Displaying items by tag: taxes

(New York)

There have been a lot articles and discussion lately about the new cap on so-called SALT deductions (state and local taxes). Much of this conversation has been centered around wealthy New Yorkers and others in the northeast considering moving their primary residences to low-tax states like Florida. Well, if anecdotal evidence is worth anything, the conversation is just that, talk. The reason why? New York’s onerous tax collection department dives into credit card records, confirms doctor’s appointments, and does door to door checks to make sure you have really uprooted your life and left the state. Evidently, after speaking with the financial advisors and lawyers, many residents have decided to forget about moving, saying it is just too big a disruption.

FINSUM: This makes sense given how rigorous the tax inspectors are. Further, New York is probably going to find a way around this lack of SALT very soon, so it is not worth uprooting.

(New York)

The US real estate market looks set to change in a big way. Brokers and developers are sensing it, and consumers are making it happen. The change is in the geography of the market. The new SALT limits in the updated tax code mean that wealthy residents of higher tax states like New York, New Jersey, and California, now face much higher tax liabilities. As a response, many of them are seeking to buy homes and domicile themselves in tax-free states like Florida, Texas, or Nevada. One real estate developer in Nevada explains the situation, saying “If you’re a wealthy tech executive from the Bay Area who can live wherever you want and you have a $3 million income, you would have $399,000 a year in savings here. That’s a lot of money to spend on real estate”.

FINSUM: We think this trend will be both long-term and very bullish for markets like south Florida and other sizable metropolitan areas in low tax states . The high tax states might face a reckoning, especially those without a major metropolitan area to suck in residents (e.g. Oregon).

(San Francisco)

Tech stocks have had a poor last couple of months. March was especially brutal, with tech falling 4%. And while some think tech stocks still look like a good bet, Barron’s has put out an article based on a BAML opinion which contends that tech stocks look very vulnerable. The key reason why is what the piece calls an “Occupy Silicon Valley” mindset (recalling the Occupy Wall Street movement from several years ago). This mindset leaves the Valley at risk in two very core ways. Firstly, by regulation, which the government (and the public) seem increasingly intent upon delivering. And secondly, to a tax raid, especially if government finances continue to deteriorate.

FINSUM: We are of a mixed mind on tech right now. On the one hand, these arguments hold water with us. But on the other, the underlying businesses of tech companies are strong and this could all blow over.

(New York)

Many investors might be thinking that small caps look like a good buy at the moment. Between trade tariffs, the new tax package, and the president’s general focus on economic nationalism, small caps seem to have a lot of wind in their sails. But the big question for investors should be whether they are overvalued. The Wall Street Journal says the asset class is overvalued, as the market has gotten overly optimistic about small cap growth prospects and is valuing the stocks too richly versus their current earnings, especially given rising interest rate risk in the economy.

FINSUM: The WSJ used an unusual valuation metric to assess the sector (EV/EBITDA), but overall the sector looks richly valued. So is every other asset class.

(New York)

After a lot of talking, the long awaited hypothesis that tax cuts at the federal level would lead to more dividends and buybacks is actually proving true. More than 20% of companies have raised their dividend so far this year, with none cutting them, the first time that has happened since 2011. The hikes are also getting bigger, averaging 14% this year. The downside for the economy is that while tax cuts have also led to buybacks, they have not flowed into increased corporate spending and investment.

FINSUM: This is very good news for shareholders, but it does put a damper on hopes that the tax cuts may spur economic growth through corporate investment.