The week after April 15th always feels good to me. This year, it brought more work than usual and it caused some reflection worth sharing.
Bye Tax Season
Now that tax day has passed and 2013 tax returns have been filed, we can assess the impact of the fiscal cliff. Remember the fiscal cliff: the deal in Washington that raised taxes and averted the fiscal cliff at the beginning of 2013? Though it may have been a big story a year ago, it may be having a big impact in 2014.
Tax collections from individuals in the first quarter of 2014 were up 15%-totaling an additional $35 billion. This higher tax burden may have weighed on consumers and investors this year, as they may have had to forego purchases or sell stocks to cover their tax liability. This is a big contrast to 2013, when tax refunds were up a whopping 15%, amounting to a record share of after-tax income and may help to explain the better pace of consumer spending and market performance in the first quarter of last year.
The fiscal cliff was resolved with a rise in payroll taxes for all workers, higher marginal rates for high-income earners, the resumption of the phase-out of exemptions and deductions, and an increase in the maximum tax rates on capital gains and dividends. Much of that was felt last year. But, historically, most taxes that are not withheld during the year from paychecks are paid in the following year in the weeks leading up to tax day. That means that this year we may have seen a significant portion of the fiscal cliff deal impact on the economy and markets with a one-year lag.
We shall see.
Until next week,
Susan R. Linkous
Investment advice offered through
The Linkous Group, Ltd.
A Registered Investment Advisor
Securities offered through LPL Financial
Member FINRA and SIPC
All of the above is opinion and should not be taken as specific advice. LPL Financial and The Linkous Group, Ltd. are separate entities.