Cumberland Advisors Market Commentary –  Deficit About to Worsen

The Bloomberg Close ended its April 22 daily report with the following:

“What retirement? For the first time in 57 years, the participation rate in the U.S. labor force of retirement-age workers has cracked the 20% mark, according to a new report. As of February, the ranks of people 65 or older who are working or seeking paid work doubled from a low of 10% back in early 1985. Rickety social safety nets, inadequate savings and sky-high health costs are all conspiring to make the concept of leaving the workforce something to be more feared than desired.” (source: https://www.bloomberg.com/news/articles/2019-04-22/america-s-elderly-are-twice-as-likely-to-work-now-than-in-1985)

Cumberland Advisors Market Commentary

Why worry? According to the April 22 Wall Street Journal,

“The Social Security program’s costs will exceed its income in 2020 for the first time since 1982, forcing the program to dip into its nearly $3 trillion trust fund to cover benefits. The shortfall comes two years later than projected last year – when the program was expected to dip into the fund, but ended up in the black. But by 2035, those reserves will be depleted and Social Security will no longer be able to pay its full scheduled benefits.” (source, WSJ {Subscription req.}: https://www.wsj.com/articles/social-security-trust-fund-to-be-depleted-in-2035-trustees-say-11555946113)

In one year, this watershed moment for the Social Security trust fund will begin to have a small negative impact on the US Treasury market. At first, the impact will not really be noticed in bond pricing, but it is destined to worsen each and every year. When will the market start to anticipate the trend? What will the change in pricing be? Will it affect the FX rates between the US dollar and other world currencies? Is there a period ahead when higher taxes will be necessary to try to stem the damage?

The Committee for a Responsible Federal Budget (CRFB) has just published a paper that summarizes and comments on the looming issues with Social Security. Called “Analysis of the 2019 Social Security Trustees’ Report,” the April 22, 2019, paper pulls no punches – I suggest readers have two stiff shots of scotch or vodka with this one. Maya MacGuineas, CRFB president, has kindly given us permission to share the entire report with our readers. The report is here: http://www.crfb.org/papers/analysis-2019-social-security-trustees-report.

Remember, there is an arbitrary and politically driven budget accounting method that has allowed the Social Security and other trust funds to dampen the size of publicly stated deficits. Politically motivated financial legerdemain is ending and the reverse negative effect is about to commence.

David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Cumberland Advisors Market Commentary –  Trump Tax Reform: Looking Backward and Forward

Two members of the research department of the Banque de France have published an interesting note important to US investors. We applaud the work of Cristina Jude and Francesco Pappada. The title is “Does the Trump corporate tax reform impact the composition of the US current account?” Here is a direct link to their paper: https://blocnotesdeleco.banque-france.fr/en/blog-entry/does-trump-corporate-tax-reform-impact-composition-us-current-account . We thank the authors and the Banque de France for permission to share this work with our readers.

Cumberland Advisors Market Commentary

The implications of their findings give us reason to pause and reflect on the impacts on US markets. Note how they describe the issue of “profit hoarding” and “profit shifting.” Also note the roles of “small jurisdictions,” which they list as Bermuda, Ireland, Luxembourg, the Netherlands, Singapore, and Switzerland. Their paper is well-documented, and links to their backup citations are in the paper.

I have been mulling over the implications of their comments on repatriation in particular. They present data to suggest that the transitory effects are nearly over. That development has implications for portfolio management. It also means that there are second-derivative implications as multinational corporations return to a baseline allocation approach to their foreign-sourced profits.

So the activity in stock buybacks and dividends and internal corporate decisions attributable to repatriation are shifting. Note that if repatriation had a positive effect on your portfolio, their research suggests that the positive force is spent or nearly so.

There is another secondary effect on the short end of the yield curve.

A multinational corporation that was engaged in “profit hoarding” parked cash in special types of accounts in order to qualify for deferral of tax to the US. Those accounts were often held in Treasury bills. The repatriation of those monies caused the Treasury bills to be sold and the cash to be moved into the US-based banking system. The entire process usually happened in one day. Note that the aggregate of Treasury bills and banking system aggregates was unchanged. It is the ownerships that changed.

Those changes occurred in the very short end of the yield curve. They happened at the same time that other forces impacted short-term interest rates, so there is no way to know how much of the volatility in the front of the yield curve was attributable to this transitory effect. What we do know is that the transitory effect is ending, if the researchers are correct in their observations.

