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Written by: Catherine McBreen | Spectrum Group
A year after the historic tax cuts made by the Trump administration, the results are somewhat unclear.
It is true that the economy is booming and the stock market, while volatile, remains much higher than in the previous Presidential administration. But Spectrem’s research with investors indicates a rather lukewarm endorsement of the tax cuts – probably because many of the investors have not experienced a direct benefit from the tax cuts.
It’s important to remember that Spectrem’s research is primarily with wealthy households. Every month we interview more than a thousand households with net worth ranging from $100,000 to $25 million (not including their primary residence.)In the first quarter we asked investors to rate on a 0-100 scale the impact of the 2018 Tax Act on their own personal financial situation. The overall score was a 44. While it wasn’t over a 50, it still had some type of influence on a substantial number of households. When reviewed based upon political ideology, Republicans scored the impact at 49.11, Democrats scored a 41.66 and Independents scored the impact at 40.94.Interestingly, when the question was analyzed based upon income, those with incomes between $500,000 and $749,000 and those between $750,000 and $1,000,000 felt the greatest impact on their personal financial situation scoring the impact at 60.90 and 66.00, respectively. Many of these individuals suffered a significant increase in their taxes because they lived in SALT states (California, Connecticut, Illinois, New Jersey and New York). These are states that with high state income, property and other taxes. The new federal law limits state tax deductions thus many of these individuals actually ended up paying more in taxes than less.One of the unanticipated impacts of the federal tax cuts was how the state tax burdens were highlighted. (Of course, Senators from these high tax states were aware of the impact and therefore fought against the tax bill.) As mentioned above, the inability of investors to deduct the sky-high property and other taxes within the SALT states increased the tax burden for many investors. As investors started to pay attention to their property taxes, they also began to focus on their overall state income tax and other state taxes.Not surprisingly, there is now a wave of investors moving from high-tax states such as New York, New Jersey and Illinois to low or no-tax states. On January 11, CNBC reported that New Jersey was the number one state for losing residents followed closely by Illinois. On January 2, 2019, Fox Business reported that survey data showed the fastest growing states include those with little to no income tax.