And it's hard to do though because once you put some of these deductions in, it's hard to get rid of them without convincing folks in some way that, yes you really will be better off. They need to see more data I think on these items. And for the equity, yet these deductions and exclusions they're worth more to higher bracket individuals. So, they're getting a greater benefit, of course because they do have a higher tax rate. If we went to a flat income tax, that issue would be probably inequitable because we do have such a income gap in this country.

And it would never raise as much revenue as we raise today. And there was some tax reform going on in 2014 in the House Ways and Means. And they were talking about, oh we're going to get down to like just two rates. When they finally came out with a proposal, the chair of the House Ways and Means committee had, oh this is an extra top rate there. He had to do that to make this revenue neutral. There was so much income in that top, just a portion of that top 1% that when, the last time the average that a measure of the income of the top 400, the average was $330 million. You can get a lot of tax out of them. As opposed to that represents roughly I think seven or 8,000 people making $40,000 a year. You can't get that much out of them. On top of them already paying payroll taxes are roughly 15%. So, if you drop to a flat rate, you'd never really find that rate that would be able to have low income people pay it, because the rate would have to be so high. But still bring revenue from the very high income.

And when we see today and actually well for several years when there's talk about the flat tax. The flat tax, such as the one that was designed by Professors Halls and Rabushka, up at the Hoover Institute, was introduced back in 1991, it's actually a consumption tax. Which again, is misunderstood as a version of subtraction method VAT. So it has a little bit regressivity into it, which they have some ways to counteract it. But I think as we have a growing gap between low income and high income, you've got to have something still that's going to bring in the revenue from those high income individuals.

Vincent Del Casino: And a VAT is a value added tax.

Annette Nellen: Value added tax.

Vincent Del Casino: Talk about in Europe right a lot.

Annette Nellen: Right, we're the only country that's like a 140 countries have a VAT. We don't, but of course we do have the states with the sales tax.

Vincent Del Casino: Right.

Annette Nellen: And that's why I guess one reason we don't have a VAT. Though it gets talked about.

Vincent Del Casino: One of the things that's, I think is interesting when reading again through your work and I became really engaged in it is, the challenge of tax law to keep up with changes in the economy. Changes in the world. And you talk, I want to talk about this space paper. Because space is, you know, outer space. Let me be clear. Because I am a geographer and people go, Vin what are you going talking about? I mean outer space. You know, because we figured out how to regulate the oceans with United Nations conventions of the law of the sea, there were three of them. Not everybody signed them, us of course never, we don't sign anything in the United States. But, it tried to regulate the economies of going down into the ocean, right? We do regulate air space, right, and control. But there's a cap. And I don't remember where it is.

Annette Nellen: I don't remember the distance either, it's some measure where you've left, you know, the earths atmosphere.

Vincent Del Casino: And you officially no longer have claims to that space. And so, and then there's outer space. And people want to explore it, they want to exploit its resources and there's no regulation, right? And then is there a tax code that needs to be applied here? Because I'm reading this piece, I'm sorry for the audience, I just geeking here for a second. And I'm like, oh this is really interesting about John F. Kennedy and the, you know, you're like laying the groundwork here. Obviously you're interested in history. And I'm like, this is really interesting, but I'm not getting the tax thing and then it's like, oh, alright the economy of the moon, alright now I'm with you. But explain a little to me about the issues that arise. The minute we think about outer space.

Annette Nellen: Yeah. Well first then, since a kid I've been very fascinated by NASA and space exploration and so I was around as a young child when they landed on the moon and that was, you know, just an amazing event. In fact, you know, it's interesting in our whole history, because when they had the anniversary which was 2019, the 50th anniversary of landing on the moon in July. There was a variety of, you know, special shows on TV. And was interesting when they showed worldwide pretty much that they landed and were walking on the moon.

