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Fake (and Biased) News Still a Problem for Investors

October 2, 2019 By Jeremy Jones, CFA

©Pathdoc @adobestock.com

You might have hoped that after all of the media attention, the problem of fake and biased news would have been solved by now. But any objective evaluation of the media’s coverage of the tax bill that was just passed by Congress dispels that myth.

The coverage of the tax plan has been so uniformly negative that almost half the people polled disapprove of the tax plan and a shockingly high 50% of people think their taxes are going up.

The press has fed the narrative that taxes are going up on middle-income Americans and only the wealthy are going to benefit from the plan. Senators and congressmen who oppose the bill plan to run on this issue in 2018.

I can’t tell you if it is group think from high-income coastal elites who won’t benefit as much from the tax plan as the rest of America, or if these folk really believe the garbage they are feeding the public.

Whatever the case, much of the negative coverage of the tax bill is misguided. While far from perfect, the bill gives almost all Americans a tax cut starting next year. The folk who may pay a little bit more are high-income Americans in high tax states with expensive homes. These are the “rich” that those who oppose this bill often say don’t pay their fair share.

An analysis by Braid Private Wealth looked at the impact of eight hypothetical American families. Only  two of the eight families would see their taxes go up next year. The first is a Manhattan couple earning $2 million per year, with a $5 million house, a $3 million-dollar mortgage balance and one child. The second is a California couple earing $1 million per year with two homes, a $1 million mortgage balance and no kids. The first couple’s tax rate would rise .68% and the second couple’s tax rate would rise .47%. The other six families in the analysis which are a much better representation of America, see their taxes drop meaningfully.

What about the claim that the wealthy get all the benefit from the tax plan? If you read the analysis that claims the wealthy benefit the most from the tax plan, you will notice all numbers cited are in dollars. This is an incorrect and underhanded approach. Of course, the highest earners see the biggest dollar reductions in taxes. They pay the highest amount of tax. In fact, the top 5% of income earners pay 60% of income taxes. The only proper way to evaluate the distributional effects of the tax bill is in percentage terms.

According to the Joint Committee on Taxation, lower and middle-income taxpayers will see the biggest percentage reduction in taxes. Taxpayers earning over $1 million will see the smallest percentage reduction.

The politicians who oppose the tax bill and plan to run against it in 2018 are likely to be sorry. As the public learns more about the tax plan and their paychecks start to get bigger, opinions will shift. Some Americans will benefit doubly from the tax cut. AT&T is giving 200,000 employees a $1,000 bonus to celebrate the tax cut.

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Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #5 in CNBC's 2021 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
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