Only time and retrospective research will reveal the impacts.

Our final takeaway is that the repatriation flows provided a tailwind to the US stock market. That tailwind happened coincidentally with other tax-code changes and with policy changes. It seems to be ending.

Without a tailwind, the US securities markets have to realign to its absence. We will see what that means this year.

At Cumberland we maintain a cash reserve in our US ETF portfolios. In our bond accounts we have been taking profits as the rally in the Treasury market has steamrolled and yields have dropped precipitously. We think it is time for more defensive posturing in bonds. Yields don’t fall forever, and stocks require earnings growth rates to rise.

Also note that the number of listed stocks in the US has been declining since the late 1990s (see Where Have All the Public Companies Gone? https://www.bloomberg.com/opinion/articles/2018-04-09/where-have-all-the-u-s-public-companies-gone). The average age of the remaining listed companies has nearly doubled. So we have a shrinking and older cohort of listed companies trading on the US exchanges (see How Did the U.S. Stock Market Get So Old? https://www.bloomberg.com/news/articles/2019-03-05/how-did-the-u-s-stock-market-get-so-old).

Fewer stocks, which are older and therefore more mature companies, combined with a post-repatriation paradigm – that is what faces the stock market in 2019–2020.
David R. Kotok
Chairman and Chief Investment Officer
Email | Bio


Cumberland Advisors invites you to our “Financial Markets and the Economy – Financial Literacy Day III” event, to be held April 11, 2019, from 8:30 AM to 4 PM at the Selby Auditorium of the University of South Florida Sarasota-Manatee.

Our focus is “Financial Markets and the Economy”, featuring:

Panels-
•    The Stock Market
•    Health Hunger and Philanthropy
•    How the World Looks to Me – A Global Economic Outlook

Special Presentations-
•    A Conversation with Susan Harper, Canada’s Consul Gen in Fla, on Trade/World Affairs
•    Keynote by Gretchen Morgenson, Senior Special Writer in the Investigations Unit at The Wall Street Journal and Former Business and Financial Editor for the New York Times.


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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The Slow Housing Market Can Hurt Government Revenues, But Doesn’t Have To

The Slow Housing Market Can Hurt Government Revenues, But Doesn’t Have To

How much home sales impacts a place depends a lot on its property tax policies.

by February 21, 2019

Excerpt below.
Cumberland Advisors John Mousseau

Home sales have been ticking down for months. It’s been particularly bad in the West, where 15 percent fewer homes were sold in December compared to the previous December. The slowdown is widely expected to continue, but how it affects local governments will differ.

Cumberland Advisors CEO John Mousseau is watching places where wealth is concentrated and where taxes are high, including Boston, New York City and its suburbs in Northern New Jersey and Fairfield County, Conn. Homeowners in these places are no longer getting the tax breaks they used to on their properties. “As long as there’s no recession,” he says, “I think home prices in places like these will stagnate or maybe even decline a little.” That could further hurt the local government’s property tax revenues.

But declining home prices aren’t necessarily a bad thing, Mousseau says. According to Fitch’s data, several major markets — including many out West — are currently overvalued. “I think what you’ll see is a realignment of house prices,” he says. “The idea that house prices can go up 6 or 7 percent a year — I think that’s going to go away.”

Read the full article at governing.com.


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Taxing Wealth Instead of Income?

With the desire to finance both an increasing deficit and an increase in government services, politicians are searching far and wide for funds. Increasingly, proposals are surfacing to tax wealth rather than income as the means to fund pet projects. The proposals attract followers since unequal distribution of wealth is viewed as a problem that needs to be addressed. However, we really need to think through the implications of going down this road.

Market Commentary - Cumberland Advisors - Taxing Wealth Instead of Income

First, it is important to understand the distinction between income – a flow of money from work and investments – and wealth – an accumulation of assets, things that we have. We all know that we can borrow to fund our acquisition of things, which then have to be financed out of current income. Most recent proposals therefore have actually focused on taxing net worth- reflecting the difference between what we owe and what we have.