They showed for example, there was a baseball game going on, all of a sudden everybody in the stands is standing up and the players are like, what the heck's happening. Well they just have landed the moon and they announced it, you know, on the scoreboard. But they were showing it throughout the world how excited people were and I thought, when was the last time that has ever happened. That everybody was so engaged and excited, I guess the next time that might ever happen is if we land on Mars. So I've always been very interested and I thought, no I got to get an article out of this. So, I'm working on a series of some anniversaries of technology. I'm falling behind because I was hoping to get one on the tenth anniversary of bitcoin. Now I'll have to look at the 11th anniversary of bitcoin. But, on the space one, I thought well I can tall this little history of this. But didn't look that there are issues here. And the sooner we address these issues, as opposed to, oh it's already happening, now we got to figure out what the issue is and nobody says anything it ends up in the court someday to be resolved.

But California actually did have to jump in. Because SpaceX was launching from southern California and a question came up. When there's, you know, launching and they're making money off of this, how much of that gets sourced into California? So they did come up with a formula for that, but I thought, you know, we have to do where all the states perhaps can get together, maybe, you know, with Congress to say, how do we want to do this as we continue to get into areas where we're going to have conflicts among jurisdictions? How does that get taxed? And then just maybe slowing things down, which isn't good. Let's take care of this, so I suggest in the article, let's get a task force together right now and deal with all these tax issues as we continue. More commercial activity in space, including if you read what the billionaires that run these companies want to do. You know, they want to colonize the moon.

Well, how's the tax system going to work there because you better bet there's going to be a variety of states and the federal government, we got to grab some of that. Let's just talk about it sooner rather than when we're into it. But clearly with the commercial SpaceX exploration, you know, even the United States has said, when we do next take astronauts to the moon, which would also include, we're going to, at least have a man and a woman going to the moon. They said it's going to be a commercial launch of that NASA space vehicle. Because that might just be a more cost effective way, that's a big change in how things have happened in this industry. And then all the satellites being launched out there. That they'll be taxed, anything, there's always tax issues on just about anything. If there's money and commercial activity going on.

Vincent Del Casino: I imagine we could talk forever about, you know, the bitcoin stuff and all these other spaces where we're, you know, we're see emergent, you know, kinds of questions. And it goes back to my earlier question too about labor and what people are going to have. Because these same people who are launching rockets are talking about, you know, a living wage and whether or not we're going to have to provide that in the economy as the economy changes. Because there can be such adverse effects from some dramatic technology changes that will put people out of work. And what does that mean and are we really prepared for that? Clearly the answer is no. But what does that look like and so forth? But let me, just as a closing piece just, a little bit about, like you said you've an interest in history, changes in technology. You've also been interested in the history of our campus.

Annette Nellen: Yes.

Vincent Del Casino: Right, you taken this up as a, just in care you aren't busy enough, you decided to become the documentarian of some level, some of the history. What got you there? Like, how did that start and why did you feel compelled to do it? It's wonderful, I love it, but just curious, you know, what got you there?

Annette Nellen: I came to San José State in 1990. And I think I saw where some, one of the CSUs was celebrating like, I don't know, 25th or 35th anniversary and I thought, that's all? I mean we been around a lot longer, I can see these things in the bookstore where it says, you know, we've been around since 1857. But I thought, well why don't we celebrate anything here? It was just kind of puzzling. And I started digging into it as to why that was the case or if we ever had celebrated anything. And the timing just seemed to work out right that, I'd learned a few things. And then, at the time I was chairing the professional standards committee, so I'm on the senate executive committee. And we're having a discussion about, what should be the official day we have, the official groundbreaking of the King Library, which of course the construction already started, but you hadn't had the official groundbreaking. And I said, oh my goodness it has to be October 20th and already it was like September, I said, it's got to be October 20th. Because I just learned that October 20, 1870 was when they broke ground on the first building here on land donated by the city of San José.

