Trump Tax Bill’s Final Hours & Zero-Click Search 5/21/25
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Bring in show music, please. Hi, I'm CNBC producer Katie Kramer. Today on Squawk Pod. Up later, starting early, the House in a 1 a.m. committee session as Congress tries to get President Trump's key legislative agenda to the floor before the weekend. Our Emily Wilkins burning the midnight oil. The House had to find $1.5 trillion of spending cuts. It is about there. It's fuzzy math, isn't it?

And from the White House, Deputy Treasury Secretary Michael Falkender on the taxing timeline. As Reagan used to say, if you'll offer me 80 percent, I'll take it and I'll come back for the other 20 percent later. But we are going to get this bill passed out of the House this week. Are you not Googling so much anymore? How artificial intelligence is disrupting search and building a new industry? We talked to Cloudflare CEO Matthew Prince. If you look at the most frequent

Plus the rest of today's news, surviving the mess at Newark Airport and retailers braving the volatility of both taste and tariffs. This thing is battered, beaten, bruised. Shareholders are, you know, they're crying uncle. It's Wednesday, May 21st, 2025. Squawk Pod begins right now. Stand and or buy in 3, 2, 1, cue and or buy.

Good morning and welcome to Squawk Box right here on CNBC. We are live at the Nasdaq Market Center in Times Square. I'm Andrew Ross, working along with Joe Kernan. Becky is off today and Joseph is back. Oui, oui, oui. Nice to see you, sir. Good morning. The committee will come to order. Today, the rules committee is convening to consider H.R. 1.

The one big beautiful act. The question I have is why the Rules Committee decided to deviate from the protocols that the chairs have apparently established, those who are testifying in front of our committee. Why this committee, the Speaker's Committee, decided to gavel in in the middle of the night to take up this bill? It's an interesting question and I've yet to get a good answer, but maybe the third panel will perhaps provide some clarity.

Chairman Jordan. I was going to say, when you got a great product, you want to get after it and get it passed. Oh, is that right? This thing cuts taxes, secures the border. Let's talk about it.

House Rules Committee meeting early this morning, try to move President Trump's reconciliation package of priorities forward. Emily Wilkins joins us now with the latest. Hey, Emily. Good morning, Joe. Yeah, well, you know, they've been going since 1 a.m. And behind the scenes, Republican leaders on the Hill are rushing to try to finalize changes that will get some of these holdouts to yes and on board with this bill. You know, we've been covering these days of negotiations, but there's no way we're going to get to the end of this.

this is really the part where they have to finalize the changes, show their work and actually put pen to paper. We did get the details on at least one of those changes, a new cap for state and local deductions. NBC News is now reporting a new tentative agreement that would raise the SALT cap to 40,000 for those making $500,000 or less.

Now, under the plan, both the cap and the income level would increase by 1% over a period of 10 years, and then they would lock in those final numbers and that would become the new baseline.

Also overnight, we got a new analysis from the nonpartisan Congressional Budget Office. It shows that the average American household would see an increase in resources provided to them by the government under this mega bill. However, the report breaks it down a little bit more and finds that resources would decrease for households in the lowest tenth of the income distribution, whereas resources would increase for households that are in the highest tenth.

The Speaker Mike Johnson told reporters yesterday that a vote could happen as soon as tonight. And guys, this means lawmakers, especially those on this committee here, might be in for a very long day. I got frustrated looking once again, and I realize the whole system is kind of not great, Emily. You barely get through 100 days, and what's controlling Republicans in the House right now is an election in a year and a half or two years or whatever it is. So

You know, when Republicans now have the presidency, the Senate and the House, they have a chance to do something, but they can't do it. They can't do what they need to do. I'm talking about Medicaid. I'm talking about the way that that's set up.

whether it's SALT that holds it back, you've got Freedom Caucus on one side and you've got Republicans that were in purple districts on the other side. They're at loggerheads. And then the president comes in and what did he say?

stay the F away from Medicaid or something? What was the quote? I mean, he didn't he he used the word. He said the word. But yeah, you got it. Yeah. And I mean, there is are some you know, this is kind of what we saw. It reminds me of what we saw with Democrats last

when it came to passing Biden's big agenda. They had all these ideas for what it was going to be, but the fact of the matter is, is that they had narrow majorities and to get consensus, a lot had to be left on the cutting room floor. And I think that's what you're seeing this time too. And I think part of Trump coming to the Hill yesterday was reminding members that, hey, you might not get everything you want from this bill, but it is going to be a win. It does need to get done. And certainly these members are cognizant that if

If they don't move on this, you will see a tax increase for millions of Americans out there. And so they've got that pressure. They've got the debt limit pressure. And they've got reasons to try and get this done, even if it doesn't have everything they want. With the $37 trillion and, you know, S&P is already there, but with the Moody's downgrade, front and center again, we have a spending problem.

