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Jury out on whether tax cuts have resulted in more investing

ASHBY FOOTE

By BECKY GILLETTE

The recent GOP tax cuts have put more money in the pockets of some workers who are now having less federal tax deducted from their paychecks. And some taxpayers such as those with Subchapter S corporations might end up with a windfall because of changes in the tax law. It has been estimated that three quarters of Americans will receive a tax cut. But are the tax cuts causing more people to invest in the stock market or other investments?

“That is an important question,” said Ashby Foote III. “Many people are still trying to sort out the details of the tax reform and working with tax professionals on how to best position their businesses and investments for the years ahead.”

The April 15 deadline to pay taxes has only recently passed, and since the tax reform doesn’t apply until the 2018 tax year, there are still uncertainties. There could be consequences that could benefit states with lower tax rates.

“One thing for sure is we can expect some out-migration for high tax states like New York, New Jersey and California where federal tax liabilities have benefitted from the deductions of state and city taxes,” Foote said. “We can expect those folks migrate to low tax states like Texas, Florida and Tennessee.”

Mississippi also has less onerous tax rates than some of the northern states, and this perhaps could encourage people to move to Mississippi if they are looking for a lighter tax burden. It might particularly be an attractive move for retirees because Mississippi doesn’t tax retirement income. It might attract retirees facing higher taxes because of changes in the tax law.

“We’ll know more in the months ahead as some of these issues are sorted out,” Foote said.

Stacey Wall, CEO of Pinnacle Trust, said they haven’t really seen an increase in people investing money as a result of the tax cuts.  Rather than investing more, he said most people seem to be servicing debt or spending more — which is good for the economy.

Some people are wary of the stock market because it is been on a roller coaster ride this year. But Wall said the perception that the market is too volatile is a result from not really having any volatility at all for the 18 or so months before this year.

“As far as bargains, our Investment Management Unit believes strongly that having the proper investment mix is far more important than security selection,” Wall said.

Ten-year Treasury notes have gone up to 3 percent, and higher interest rates are good for investors needing income. But Wall said they have been focused on shorter durations that stand up better in a rising interest rate environment.

“That has really paid off for our clients,” he said.

A rising interest rate environment along with a flat yield curve doesn’t bode well for bonds, said Renasant Investment Officer Jake Heyer.

“With this, we haven’t seen many investors entering the fixed income markets,”

Heyer said, “The recent tax cuts have provided many individual investors with additional disposable income. These investors are now faced with the challenge of what to do with this disposable income. Every client’s situation is different, but we have seen many individuals increase their contribution rates to their company-sponsored retirement plans. Also, the volatility of the stock market has given investors the opportunity to put some cash to work at good valuations.”

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