While it is easy to refer to wealth in the abstract, it is important to recognize the wide range of assets that constitute our wealth. These include our homes, cars, financial assets, clothes, vacation homes, yachts, intellectual property rights, patents, etc. Some of these are easily valued while others are more problematic. One of the most recent wealth tax proposals would tax net worth over $10 million at 2% and net worth over $1 billion at 3%.

One of the interesting points about the wealth tax is that it taxes net worth – our things – each year, whereas an income tax is based on our current year’s income. Here is an interesting thought experiment. Suppose you have $1 billion, and it is taxed 3% every year. In 10 years, assuming the principal was not invested, you would have slightly less than $750 million remaining, and in 20 years you would have about $540 million. So, in effect, the government is saying that you have too much stuff and they are going to take it. In the extreme, this is not really different from the government saying that you have too many cars or that your house is too big and therefore you must let someone use one of your cars or one or two of your rooms at your expense.

More seriously, it is interesting to look at how the composition of wealth differs over classes of different net worth. The Federal Reserve’s survey of consumer finances contains information that allows us to get a better picture of how the distribution of stuff differs across different wealth cohorts. For the lower tiers, real estate, autos, retirement funds, and liquid assets comprise the bulk of net worth. At the other extreme, for those with a net worth in excess of $1 billion, the target cohort for the net worth tax, those same assets are a minuscule portion of their net worth (See Chart, “What Assets Make Up Wealth?” at https://www.visualcapitalist.com/chart-assets-make-wealth/).

More than two thirds of the wealth of the $1-billion-dollar-net-worth cohort is composed of what is termed “business interests.” The Survey of Consumer Finances divides “business interests” into those business interests in which the owner has an active management role and those in which the owner does not play an active role and well over 90% of such business interests constitute active management. Thus those who wish to tax wealth rather than yearly income are, in fact, targeting mainly privately held business interests whose value is derived from the active entrepreneurial involvement of the principal and his or her family (1). Such assets are hard to identify, since they can include loan guarantees, intellectual property, etc. Those business interests are not frequently traded and are extremely hard to value. These are the same business interests that generate employment and benefits to many others. To implement a tax that serially requires a potential long-term expropriation of and monetization of productive businesses activities in the name of funding other social objectives requires very careful review and analysis of the costs and benefits.

The same survey also shows that one of the main determinants of wealth is education, and the returns are greatest to a college education (2). To be sure, we have recently heard about the problems of excessive student debt, and a recent Wall Street Journal article convincingly shows that students who attend but don’t finish college can be even worse off than those who don’t have a college degree (3). However, that same article also shows that unemployment rates are lower among college graduates and those with some college than for those with no college, and earnings show a similar pattern.

We need to remember that our Declaration of Independence promotes the “pursuit of happiness,” which has come to mean equal opportunity, not equal incomes or equal wealth. Given the evidence on education and wellbeing, we need to consider whether the key to dealing with the so-called problems of income and wealth inequality may be education and not government redistribution policies. Maybe we should focus on programs to raise those on the bottom while taking advantage of the often philanthropic tendencies of people with large accumulations of wealth. Perhaps we should consider policies, as just one example, that reduce inheritance taxes if a wealthy individual donated some of his or her wealth in advance of passing, provided that the gifts are to support qualified educational initiatives and keeping people in college who otherwise might be forced to drop out. This provides a carrot and opportunity for a wealthy individual to do good and avoids government expropriation with no guarantees that the funds will be used to address a social problem.

Robert Eisenbeis, PH.D.
Vice Chairman & Chief Monetary Economist
Email | Bio


Sources:

  1. “Changes in U.S. Family Finances from 2004 to 2007: “Evidence from the Survey of Consumer Finances,” Brian K. Bucks, Arthur B. Kennickell, Traci L. Mach, and Kevin B. Moore, revised 2009, Federal Reserve Bulletin, Vol. 95, 2009, https://www.federalreserve.gov/pubs/bulletin/2009/articles/scf/default.htm.
  2.   Ibid.
  3.   https://www.wsj.com/graphics/calculating-risk-of-college/

Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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ROBERT EISENBEIS: Tax the rich? Check the facts first

Excerpt from the Sarasota Herald-Tribune

Tax the rich? Check the facts first
Posted Feb 4, 2019 at 2:01 AM
by Robert Eisenbeis, Ph.D.