We have a spending problem. So the majority of what we're seeing here is the president getting his way on a lot of new tax cuts, extending the old tax cuts, doing the new. So you're counting on future growth being higher to try to rein in the deficit spending instead of the spending itself. So that's a that's a big ask. And it's not what Republicans think.

should be doing normally. If you're going to cut taxes, you need to cut spending at the same time. If you want to raise taxes, fine, to try and do it, but then you're not going to have the growth. But the way Medicaid operates now, Emily, and you know this, it was through Obamacare, it has now become the go-to entitlement for a lot of able-bodied, working-age men that just sit at home.

men and women that are sitting at home. I understand the Democrats, they're still going to demagogue it. So the Republicans probably will still lose the House in two years, but they're unable to do anything because they're afraid of that election already.

And Joe, you know, I have talked to members who are very frustrated that this bill isn't doing more with entitlement cuts. I mean, obviously, this is something that both Democrats and Republicans, if you speak with them, they say, yes, you know, we recognize that a lot of our debt is coming from the fact that these

programs continue to balloon the difficult thing is that no one wants to blink first the current political environment is that if you go even talk about sorry talk about cuts to medicaid uh you are going to have attack ads run against you this is really a game that both sides of the aisle play um and you know it's it's it'll be very interesting to see if and when there is a point that is reached where congress does feel the need to act in in a bipartisan manner on this one there are um

You know, forefathers, it was a great idea. Do it every two years, which really makes it almost impossible to make any huge moves because you finally get all three house, you know, all three branches of government. And you're already worried about losing one of those branches in two years. So you really don't. And it happened, as you said, to Democrats as well. But maybe I could do a whole monologue.

about all the things that are preventing partisan compromise in DC. There are a lot of them. There are a lot of underlying factors on these members. But I mean, at this point, at least I will say from some of the conversations, there was a shift in tone after Trump came yesterday. You still had a lot of members who were no, you still have a lot of members who are pushing for what they want. But based on kind of what I've been hearing from my sources, just being in the Capitol, there is a lot more opposition

optimism, at least on the Republican side, that they can get this to pass the House. Of course, then you have the entire Senate process, which is weighing on a lot of minds of members. They know that anything they pass here could wind up getting changed in the other chamber and wind up presenting them with another tough vote, say, sometime in July. Then you got the salt guys. I mean, either it shouldn't be that you shouldn't be double taxed or you should be 40,000, 30, 50,000.

Andrew, what do you don't want? Don't you think that just leave the salt the way it is or not? You want this? What is this? Forty thousand dollars going up, going up one percent a year. That's all budget based. Right. And so it does that. You don't have to. Nothing happens too badly right away for the deficit on that as well.

Why do, why do Blue State Republicans, why is it so important to them to get this back in New Jersey? What I would do. Because they're the ones who helped make the majority. Right. But what I would do is. Why is it so important. Right. Go ahead. I would do something slightly different. This is a philosophical thing. To the degree that we think that every state should just be even, even-steven.

But given that the budgets of these states have ballooned and shifted and changed, but as it relates to this, right, like everyone knows what this is, I think I would set up some kind of 10-year deal, meaning where these deductions eventually go away, but over a period of time... So to get your act together over 10 years? Basically, I would say to the states, look, we're no longer doing SALT, if in fact that's the position. If the position is no SALT...

I think, by the way, I would have this is a similar view about tariffs. If you said you want to do tariffs, I'd say, OK, you want to get to 10 percent tariffs. Let's do that over three years. Every company in America has no what it knows what the deal is. They can get there. They can get their affairs in order and people can actually act in rational ways and they don't have to have a freak out. That would be my approach to both of those things. But Emily, if you're going to extend the old tax cuts, which.

You know, the reason that that they expired was was budgetary in the first place. So now you're going to extend those. So, you know, that's going to be that's going to increase the deficit. Then you layer on all these new tax cuts, these ideas that come to the president from time to time. But then you don't cut the spending. How does it end? You just got a downgrade. And whether Moody's who knows what that was about. But we know we're at thirty seven trillion.

You're just putting all your cards on hoping for this growth to come from the tax cuts, I guess. Is that how it works?

