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
Email | Bio


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401(k) savers: It could be a make-or-break earnings season for investors

Excerpts of article below:

The upcoming profit-reporting season could be a taxing one for anybody that owns stocks.

Indeed, 401(k) investors better hope CEOs are as upbeat about their companies’ future earnings prospects as Wall Street is when they talk about results for the final quarter of 2017.

The reason? Hopes are high. Perhaps too high.

The historic tax bill signed into law by President Trump on Dec. 22 that slashed the corporate tax rate from 35% to 21% has fueled a powerful stock market rally that has pushed shares to fresh all-time highs amid lofty expectations that corporations will make more money and the economy will grow faster. 

“This earnings season is really about tomorrow and not yesterday,” says David Kotok, chief investment officer at Cumberland Advisors, a money management firm in Sarasota, Florida. 

Investors will want CEOs in earnings press releases and conference calls to confirm that those upgraded growth rates are doable, warns MUFG’s Rupkey.

“It is the worry over future earnings that often causes traders to hit the panic button and sell, sell, sell if they feel the company’s outlook is not the positive one they were hoping for,” Rupkey says.

An upbeat Kotok doesn’t expect CEOs to deliver a negative message. “I expect strongly phrased positive conversation in conference calls,” he says.

Read the full article at Brinkwire.com




The GOP Rethinks Debt and Taxes

The GOP tax proposal cuts corporate taxes and eliminates key individual deductions. But we’re a long way from a final bill.

November 4, 2017

Excerpt below of John Mousseau’s comments to Barron’s. A subscription is required to read the full article.

Finally, the tax bill would curb borrowing in the municipal-bond market. While the exemption on interest on most types of muni bonds would be retained, so-called private-purpose bonds would lose that privilege.

In particular, bonds to finance sports stadiums no longer would qualify for tax-exempt bond financing, This will mean billionaire owners of sports teams would have to build their stadia with private, taxable money, and that “should keep municipalities from being on the hook for bad stadium deals,” according to John R. Mousseau, director of fixed income at Cumberland Advisors.

Tax-exempt financing for nonprofit hospitals and private universities also would be ended, along with “advance refunding” bonds. The latter provision would hurt municipalities. They’ve saved billions of dollars by reducing borrowing costs with these financings, Mousseau notes. He thinks this provision will be killed, given that it hits municipalities while they cope with pension expenses. On the other hand, Washington needs the bucks to keep the tax bill’s cost under $1.5 trillion, while providing cuts to corporations.

Visit http://www.barrons.com/articles/the-gop-rethinks-debt-and-taxes-1509759402 to read the larger article and more of John Mousseau‘s comments to Barron’s.


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.

Sign up for our FREE Cumberland Market Commentaries

Cumberland Advisors Market Commentaries offer insights and analysis on upcoming, important economic issues that potentially impact global financial markets. Our team shares their thinking on global economic developments, market news and other factors that often influence investment opportunities and strategies.