As the political season begins to heat up for 2020, we have seen an increasing number of proposals to provide free education, free health care, a universal guarantee of a living wage, etc. With a historic level of public debt topping $21 trillion and a deficit of nearly $1 trillion and projected to climb even more in this year, the logical question is how will the advocates for all those free programs pay for their suggestions, some of which have been priced out in the neighborhood of $30 trillion? The almost universal response is to raise tax rates on the wealthy so that they can “pay their fair share.”

Let’s look at some facts.

Continued here: https://www.heraldtribune.com




Tax the Rich

As the political season begins to heat up for 2020, we have seen an increasing number of proposals to provide free education, free healthcare, a universal guarantee of a living wage, etc. With an historic level of public debt topping $21 trillion and a deficit of nearly $1 trillion and projected to climb even more in 2019, the logical question is how will the advocates for all those free programs pay for their suggestions, some of which have been priced out in the neighborhood of $30 trillion? The almost universal response is to raise tax rates on the wealthy so that they can “pay their fair share.” Let’s look at some facts.

Market Commentary - Cumberland Advisors - Tax the Rich

First, who is paying what? The following table is from the most recently available data from the IRS for 2015, showing federal individual shares of adjusted gross income, share of taxes paid, and average tax rates by income class. The top 1% had 20.65% of AGI and paid nearly 40% of the taxes.


Federal individual shares of adjusted gross income, share of taxes paid, and average tax rates by income class

Similarly, the top 25% earned just under 70% of the income and paid 86% of the taxes. By comparison, the bottom 50% of the income distribution earned only 11% of the income and paid 2.8% of the taxes. Data reflecting tax structure changes taking effect for 2018 is, of course, not yet available.

The argument is that it is necessary to raise the marginal tax rates on the higher-income groups so that they can pay their “fair share.” But what is a “fair share” and who gets to decide what is “fair?” Clearly, those already bearing the bulk of the tax burden are going to argue that they already are paying more than their “fair share,” while those with pet projects they want to fund will argue to increase the tax burden on the rich.

Further, would raising the marginal tax rate on the wealthy actually generate the river of additional revenue the “70 percenters” envision? Just how realistic are the proposals to raise the highest marginal tax rates to 70% or more? Historical evidence suggests that such proposals are, at best, naïve, and will not succeed. Proponents simply assume, without any understanding of history or how taxes affect behavior, that their proposals will be the magic solution. It turns out that the US has a rich history and multiple experiments with widely varying marginal tax rates, dating back to the Great Depression.

The highest marginal personal tax rate at one time was 94% in 1944, was about 91% from 1954–1963, dropped to about 70% from 1964–1980 before declining to its present rate in 1993. The highest marginal corporate tax rate was 52% in 1952 through 1963, and was only a bit higher at 54% between 1968 and 1969. (It will be 21% for 2018.) The following chart details that history, but more importantly shows the impact the variation in the highest marginal tax rates has had on tax revenues collected.


Variation in the highest marginal tax rates on tax revenues collected

Over the entire post-war history from 1944 to the present, revenues collected from all sources (including person and corporate income taxes, social insurance taxes, excise taxes and other taxes) have ranged between 14.4% and 19.6% of GDP, with an average of 17.1% and a standard deviation of about 1 percentage point. Thus, variations in the marginal tax rates have no perceptible impact on the volume of taxes collected relative to GDP. The graph of revenues collected is essentially a flat line when compared to the changes in the higher marginal tax rates and changes in the corporate tax rate. It is such a chart that in the past has led many to argue for a flat tax rather than a graduated progressive tax.

This history does not bode well for the “70 percenters” and reflects their basic lack of understanding of how individuals and markets respond when taxes begin to bite: Those impacted seek ways to avoid paying the tax by seeking tax shelters and tax-exempt returns like those on municipal securities, and by shifting income to tax havens abroad. Before any of us take the “70 percenters” seriously, they have got to explain the pattern shown in the chart, how “this time will be different,” and what criteria they are using to claim that their tax proposals are “fair.”

Robert Eisenbeis, PH.D.
Vice Chairman & Chief Monetary Economist
Email | Bio

 


Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.

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Bloomberg Surveillance: The Long Party is Over, Kotok Says (Podcast)

David Kotok speaks with Bloomberg’s Tim Fox and Tom Keene

Tune in around the 24:50 mark to hear David weigh in on the “bogeys for the next several years” and the view that the long party is over.

