ππΈ IRS: New Tax Adjustments for 2024!
Happy Sunday,
This week, we take a look at the bottom of the S&P 500, state tax revenues, which have been in decline, and the latest IRS inflation adjustments for the 2024 tax year!
Fantasy football is getting into crunch-time territory! Only a few weeks left to go. Does anyone have some crazy loser punishments this year? Send your worst π¬
Enjoy this weekβs Sunday Primer.
- Humphrey, Tim, & Rickie
Market Report
Challenges in the S&P 500: Blurring Lines Between Large and Mid-Cap Stocks
The S&P 500 is facing challenges due to the uneven growth in the stock market in 2023.
Nearly 250 companies in the index have experienced losses, with about one in five falling below the $14.5 billion market cap threshold for new members, a significant increase compared to historical data.
This has resulted in an unusual situation where mid-cap firms in the S&P Midcap 400 are surpassing some of the S&P 500's smallest companies in market value.
Despite these distortions, S&P Global, the index administrator, is showing reluctance to make swift adjustments, maintaining a policy against frequent turnover in index membership.
Diminishing Tax Revenues Challenge U.S. State Budgets
U.S. state tax revenues are declining broadly, with total state tax revenue falling 5.6% year-over-year in September, marking the 14th consecutive month of inflation-adjusted declines.
This trend, reported by 34 of 46 states (those that provided information), is attributed to slower economic growth, tax cuts, and poor stock market performance.
While states have relied on healthy rainy-day funds accumulated during the pandemic, they now face the looming need to either find new revenue sources, increase taxes, reverse past tax cuts, or reduce spending.
This situation presents significant challenges for state budget planning and has implications for the municipal bond market, with states like New York and Texas already showing signs of fiscal strain.
2024 Tax Adjustments to Bolster American Paychecks and Lower Income Tax
The IRS announced significant inflation adjustments for the 2024 tax year aimed at boosting paychecks and reducing income tax for many Americans.
These adjustments include increased standard deductions for various filing statuses, a smaller COLA for Social Security benefits compared to the last two years, and higher contribution limits for health flexible spending arrangements, 401(k), and IRA plans.
Additionally, the income ranges for deductible contributions to traditional IRAs, Roth IRA contributions, and the Saver's Credit have also been raised. This move, in response to ongoing inflationary pressures, seeks to mitigate "bracket creep" and provide some financial relief to taxpayers.
Resilience of Older Generations' Spending in the Face of Economic Changes
In 2023, older generations in the U.S. have shown stronger growth in spending compared to younger cohorts, driven largely by the significant 2023 cost-of-living adjustment (COLA) to social security incomes.
Despite the 2024 COLA being lower, the spending outperformance of older generations is expected to continue, though possibly at a narrowed pace.
Older generations benefit not only from social security but also from diverse income sources such as assets, savings, and pensions, which have shown robust growth.
Additionally, they are less exposed to higher interest rates and housing costs, further supporting their spending capacity.
Decline in Americans with Debt in Collections Despite Economic Challenges
Recent data from the New York Fed indicates a historic low in the share of Americans with debt in collections, suggesting a positive trend in household financial management.
The reduction in collection debts is significant because such debts can severely impact credit scores, affecting one's ability to borrow money, rent homes, or secure employment, and can increase the risk of bankruptcy.
A key factor in this decline is the change in reporting medical debts: starting in 2023, medical bills under $500, which previously constituted a large portion of collection reports, are no longer reported to credit bureaus.
Additionally, the student loan moratorium has temporarily reduced collection reports, with a 12-month grace period before unpaid bills impact credit reports.
Cruise Recalls Driverless Cars After Collision Incidents
Cruise, General Motors' self-driving unit, is recalling 950 of its driverless cars across the United States after a crash involving one of its robotaxis, with more recalls expected.
The recall, publicized by the National Highway Traffic Safety Administration, addresses issues with the Cruise Automated Driving Systems software, particularly its collision detection subsystem, which may not respond appropriately after a crash.
This decision follows a recent incident where a Cruise robotaxi hit and dragged a pedestrian in San Francisco.
The recall is a significant setback for GM's Cruise unit, which is central to GMβs future growth plans and has already faced substantial losses this year.
The recall aims to update the software to ensure that vehicles respond correctly post-collision amidst two federal investigations into the safety of Cruise's cars, including incidents of failing to yield to pedestrians.
Forecast Ahead
Big Number: 2080
The post-WWII baby boom era in the United States is now a distant memory, as recent analysis indicates that America could face a declining population by the end of the 21st century.
Despite a slight uptick in population growth in 2022, projections from the Census Bureau suggest that the U.S. population growth may cease and even begin to shrink by 2080, potentially peaking at 369 million.
This marks the first time the bureau has forecasted a decline for the coming decades, a stark contrast to previous optimistic projections in 2015 and 2018.
The projected decline is attributed to lower birth rates, increased death rates (partly due to an aging population and COVID-related impacts), and reliance on immigration for growth.