So here we are about to have this partnership library start. And it turned it was a Friday, the president and the mayor were available. And Johnathan Roth and I wrote this resolution, we brought to the senate. We're going to have heritage day. Then it passed and Johnathan and I were like, nobody knows what the significance is. And so we worked to pull out a lot of things there. And then I just got intrigued from that point and learning about the history. And then it was just so hidden. So I started putting some of it on a website that I was just maintaining, you know, the Annette Nellen website at San José State. And I continue to actually have a pretty extensive history website there. And historians on the campus said, yeah Annette keep doing that, we need to make this stuff more public. And whenever I get a chance, you know, I would dig through the archives, we got an incredible archive of old photos.

We have, I didn't think I ever went into the state legislative record, like when we were officially declared the first normal school in California, May 2, 1862, that's in the record. And we actually use to celebrate one of the presidents of decades ago, actually for a couple years did celebrate May 2nd as an anniversary, but that kind of died out. And we are working still, perhaps on bringing back October 20th as being some kind of a heritage day, which happened in 2000. Fortunately I kind of remembered and Rovisha [assumed spelling], the chair of the senate said, oh yeah we'll do that and you and President Papazian, yeah let's celebrate 150 years of being in San José. But I think we need to celebrate the history. When I give presentations on, even just part of our history to students, they are like, oh I wish I'd known this earlier, there was something about our tremendous amazing history that resonates with somebody. Either how we learned how to teach students, how to teach love of literature, or love of writing poetry.

The founder of earth day was alum of the university. We've got all kinds of, lots of social justice activities stems from the university. I think as more people know that it just connects you better to the campus. And I've kind of taken on a little bit of a hobby when I have spare time to try and dig through finding this. And, so people should take a look at what's online because the special collection library's been digitizing more and more of these materials. So making them very accessible to folks, to go look at, you know, what was going on the campus in 1940? You can find nice photos and descriptions of that.

Vincent Del Casino: I think it is really valuable and I think it does connect people, you know, I like to say 1857 and the oldest public in the west. It says something about the important history of the academy to the emergence of the modern, you know, modern US, our role in it and the contested nature of our campus and its history. You know, there, the land itself to the kind of racial politics that emerged in the '50s, '60s and '70s. But also then what that history tells us about now. So, it's just really great, I really appreciate that you've done that work for the institution. It's just another level of just like what a great contribution that you certainly, nobody's said, well let's keep that up and you've done it. So I really appreciate it.

Annette Nellen: I do enjoy it, a few of us that still gather pieces and of course we've got more folks now in, as a library employees that are also making sure these archives are kept. And of course everybody needs to know we're all a part of building the history of San José State. Which has had a tremendous impact over 150 plus years on how education occurs in the state and as well as many other areas so. Very interesting and I know I still need to, point where we're back together, was to give you a campus tour talking about this history, we'll walk around.

Vincent Del Casino: Yeah we haven't even had that chance yet, you know, for me as provost is about eight, nine months and then we're all like, okay everyone lock yourself in your house. Right so, yeah no I'm looking forward to. Annette thank you a ton for taking the time, it was absolutely wonderful and I really appreciate it.

Annette Nellen: My pleasure, thank you very much provost and I enjoyed the opportunity and so glad you're doing this podcast series. Great use of technology.

Vincent Del Casino: You know, I just admitted, this is totally selfish, I was like, I want to really get to know a bunch of my colleagues. And what better way than, and I have to be prepared when you show up, so I'm reading stuff and going over peoples vitae's and it is a rich place with a lot of really incredible people. Yourself who've dedicated yourself over 30 years here, the new faculty we're bringing in. At some point I got to get to some of the amazing staff we have on this campus. You know who've contributed incredible amount to who we are.

So, but it's just for me it's so much fun to be able to do this. And I think as it gets out too, our students and our colleagues, but also our community are going to see like, this is a place where you can turn to ask some really serious questions about, what's going on in the world. And what that really means for who we are. So, again thanks a ton, I really do appreciate it.

Annette Nellen: Oh you're quite welcome, thank you very much.

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