Boomers, Migrating Millennials and Student Debt

"It's not that we don't care...
We just know that the fight ain't fair."

"Waiting on the World to Change"
as performed by John Mayer

Recently someone shared a comedy skit with me, one that poked fun at both millennials and baby boomers. Stereotypes abounded. The millennials were portrayed as self-involved, resentful, interruptive and angry. Boomers were cast as selfish, entitled and dismissive of the economic plight facing younger citizens.

Comedy often reflects deep divisions in our culture. Many of the conflicts between these two age groups are rooted in economics. Millennials are saddled with massive student loan debt due to the skyrocketing costs of college tuition and a largely unaffordable starter housing market. Many came of age during the Great Recession and believe the boomer generation has usurped an unfair share of government benefits and society’s wealth.  

Boomer business owners who hire millennials joke that they could be good employees, but can't tear their eyes off their iPhones long enough to concentrate. Older employers think that millennials respond to any customer request with "No worries," and can't understand why it should be worrisome to do your job.

Ten thousand boomers reach age 65 daily, and thus a majority of our social service dollars are directed at our generation. For the first time this year, though, millennials will outnumber baby boomers, and with a population of just under 80 million, they now represent the largest living adult generation.

So where are these millions of millennials headed? Geographically, these states are reflecting a positive net migration of millennials: Washington, Texas, Colorado, Virginia, Georgia, Oregon, North Carolina, Nevada, Florida and Arizona. Interestingly, four of these states, Washington, Texas, Nevada and Florida, levy no state income tax. Another common theme for many of these locales is more affordable housing, except perhaps the Seattle area in Washington.

We need our younger citizens to have skin in the game and to buy houses, cars, TV’s, clothes, tricycles and diapers to fuel our economy. Despite the narrative that millennials are nothing but gig-economy drifters, most actually want to own a home. But times have changed. The average college student graduates owing $30,000 in loans. That’s largely because college is significantly more expensive than it was when we were in school, even after adjusting for inflation. Ditto for housing.

We need to offer more educational opportunities that do not include prohibitively expensive four-year degrees, including trade schools, two-year schools and specific skill certifications. We also need to allow for construction of new and affordable homes in many urban areas, houses that are currently not being built because landlords of existing structures are successfully campaigning against it. This is crippling local economies and preventing true economic growth.

It's a big task. But hey, no worries.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a fiduciary, “fee-only” registered investment advisory firm located near Destin, FL. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.

The Springtime of Our Nonagenarian Years

"If we're dead we can't do much. But as long as we’re alive, we can still tap dance, we can still crack a joke, we can still sing a song, we can still tell a story.”

Filmmaker and comedian Mel Brooks

Carl Reiner knows a few nonagenarians (people aged 90 to 99). At 96, he's one himself.

It's not unusual for people aged 90 to know others their own age. But the ones Reiner associates with are witty, active and engaged. I learned this watching a documentary Reiner hosts entitled "If You're Not in the Obit, Eat Breakfast." Reiner interviews Mel Brooks, now age 92; Betty White, age 97; Dick Van Dyke, age 93; and Norman Lear, age 96.  Reiner also interviews Ida Keeling, now 103, who began running at age 67 to combat depression after two of her children were killed.

Watching Dick Van Dyke dance and listening to Reiner, Brooks and Lear harmonize through an old show tune is inspiring. Ida Keeling's workout regimen is uplifting. (And even includes push-ups). "You've got to be the boss of your body," she says.

Not all of us can enjoy the health and vitality that these folks do. Chronic pain, dementia, strokes, heart attacks and physical limitations are only too real.  That said, there's life out there for all of us, at any age. To embrace it, we need the right mindset.

Ninety-three year-old portrait artist Raymond Olivere, interviewed in the film, painted in his studio virtually all day, every day, until his recent passing. Olivere credited his longevity to his mental curiosity. Reiner and Brooks convene several times weekly to watch movies. Lear is remaking the television show "One Day at a Time." Brooks was preparing for his one-man, stand-up comedy appearance in Las Vegas and working on a remake of "Young Frankenstein" for the theatre. Reiner says, "If I didn't have my computer to go to in the morning, I'd be lost." He looks forward to working.