He also talks about takeaways from Camp Kotok and Leen’s Lodge.

Tune in at 20:22 to hear the full interview.

Cumberland's David Kotok on Bloomberg Radio

Kotok: “Hateful belligerency accomplishes nothing.”

This is a Bloomberg podcast.

LISTEN HERE: Bloomberg Audio

NOTE: Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.


If you like podcasts, check out this one from 2015 featuring David Kotok talking about his background and Camp Kotok with Barry Ritholtz. They also talk about the history of Cumberland Advisors since its founding, and delve into fundamental principles of investing and valuation.


Links here
https://itunes.apple.com/us/podcast/masters-in-business/id730188152?mt=2

And here
http://www.bloomberg.com/podcasts/masters-in-business/




David Kotok speaks with Bloomberg’s Tim Fox and Tom Keene about ETFs, Bonds, Taxes, & More

David Kotok speaks with Bloomberg’s Tim Fox and Tom Keene

David was asked, “Where are you within your portfolio: cash, bonds, equities?” David responds, “ Bonds, barbelled, that’s an easy one and we’ve been in that mode for a while and we’re going to stay there. In our Leveraged Volatility, that’s a high-frequency trading strategy, were 100% in cash. In Core US 20% in cash. And in the Diversified US, 10% in cash and they are biased towards domestic, US, small mid cap, and underweighted risk elements in the international trade war sectors.”

Cumberland's David Kotok on Bloomberg Radio

David is next asked, “Where do you hide in equities? If somebody says I’ve got to be in equities but I’ve got a risk profile like D. Kotok, where do you hide within sectors and ETFs in equities?” David’s response is, “We’re overweight healthcare, were overweight the banking/financial sectors focused in the United States. We’re overweight defense in the industrial sector. And we like transports because Domestic US transport, the ETF, is just on fire and stays that way. There’s a shortage of people. Prices are going to rise, there’s pricing power in transportation, particularly truckers and rails.”

The interview continues with more questions including one about capital gains taxes and if they were indexed to inflation.

This is a Bloomberg podcast.

LISTEN HERE: Bloomberg Audio

NOTE: Links to other websites or electronic media controlled or offered by Third-Parties (non-affiliates of Cumberland Advisors) are provided only as a reference and courtesy to our users. Cumberland Advisors has no control over such websites, does not recommend or endorse any opinions, ideas, products, information, or content of such sites, and makes no warranties as to the accuracy, completeness, reliability or suitability of their content. Cumberland Advisors hereby disclaims liability for any information, materials, products or services posted or offered at any of the Third-Party websites. The Third-Party may have a privacy and/or security policy different from that of Cumberland Advisors. Therefore, please refer to the specific privacy and security policies of the Third-Party when accessing their websites.


If you like podcasts, check out this one from 2015 featuring David Kotok talking about his background and Camp Kotok with Barry Ritholtz. They also talk about the history of Cumberland Advisors since its founding, and delve into fundamental principles of investing and valuation.


Links here
https://itunes.apple.com/us/podcast/masters-in-business/id730188152?mt=2

And here
http://www.bloomberg.com/podcasts/masters-in-business/




Firing back at Hassett

Excerpt below.

Politico asked for responses to CEA Chair Kevin Hassett appearing to spike the ball on tax cut-induced growth. David Kotok was among the top responses.

Cumberland Advisors’ David Kotok: “There is TrumpHateconomics and TrumpLoveconomics. But both use political narrative for data so both are wrong on forecasts and long on hyperbole. In the middle, US Economics of slowly improving US economy, low interest rates, low and gradually rising inflation, recovering job picture, front-loaded fiscal policy are all collectively in a tug of war with gradually tightening monetary policy and trade war scare. … Without the hyperbole of extremes of T-hater versus T-lover the analysis would be better and the forecasts sharper.”

Read the full article at Politico.




VITA

VITA stands for “Volunteer Income Tax Assistance.” There are additional specialized programs like it. The key to success of the new tax reform law is to have these programs used. Why?

For folks like me, the cut in my taxes means I will have a few thousand more dollars to save or invest. It is highly unlikely that my spending patterns will materially change. The same is true for many Cumberland clients that I have polled. As a group we are in the upper decile of income and wealth. We like lower taxes, of course. But the relative impact on our household spending habits is muted. Remember, please, that I’m talking about individual taxes and not corporate taxes.