That is part of it. I mean, Republicans will point out, and this is true, they are cutting spending in this bill. The House had to fine $1.5 trillion of spending cuts. I'm not sure what the actual number that's in this bill, but it is about there. And they have found places to do the cuts. Of course, again, we'll see what happens once this bill gets through the Senate. But at the same point,

I mean, there are real cuts in here. At the same point, it is true. I mean, if you score this bill, it is going to add several trillion dollars to the deficit at this point. And yes, they are expecting for GDP as well as other cuts, things like Doge. They've mentioned tariffs.

that they will sort of cover that. But yes, there is a real concern here. I think there's also just a realization that if they don't get this done, taxes go up on Americans and there is a wide sense across the caucus, probably even within Democrats too, if they were a part of this, that they absolutely do not want that to happen. Okay. Emily, thank you. Thank you.

Target out with first quarter results. Courtney Reagan joins us now with more. She's fast. Yeah, I am. I'm very fast. So, yeah, it looks like a pretty disappointing performance from Target for the first quarter. Revenues 23.85 billion missing. The estimates for 24.27 billion adjusted earnings come in at $1.30 per share.

It's unclear if this is comparable to consensus. We think it is, but there's this favorable litigation settlement, pretty large actually, that analysts most likely were not expecting. Comparable sales fell 3.8%, much worse than the 1.9% expected drop. Digital sales did grow 4.7%, driven by same-day options.

Target is lowering its sales guidance to low single-digit declines compared to consensus for 0.3% growth. It's also cutting and widening its earnings forecast for the year.

between $7 and $9. Now, on a media call, Target CEO Brian Cornell wouldn't say definitively if the retailer had raised prices due to tariffs or would in the future. He did say Target has many levers and mitigation strategies it would employ first, raising prices as a, quote, last resort.

Chief Commercial Officer Rick Gomez explained mitigation should offset the majority of tariff pressure, but added the retailer would adjust prices if necessary. Now, Cornell called out, quote, ongoing pressure from discretionary for discretionary categories, five consecutive months of declining consumer confidence.

Tariff uncertainty and the reaction to its upgraded DEI program, it's called Belonging, has dragged on the quarter. Traffic and transactions both fell. Margins were compressed from higher markdowns and higher cost of digital fulfillment. Valentine's Day and Easter, that did drive sales and that limited Kate Spade collaboration was the strongest announcement.

in a decade. Cornell said, quote, we're not satisfied with these results. They're focusing on factors within its control. Target is setting up a new program led by its COO, Michael Fidelke, that's tasked with moving faster and accelerating growth or re-accelerating growth, rather, in the business. And Christina Hennington, as well as Amy Tu, are exiting their executive roles as a part of that move. Can I just tell you how fascinating it was, not just to watch you speak about this so that we understood it, but if you watch the stock, it's absolutely...

As it was going, I mean, this is like algos. First, on the original back of the news, I don't know if you saw it, it was like up 5%. But then down. For a hot minute, it was like up 5% because people, the algos must have been reading the initial headline, probably with this legal settlement in there, I don't know. Then it moved into the red.

Now it's back. Look, it's now back up 3% or 2%. And I know it's early. No, I'm not saying that. I'm saying, you know what the high was?

Oh, yes. Life is relative. I'm not. No, it was 260. This thing is sold out beyond belief. This is that was only a couple of years ago. That was in 2021. This thing is battered, beaten, bruised. Shareholders are, you know, they're crying, uncle. I don't know what they'd have to say to get this to go to go down more at this point. Think about that. What is 260? You just think this is like you can't fall over for a situation. Exactly. Yeah.

I mean, 260. Think about it. Isn't that a great phrase, by the way? I should give credit. It's my mother-in-law. You can't fall off the floor. No. Yeah. I like that. No. And in the same period, same business, right? Sort of. Walmart. Walmart.

look at that stock yeah and you know we've sort of asked these questions too to to the target executives and they're like look we don't know walmart's business like we know ours but we do know that our discretionary categories are much larger than walmart's and so that can account potentially for some of this and we know those categories have been pretty soft can we talk tariffs for a second yeah please and just the um

articulation, communication. And the language very precisely from some of these retailers. So we have Lowe's this morning. We had Home Depot yesterday. I was saying Home Depot got all the headlines it could possibly want, at least if there's an audience of one in the White House, which was to say, effectively, we're eating

the cost and it's not going to get past to customers. I'm not sure that that's actually accurate. Exactly. And they were very careful in repeating the same phrase. We generally intend to maintain pricing across our portfolio. Very careful phrasing because I think

if there are unable to do that. Yeah, they would like to keep pricing. And yes, they have done all of these mitigation strategies and diversified their supply chain, but hasn't everybody else? Right. And that was just sort of my question. Well, my question... So, Nipo still imports about half from other countries. Now, they say in 12 months...

