Woodstock Quarterly Newsletter / Q2 2019
So what is the good news about retirement plans and savings? On the private side, which by the way makes up two thirds of US GDP, there is good news. Seventy-five percent of retirees tell the Federal Reserve’s Survey of Consumer Finances that they have “at least enough to maintain their standard of living”. Eight of ten and six of ten of retiree households and of working age households, respectively, tell Gallup they have enough money to “live comfortably”. [1]
According to the Social Security Administration “the median retiree born during the great depression has an income equal to 109% of his average inflation – adjusted preretirement earnings”. The projections using the same computer model show that for citizens born from 1966 to 1975 “a median replacement rate of 110% of real average pre-retirement earnings” is projected. [2]
Where does the retirement crisis talk come from? On the government side, which makes up eighteen percent of US GDP, the figures are less good. In 2018 there was $8 trillion of state and local liabilities, approximately half is owed to bond holders and half is owed to pensioners. According to Pew Charitable Trusts those pension obligations were 86% funded in 2007 and are only 66% funded in 2016.[3] However, the American Legislative Exchange Council determined that several irresponsible states, Connecticut, Illinois and New Jersey, are approximately 20% funded.[4] The municipalities within those states are considered to have less flexibility even though they may be at a higher funding percentage than their respective states. If you or any of your other advisors have questions about the issues raised here, please contact your investment manager or one of us.
William H. Darling, CPA – Chairman & President
Jeanne M. FitzGerald, CPA – Tax Manager
1 WSJ 3/1/2019
2 WSJ 3/1/2019
3 WSJ 10/27-28/2018
4 WSJ 10/27-28/2018
Taxes are reacted to and felt on a very personal level. As you have questions about your personal tax situation, we hope that you will reach out to your portfolio manager or one of us with your questions. On a macro scale, however, how is the Tax Cuts and Jobs Act of 2017 (“TCJA”) doing? Covering its costs? Stimulating the US economy? Still providing refunds? Of course, “costs” in the Alice in Wonderland verbiage of taxation are still odd. Lower gas prices at the pump are not a cost, but a benefit to the consumer. The tax cut for working Americans in the TCJA is a benefit to the taxpayer but a “cost” to the federal government. When the Congressional Budget Office wants to know the “cost” of a tax reform, it is solely concerned with federal tax revenue, not benefits to the taxpayer. Well, with 3.1% growth from the 4thQ of 2017 to the 4thQ of 2018 in the US economy, the Congressional Budget Office reported that “even if the current surge in economic growth isn’t sustained, the revenue residual from our current strong growth rate will pay for some 80% of the projected cost of the 2017 tax reform”. [1] If we have one more year of 3% growth, the tax reform will pay for itself completely.
On stimulating the economy both business investment and personal income are growing impressively. Business investment “in equipment, intellectual property and new plants pays off for years to come in better productivity and higher wages”. [2] Personal income, remember the gas pumps, grew at 5.7% in the last half of 2018 and there are “one million more job openings than there are people looking for work”. [3] The signs are good for 3% growth in 2019, too. Refunds? As of March 15, 2019, 75.8 million returns have been filed, 73.5 million processed by the IRS, 60 million returns have refunds averaging $2,957,[4] almost unchanged from 2017. We know we have far fewer clients subject to the Alternative Minimum Tax (“AMT”) this year compared to last, but most taxpayers are both winners and losers this year and it is the net effect that counts.
If you or any of your other advisors have questions about the issues raised here, please contact your investment manager or one of us.
William H. Darling, CPA – Chairman & President
Jeanne M. FitzGerald, CPA – Tax Manager
1 WSJ 3/5/19
2 WSJ editorial 4/27-28/2019
3 WSJ 3/28/2019
4 WSJ 3/25/2019