But what about those households whose incomes are in the low or mid five figures? These households have a large percentage change in disposable personal income from the extended and enlarged standard deduction and the special tax credits directed at children. In many cases throughout the United States, the average income gain in those households is about $2000, and that is an annual and permanent shift upward of that household’s spendable personal after-tax income.

The first issue is, do these lower-income households know how to take advantage of the tax code change? The second issue is, have we expanded financial literacy to those households so that they can learn about ways to prepare and file their tax returns and be rewarded for their efforts?

And the third ramification is economic. If the millions of eligible households of the United States receive a permanent shift of disposable income of about $2000 each, what will they do with that windfall? There, the answer seems to be “spend it.” Hence the spending on consumption by the household has a multiplier effect and benefits US economic growth meaningfully.

But how will each household learn to use the new tax rules? There is a mechanism, as the extended quote below shows:

“Representative Carlos Curbelo (FL-26), a member of the House Committee on Ways and Means, led a group of 55 bipartisan Members of Congress today to urge leaders of the House Appropriations Subcommittee on Financial Services to protect Internal Revenue Service’s (IRS) Taxpayer Services. These programs include Low Income Taxpayer Clinics (LITC), Tax Counseling for the Elderly (TCE), Taxpayer Advocate Service, and Volunteer Income Tax Assistance (VITA) grants – all programs specifically targeted to ensure tax payers have access to services where they can confidently file returns without fear of being scammed by fraudulent preparers.

“As you begin work on the Fiscal Year 2018 Financial Services and General Government Appropriations bill we respectfully request that you provide increased funding for the Internal Revenue Service Office of Taxpayer Services, including the Community Volunteer Income Tax Assistance (VITA) grants, Tax Counseling for the Elderly (TCE), Low Income Taxpayer Clinics (LITC), and Taxpayer Advocate Service,” the members wrote. “The work being done with funds provided for Taxpayer Services is commendable and worthy of your full and fair consideration.

“Funding for these essential services has received bipartisan support under both Republican and Democratic Administrations,” the members continued. “The House and Senate Appropriations Committees have continued to include strong funding for taxpayer services regardless of which party is in the majority. We appreciate your past support of these programs, and respectfully ask that you increase funding for the I.R.S. Office of Taxpayer Services programs in FY18, including Low Income Taxpayer Clinics, Community Volunteer Income Tax Assistance matching grants, Tax Counseling for the Elderly, and Taxpayer Advocate Service. These programs have already proven to assist the most vulnerable in our country and we thank you for your consideration of this request.”

Here is the link to the full release, and in it a reader will find details. https://curbelo.house.gov/news/documentsingle.aspx?DocumentID=1843.

Here is a link to use your zip code to locate a volunteer facility that may be helpful to anyone you know who needs tax assistance: https://irs.treasury.gov/freetaxprep/.

Please note that this initiative is truly bipartisan, as you can see by the list of the 55 members of Congress who signed onto the initiative.

We think the new tax bill will have its optimal benefit not only for households but the economy if financial literacy is part of the community response. Add $2000 of disposable personal income to millions of American households, and the impact is huge. Our job as upper-decile recipients of the tax bill’s largesse is to expand financial literacy so that lower deciles can benefit. If we succeed, the economy grows more robustly, and the society flourishes.

At Cumberland, we are sharing this information with all of our 45 households and encouraging them to take advantage of the services available. We are also helping a charter school in Bradenton with an initiative to educate the 100 households of their students. We are also looking for philanthropic ways to expand the volunteer aspect of this program.

We applaud the work of Congressman Carlos Curbelo and his 55 colleagues, who have set aside partisanship on this issue. They are an example of the way government should work. We and any readers who are motivated can help this effort. Please use your pen to publicize their effort and invite other readers and media to do the same.

And if your congressional representative is not one of the 55 who have already signed onto the bill, please ask them to do so.

And please remember that Cumberland is hosting a Financial Literacy Day on April 5 in Sarasota. Details may be found here, at the GIC website: https://www.interdependence.org/events/browse/programs/second-annual-financial-literacy-day-update-financial-markets-economy/.  Note that this date falls within National Financial Literacy Month in the United States.

David R. Kotok
Chairman and Chief Investment Officer
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