No one country outside the US will represent more than 10%. But if they import 50% and Walmart is only importing a third, and they're bigger, and also do all these strategies, yet Walmart says we can't absorb it all. How can Home Depot? That's just... Right? How does the math... Okay, so I haven't lost my mind. No. Okay, what about Lowe's?

So Lowe's, when I looked at that release, they did not really say anything in there. They said nothing. About the tariffs. That's what I was looking at right now. Yeah. So the call is at 9 a.m., so we'll see what they have to say. But the analyst community has thought that tariffs would likely hit Lowe's more than Home Depot. More, right.

They didn't say anything. And they affirmed their guidance. Yeah. And to be fair, Target doesn't really mention tariffs in their release as well. But luckily, as a member of the media, we were able to get through to them and get some more clarity on the bigger picture things that are not included in that release right away so we can give some context to the numbers so that those stock moves can be more accurate.

There we go. Looks like there might be a trap door to the basement in your floor. You can fall off the floor, apparently. Also, there's a thing called floor time, where apparently if you lay on the floor, it's supposed to reset your body and it's relaxing. So that's what this is. Floor time? I don't think it's relaxing, though, in this case. No, but I'm just thinking sometimes you like to just lay on the floor. I do like to sit on the floor and lay on the floor. I do. I don't want to sleep on the floor. What?

like when i'm playing with my kids i like to lay on the floor it's kind of like no anyway not good for the neck basically like you know if you like to lay down anywhere the floors is you know if you don't have a

You know, you don't put it as a futon or something. Yeah, laying down is nice. Because supine is better than everything else. What's the yoga pose where you just lay there? It's a long word. Don't look at me. Don't look at either of us for yoga. It's my favorite one. You just lay there. At my gym, I see guys walking around with yoga mats, and I just...

You know, okay. They're very flexible. Who are? Yoga guys? Yoga guys. You know, our former colleague, Tyler Matheson, a big yogi. Really? Did wonders for him, health-wise. Maybe that's my problem, because I'm not flexible. I want to be like Gumby.

For those travelers, this is a big story. The FAA now capping the number of flights allowed into Newark Airport following technology outages and a staffing crunch that led to delays and cancellations. Twenty-eight planes will be allowed to arrive per hour between June 15th when construction on a runway is scheduled to be completed. Outside the construction period, arrivals will be capped at 34 per hour. The interim limits take effect immediately and run through October.

October 25th, so this is a long period of time, including departures that brings down the traffic to 56 flights per hour. That's down from more than 70 that the airport had been handling during peak periods before the FAA began slowing traffic. United had already taken a number of its flights off of its schedule, so the disproportionate impact at this point is likely to impact a lot of the other airlines. It may still impact some United flights. We'll see.

And then, of course, the question is, does this make the situation hopefully safer? Which is to say that before there was, you know, less time for error, if you will. Now, if you have a lot less flights coming in. This idea that the radios have stopped communicating with, you know,

from the tower to the planes. That apparently happens. I couldn't believe it. This is not specific to Newark. This happens all over the place. The problem is that a place like Newark, when you're landing 70 planes an hour, there's not a lot of time to fix the situation in those instances. People that are in charge would say, yes, it's safe to fly into Newark. They would have said that at 70, and they would say it now.

with 14. It's safer-er. That's the question. And we shouldn't overstate it because there hasn't been anything happen. But we'd like safer. Now is 40 safer than 56? I think it has to be, right? I don't know. But is it overall though, is it

If I told you it was two an hour, you'd say it would invariably be safer. That's from that movie. Is it safe? But if it was two an hour, it'd be safer, right? Because they'd be spaced out, like super spaced out. Right. Well, 56 sounds better than 70. But it sounds like a pain, and you just have to take that into account, I guess, when you're traveling, booking places. I mean, can they do it? Did we need 70 flights?

Oh, I think that yes, because now the flip side is prices are going to go up materially and the prices for flights out of LaGuardia, out of JFK, out of Philadelphia, all that's going to go up. There's no question. Teas will be next. President Trump took his case right to Capitol Hill yesterday in a meeting with House Republicans urging swift passage of his cornerstone legislative agenda. There's some people that want a couple of things that maybe I don't like or that they're not going to get.