One of the messages of the documentary is that our lives are not necessarily segmented into working years and retirement years. For many of us, work will always continue. So will gardening and exercising and socializing. If we can think clearly, we can stay engaged at any age.

Most economic columns on aging focus on the need to take more money into our later years since we're all living longer, and certainly that's important. But it's really only part of the equation. Another vital component of successful aging is maintaining a mindset of engagement. By the time you and I are the age of Carl Reiner and company, it will be commonplace to see nonagenarians in a myriad of professions laboring happily each day in our chosen fields.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a fiduciary investment advisory firm located near Sandestin.This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.

Retraining, The G.I. Bill and The Beatles

Author's Note: This is the final in a four-part series on wealth and income inequality.

"If you get too cold I’ll tax the heat...
‘If you take a walk, I’ll tax your feet."
— "Taxman"
as performed by The Beatles

If a business owner or entrepreneur can become wildly wealthy, good for him or her. Applying overly aggressive tax rates to the 0.1% or even the 1%, many of whom are new arrivals in this elite income category, makes no sense for our economy. How, then, do we deal with wealth and income inequality?

First, we must invest in programs designed to retool our workforce in useful, marketable skills, the kind that can render us competitive in global markets. Workers must be willing to retrain. And we think most would agree that we should not commit funding for those who can and should work but don't.

Decoupling schools from property taxes and funding educational needs by a different form of taxation might also provide more equal economic opportunities for more young Americans. We need excellent schools in all neighborhoods. Let's pay teachers a living wage and ask them to teach immediately marketable skills. An aggressive program to deal with student debt is probably overdue, also.

Wealth and income inequality has always been a part of American culture. It was only after WWII, when home ownership and educational opportunities were afforded to millions through such programs as the G. I. Bill, that a true middle class emerged in our society. Our parents were beneficiaries of this era, as the U.S. stood alone in military and political power and possessed abundant natural resources.

Since that golden era, though, wages have stagnated. The Great Recession exposed this truth through the housing crisis. Most Americans whom we traditionally think of us as middle class have most of their wealth tied to home equity; the vast majority of the 1% link their wealth to capital markets or private businesses. After the stock market plummeted in 2008, markets rebounded, albeit slowly. But home values took much longer to reflate. It was not until the end of 2017 that the Case-Shiller Home Price Index topped its all-time high of 2006. Additionally, global competition, automation and outsourcing have simultaneously coalesced to exert tremendous economic pressure on ordinary Americans.

The Harvard Business Review characterizes rising income and wealth inequality in America over the last seven decades as a "race between the stock market and the housing market," and calls the 2008 financial crisis "a definitive moment in the rise of wealth inequality..."

If there is a way out of this conundrum, it is tied to education, job creation, and wage increases. We simply must retrain our labor force in higher paying, in-demand competitive careers, starting in our public schools. Easier said than done, but it's preferable to taxing the wealthy and punishing those who serve as job creators.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a fiduciary investment advisory firm located near Sandestin.This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.

Economic Growth and Tax Law Correlations

Author's Note: This is the third in a four-part series on wealth and income inequality.

"Tax the rich...feed the poor...
‘Til there are no rich no more?"
— "I'd Love to Change the World"
as performed by Ten Years After

Should we soak the rich to solve wealth and income inequality? 

European nations attempted to and found their tax policies ineffective. Seeking more friendly tax havens, many of their wealthier citizens simply moved their businesses and residences abroad. Levying a wealth tax on Americans would likely produce similar results. In an era when the U.S. is struggling to keep businesses operating here at home, tax law changes which drive them elsewhere will likely prove counterproductive to our national economic goals.

Still, soak the rich proposals abound. Last week we reviewed Senator Huey Long's “Share The Wealth” program, proposed in 1934. We are currently seeing more wealth tax proposals than at any time since the Great Depression.