But I think we're going to have tremendous, not luck, we have tremendous talent. Coming up, a check-in with an economic advisor to the president, Deputy Treasury Secretary and acting IRS Commissioner Michael Falkenter, who echoes the message to Congress that the time for a massive tax package is now. What is the alternative?

The alternative is a $4.5 trillion tax increase at the end of this year. The alternative is for all of the investment incentives that are being negotiated, things like bonus depreciation extensions, factory immediate write-offs, R&D tax credits. Those things will go away. SquawkPod will be right back. How will you shape the future of energy with confidence? What does it mean to deliver affordable and reliable energy for all?

From evolving supply and demand to pricing uncertainty, EY understands the disruptions energy companies face and how to drive the outcomes that matter. So whether it's in the plants, at the pipeline, or on the grid, EY's full spectrum of services help energy companies maximize operations to drive profitability and performance. EY. Shape the future with confidence.

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If your small business has a problem, you could say, Ugh, just my luck. But you should say, Like a good neighbor, State Farm is there. And we'll help get you back in business. Like a good neighbor, State Farm is there. This is Squonk Pod. Stand Andrew by. Three, two, one. Up and Andrew.

You're watching Squawk Box on CNBC. I'm Andrew Ross Sorkin, along with Joe Kernan, back in the house, in the chair, no less. Barry Diller was sitting in your chair, by the way. He was right here. In the chair. Becky was here. You felt a little uncomfortable about it, I'll tell you. It's true. Honestly? You know, Becky's off today. She's going to be back tomorrow. Should I feel uncomfortable now? I mean...

You don't have the cooties. The House Rules Committee debating the reconciliation bill and what's a critical step before it can reach the floor for a full vote. Join us now, Deputy Treasury Secretary Michael Falkender. He is also the acting commissioner of the IRS. This is a case study, I think, Michael, in what it takes to get one of these across the finish line. We've seen it. We've seen the Democrats try to do it. And reconciliation is is unique in what it takes.

Are you singing an optimistic tune about who's getting whipped and whether the president was effective yesterday? Absolutely, Joe. I mean, you think about where we're at now compared to where we were at in 2017. And what's really remarkable is the ongoing unanimity of the Republicans.

So, you know, in December, till December 2017 to get the Tax Cuts and Jobs Act over the line, we've already got a budget reconciliation bill done, you know, the joint resolution in order to unlock the reconciliation process. We're now looking to have the bill on the floor of the House later this week. We expect to take it to the Senate.

And so we're making remarkable progress. We always knew that with these tight numbers, there were going to be negotiations all the way down to the end, all the way until that bill passed. But there we continue to make remarkable progress. And it really demonstrates the leadership that Speaker Johnson, that Chairman Smith have been providing and the fact that they have been working on this probably for about a year now. The expression that don't let the perfect be the enemy of the good. You always have to.

To use that and obviously between Democrats and Republicans, they're split. But between Republicans on one side and Republicans on the other side, there's there's a lot of.

It's fractionated at this point. And you're asking both sides, the salt side and the people who want deeper cuts, you're asking both of them to swallow quite a bit. And my point earlier was, when you finally get all three branches of government and you have a chance to do something, when you're worried about who's going to win in two years, that's all you're ever worried about. It makes it almost impossible to govern.

Joe, we are going to get this bill over the line. There are going to be negotiations down to the very end that reflects the fact that we are a big-temp party, that there are a lot of different people in this party that have different types of outcomes they want to see come of this bill. This is the major piece of legislation that we're going to see come out of this Congress.

And so we see representatives looking to get as much as they can for their, to implement the policies that are gonna best help their part of the country, their districts. And so we always knew coming down to the end that the president and the secretary and the administration were gonna have to weigh in to get this final bill over the line. But we are going to get there. And as you said, we are not gonna let the perfect

be the enemy of the good. As Reagan used to say, if you'll offer me 80%, I'll take it and I'll come back for the other 20% later. But we are going to get this bill passed out of the House this week, get it over the Senate so that the president can sign this. Because remember, what is the alternative?

The alternative is a $4.5 trillion tax increase at the end of this year. The alternative is for all of the investment incentives that are being negotiated, things like bonus depreciation extensions, factory immediate write-offs, R&D tax credits. Those things will go away. We'll see a doubling of the standard deduction. We'll see increases in rates across the board. Nobody wants to see those things happen, and that's why we're going to make sure that we get this across the board by the end of this week out of the House.

Mr. Secretary, do we need to believe that the policies will spur so much growth that we can be less concerned about spending cuts? Because there are Republicans that look at the way Medicaid is administered and what happened, the way it came about under Obamacare, and the number of able-bodied working adults, not working adults, that are able to benefit from

much more, disproportionately much more than pregnant women or disabled individuals. And it needs reforming, but it's not going to happen again. Because as you say, the enemy of the good, blah, blah, blah. This is an opportunity to do something on that, and

Don't you think it's being missed again? - The president is working as hard as he can and the administration is working with him to see that we enact the greatest amount of spending cuts that we can get. Ultimately, we have got to get 218 votes in the House. And so we are working to see where we can identify

waste in those programs, ongoing fraud and improper payments in those programs. This also doesn't include all of the work that Doge is doing on the discretionary spending side. This administration is committed to finding ways that it can increase the efficiency of the government, that it can reduce improper payments and thereby reduce spending. We are going to continue working with the House to see where there are the votes to enact the greatest amount of reforms in some of those programs that you mentioned that we can get.

Would it be optimistic to hope that we can come in at well below $2 trillion this year, next year, the year after? Or are we just stuck with that given the impossibility of doing anything about it? The president...

submitted his budget to Congress recently, and you saw that we are putting ourselves on a track to getting towards a balanced budget. We're gonna continue working every day with the House and the Senate to see what kind of reforms, both in mandatory and discretionary spending, that we can get them to enact.

But we are committed to getting this the fiscal situation of our country back under control. The secretary has indicated that his goal is to work with Congress and the administration to get down to a three percent of GDP deficit target by the end of the four years. And that because we know at the end of the day, we do not have a revenue problem. It is spending that is out of out of the norm historically. And that's where we really need to go after getting the budget under control. It just seems that way. You know,

The difference between Republicans and Democrats, Republicans blow out deficits with a lot of spending and they would say Republicans do it with a lot of tax cuts. And there are some tax cuts here and without the commensurate spending cuts. So I just think once again, we're back to being dependent that some of these growth projections continue.

which some people might say optimistic, they need to come through, but you're confident they will. We are confident because again, if you look back at the first term of the Trump administration, the combination of tax reform, of unleashing American energy dominance and of the deregulatory environment that we created, we saw

3% growth in two out of the three pre-pandemic years. We saw the debt to GDP ratio stabilize over that time period. And we think that if we, and we had a low inflation environment, we had enormous job growth, we had record low unemployment rates. We believe that we can get back by re-implementing the policies that we had during the first term, that we can get back to sound fiscal policy,

sound economic outcomes like GDP growth, like low inflation, we can once again realize the golden age the president has promised. As acting director of the IRS, do you wish you had those 80,000 additional agents? Did we need those 80,000? Is that a way to maybe narrow the...

the spending gap or do you feel confident? Hopefully you're not like some of the air traffic control. We definitely need more of those guys. Do we need more IRS agents? - We don't need more agents. What we need is to get the IRS modernization project done. As I have said for 35 years, the IRS has been five years away from being modernized.

We are not going to say that in the 36th year. We have accelerated the work towards a modern API infrastructure on top of the existing IRS systems. We are building new functionality on top of it. Joe, let me give you an example. We right now have 6,800 people that do data entry. We are going to take that activity and we are instead going to use modern scanning technology, modern AI in order to read those documents in through AI.

the IT infrastructure rather than employ people to do it. We currently have the same number of call center people on December 23rd as we do on April 14th. We do not have a people problem at the IRS. We have a systems and management problem at the IRS.

And so by making this system more modern, more in line with what people get from their financial institutions, we are going to be able to improve privacy, improve customer service, improve compliance, and we are going to get, we're going to be able to better target pockets of noncompliance and use our audit resources more effectively. Mr. Secretary, though,

Can we just talk about this? I've talked to a number of IRS officers over the years who've been involved in audits and things like this, and they all talk about if you really want to get the big money, that you have to be able to do two things. One is genuinely audit, frankly, some of the wealthiest in the country, for better or worse, mostly with S-Corps and other kinds of things like that, because otherwise it's sort of hard to find

what's really going on. And then you need to have individuals, humans, who can actually go back and forth with those people to collect the money and or otherwise go to court to try to collect the money. That requires people. That's not a computer problem.