Currently, income tax rates top out at 37%. Capital gains taxes are imposed on profits generated through investments and max out at 23.8% for higher-income folks. 

Historical evidence is scarce as we only have about a 100-year contiguous window to study how various income tax rates impact economic growth. So it’s difficult to look back in time and definitively prove that higher or lower tax rates helped or hurt broad economic growth. Although periods like the 1960’s featured high tax rates on the wealthy and strong economic growth, the two don’t necessarily go hand in hand. And there are some significant cautionary signals for raising taxes on the wealthy. 

Back then our rich citizens were more often becoming wealthy through earned income rather than through financial investments. Today, many of the wealthiest Americans earn their money through investments or leveraged financial transactions which are often only subject to the lower capital gains rates. Additionally, capital is much more mobile than it was back then, which makes tax avoidance easier.

Still, many of the 1% are becoming wealthy through small business enterprises, and indeed pay taxes on earned income. Should we really institute a progressive tax of 70% on income over a certain threshold? Should we charge a 2% tax on wealth over $10 million?

These questions are at the heart of the current wealth inequality debate. We must address this issue, but it should be tackled from the bottom up, not from the top down. Soaking the rich with oppressive tax rates will drive business away and cause entrepreneurs to seek foreign tax havens. 

Next week we’ll wrap up our four part series with tax proposals that would address wealth inequality in a way that would create opportunity for more Americans while avoiding the pitfalls of past taxation policies.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a fiduciary investment advisory firm located near Sandestin.This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.

The Arbor Outlook: Shutdown - Markets Crave Stability and Certainty

"Houston, we have a problem."
—from Astronaut Jim Lovell (Tom Hanks) speaking to Flight Director Gene Kranz (Ed Harris) in the movie “Apollo 13”

While rewatching this Ron Howard classic recently, I was reminded of the bold initiatives that characterized our space program and inspired Americans everywhere. As most know who followed the flight of the Odyssey in 1970 or watched the movie, our engineers, scientists and astronauts brought the damaged spacecraft home utilizing less amperage than is used by a small kitchen coffee maker. That Lovell, Haise and Swigert returned to splashdown safely is a miracle, a true milestone in the annals of American ingenuity.

China has now successfully landed a "rover" on the far side of the moon. So while we are still ahead of China in space exploration, it's obvious that they're making headway.

Knowing these historic American capabilities, then, we are befuddled and confused when we can't even reach a compromise that allows our federal government to operate. At this writing, the shutdown is in a record 34th day. One government economic advisor warns that first quarter growth could stall at zero as a direct result of this logjam. By the time you read this, hopefully the shutdown will be in our rear view. But perhaps not.

Either way, we have seen the short term effects of political turbulence, including massive swings in stock prices. Not all market volatility can be attributed to politics, of course. Global growth rates, interest rates, jobs reports, and so many other factors influence market movements. But all economic experts agree that markets crave certainty, and our current political climate is anything but certain.

Long term, our investments will suffer from constant political unrest. Imagine how wildly markets would be gyrating if unemployment was still at 9% and large financial institutions were crumbling, as occurred in 2008. With low unemployment and relatively sanguine economic conditions, we need to address and correct our known problems before the unknown ones arise.

When elected officials fail to compromise for the common good, they create an environment which magnifies market risk. Enough problems will impact markets negatively without us creating these issues of our own volition. Stock prices spiraling downward and fluctuating wildly due to political turmoil is certainly not good for investors. Markets function most effectively when elected officials compromise and reach accords. At one time, that's how our government operated.

Traditionally, we define market risk as the chance that one's investments will be impacted by the like of recessions, natural disasters and political upheaval. And some market risk is unavoidable. Like 9/11 for example. Or the Great Recession. Truthfully, global and domestic politics are often intertwined with these occurrences as well.

But meanwhile, I'm with Apollo Flight Director Gene Kranz. Let's get this thing fixed.

Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a fiduciary investment advisory firm located near Sandestin.This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.