It requires both. So one of the things you need to do is identify where there are pockets of noncompliance in the first place. And by digitizing the returns that come into the IRS, we are going to be able to use modern analytics and modern AI to identify where those noncompliance issues are coming from. And then the second thing is, yes, we need a well-trained set of compliance individuals that are going to go out and review the returns that come in. A lot of the reductions that we are looking at are by individuals

improving the IT systems, improving the automated customer service, having a better online experience, we are not going to need as many people in the back office processing of returns and of providing human customer service. That's where we're seeing a lot of the reductions take place.

we are still going to have people out in the field making sure that there is compliance when we through analytics and through some of our modeling identify where non-compliance may be occurring for basic taxes meaning you know folks just on a straight w-2 there's long been an effort made and in fact in fact there was a trial program uh going on i believe under the last administration to effectively make it super easy online and you know hr block and all of the other you know accounting turbo tax people

were against it. Would you like to make it super easy so that you could literally just file a postcard if you could for those folks who don't have complicated returns? I would like it to be as simple as possible. And so we are constantly working with Congress to see where we can simplify. I think one of the most unreported stories about the 2017 Tax Cuts and Jobs Act reform is that instead of about

a third of the American people itemizing, it's down to about 10%. So in the process, we made it much simpler for people to file because they're not having to do their Schedule A deductions and go through all of the itemization. So as we simplify, as we do things like keep a standard deduction that is doubled, we are able to greatly reduce the burden on most taxpayers. But do you think there's a way to make it super simple? By the way, my taxes are...

should be relatively simple. I always look at the thing. I think I'm a, I like to think I'm a smart guy. It's complicated. My accountant tells me this is how it is. And I go, okay, that sounds about right to me. And then I signed the thing and I hope I'm doing the right thing. Yeah, so I- I think most Americans feel that way.

I would like to see what we can do, again, continuing to work with Congress to move more, even more people towards realizing the standard deduction. At the same time, we want to make sure that we create incentives in our economy to work more, to invest more. And so we do have a complicated economy that we need to reflect

in our tax filings but for the vast majority of the american people we are working to make it simpler and so in addition to the government itself providing what you're referring to which is direct file there also is a program out there called free file we are working to make it easier for the american people to

who have very simple returns to file their returns in an online fashion. In fact, I'll be attending a conference later today talking a lot more about how we can improve the digitization of the filing system so that we can make it easier for Americans to comply. We've taken a lot of your time, maybe two months, Mr. Secretary. Appreciate it. Secretary Faulkner, thanks for your time this morning.

Coming up, artificial intelligence is changing how we search for information online and who gets paid for it. Cloudflare's CEO Matthew Prince on how zero-click searches are disrupting the internet. If you're making money through subscriptions, through advertising, any of the things that content creators are doing today, visitors aren't going to be seeing those ads. They're not going to be buying those subscriptions anymore. And that means it's going to be much, much harder for you to be a content creator. More SquawkPod is right after this.

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You're listening to Squawk Pod from CNBC. Here's Andrew Ross Sorkin.

Our next guest says that zero-click searches where users are finding answers directly on search engines and AI summaries are killing the internet's business model. Joe and I were actually talking about this earlier. Matthew Prince is here. He's the co-founder and CEO of CloudFlare. Good morning to you. It's long been described as the blue link economy, as in you go onto Google, you put the search in, you get all the blue links, you click on one, and Google

Google often makes money if you hit one of the sponsored ones. You think that that whole economy is effectively going to be going under here?

Yeah, Andrew, I think that the economy is for sure changing. The best data that we have on this is if you look back 10 years ago, essentially for every two pages that Google would crawl, they would send CNBC, anyone who was creating content, one visitor for that. The rate that Google crawls at hasn't changed. And yet six months ago, the rate was now up to 6%.

that pages scraped for every one visitor and and it's and it's accelerated that now it's actually 15 scrapes for every one visitor and what's changing is not

that fewer people are searching the internet, it's not that Google is scraping more, it's that more and more of the answers to Google are being answered right on Google's page. That AI box at the top of Google is now absorbing that content that would have gone to the original content creators. And that's the good news for content creators. If you look at OpenAI six months ago, it was 250 scrapes to one visitor. If you look at it today, it's almost 1,500 scrapes to one visitor. And what that means is that if you're making money through subscriptions, through advertising, any of the things that content creators are doing today,

visitors aren't going to be seeing those ads. They're not going to be buying those subscriptions anymore. And that means it's going to be much, much harder for you to be a content creator. So, Matthew, one of the questions that I have is the economics of this shift when the user starts to pay. So, for example, I'm a subscriber now to ChatGPT. I think I'm a subscriber to Gemini. Actually, I've got a subscription, I believe, also to Anthropic. But I'm an unusual and blessed subscriber.

place to be able to pay for these services. Longer term, how are the economics of these businesses going to work if there is no advertising and if things are not being sent back to other people? Well, I think there may be advertising. The advertising might show up in the AI companies, but you're reading that derivative content. You're not reading the original content.

content. Imagine that, you know, I went and said, I'm not going to watch CNBC anymore. I'm just going to ask chat TVT. What are all the interesting things for me? Blasphemy. Don't even say it as an example, as an example. But don't even say that. OK, so but then the question. But by the way, you're right on as a content creator. And that's what we do for a living.

There is a fundamental question about whether these services or others ultimately should be paying for some kind of access to this information. And then the question is, what does that business model look like, do you think? And is there any chance of a model ever even being created? Or are the tech companies like they have in the past moving so quickly that there's really no opportunity? And by the time something gets settled in court 10 years later, you know, the

The horse is out of the barn. I think if the answer is court, then you're right. The horse will be out of the barn. But I think the answer can be actually technology. You can use services like Cloudflare, and this is what we're working with the largest content creators to do, to say, you can't access my content if you're an AI crawler unless you pay me for that content.

And that's exactly what the future has to be. The fuel that runs these AI engines is original content. So that content has to get created in order for these AI engines to work. And if you look at the most thoughtful AI companies that are out there, they understand that they have to pay for content. Someone like

OpenAI has actually done content deals with a lot of people, but they can't be the suckers. They can't be the only ones paying when their competitors aren't. So what content creators have to do is restrict access to content, create that scarcity, and say, you're not going to get my content unless you're actually paying me for creating that content. You know, some people have looked at those OpenAI deals and thought that that was just sort of a way station, sort of a...

you know, something to sort of get over the hump, there is going to be a day where you might be able to remove the content creators completely. I know of a number of sort of, I wouldn't call them news organizations, but sort of news organizations that think that they can sort of cobble together the news, if you will, from not even news...

news content creators, but maybe even, and this is what I think Elon Musk to some degree thinks is possible, to be able to create it off of something like an X and what you think that means. Well, I think in that case, you know, so first of all, I actually am much more optimistic about the future of content creators. I think if content is just sort of randomly strung together, sort of quick hitting, headline first content, the stuff that has sort of driven a lot of the web over the last little bit, I think that is going away.

But original content that is actually highly valuable is, I think, going to be more valuable in this future. I'll give you an example. I live a lot of the year in Park City, Utah. I'm a skier. I care enormously whether it snowed more on the east side of the mountain or the west side of the mountain if I'm going to go out skiing. And I pay for a service that's actually going to tell me that. If I'm going to use an AI engine, I'm going to pay for the AI engine that actually has

has the exclusive access to that unique content. And for that content creator, that weather forecaster that is there doing the hard work in order to generate that content, for someone like you who's doing really unique-- you're the hardest working guy in the financial press. That's the sort of thing where I think

AI companies are going to value that content. They're going to be willing to do deals for that content. But it has to be something where there is exclusivity, where you don't do that for everyone that's out there, and then you actually restrict the access for any of the AI companies that are not paying you for the original content you create. God bless you. You have an invitation to come back any day you want. We'll get a fourth chair at the table here. I'm here at 3:32. I get up at 3:32, fella. Although you do-- I don't-- yeah, I go home.

He does. But what do you think? Is he in a career building stage? Is that why you think he's like that? Matthew, what do you attribute it to? I'm just an agent to do it for me. No, it's too late. Too late. I don't I don't I don't want I'm at a different point. Definitely. Like if they're asking me to go out to Seattle for like four hours. Right. I have a family. You're ready, aren't you? Depends. Depends what the ask is. I don't think.

Yeah, we're in different places, aren't we? You've already made it, man. Matthew, thank you. You've got to the top of the mountain. You're skiing down the mountain. It depends on the east side or the west side, depending on where the snow is. Is that what he just said? Where the snow is? East or west, right? Sometimes there's better snow on one side of the mountain than the other. Sometimes that's true. Trying to find the powder. Right? And sometimes the grass is always greener on one side of the pasture.

That is Squawk Pod for today. Thank you, as always, for listening. And check out your feed later today. We will have a bonus podcast for you featuring Andrew's interview with media mogul and memoirist Barry Diller. Don't miss it.

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