Are the Tax Cuts Working?

Dear Garden State Trust:

Are the tax cuts enacted last December having the hoped-for impact? How is the economy doing?

—Eternal Optimist

Dear Eternal:

Too soon to say, but we have a number of good portents. Gross Domestic Product was up 2.2% in the first quarter. In the last four years, the first quarter of the year has tended to be disappointing, with an average growth of just 1%, so 2.2% is quite strong by comparison.

Even better, the profits of the companies in the S&P 500 were up a remarkable 26.3% in the same period. The strong global economy, a decline in the value of the dollar, and the cut in the corporate tax rate all contributed to this good performance. However, another contributor was the record buyback of $178 billion in shares. Because profits are reported on a per-share basis, the buybacks create an artificial lift in the percentages.

A broader measure of corporate profits is created by the Commerce Department. This figure excludes foreign operations, and it includes all U.S. companies, privately as well as publicly held firms. The Commerce Department also includes any one-time charges to earnings that are usually excluded from the S&P 500 numbers. The government measured profit growth at just 0.1% in the first quarter. What’s more, were it not for the reduction in the corporate tax rate, profits would have fallen by 6% instead of growing.

That shows that the benefits of the tax cuts are flowing to businesses as intended. Whether that will translate into sustained above-average economic growth is still an open question.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com

(June 2018)
© 2018 M.A. Co. All rights reserved.

Who Really Made It?

The Museé Terrus in Elne, France, recently cut its collection by more than half when it was revealed that 82 of the museum’s 142 works were fakes or forgeries.

The museum relied on its founder to acquire works by Terrus, and the museum spent over $190,000 on these fakes and forgeries over two decades.

In this case a guest curator, Eric Forcada, discovered discrepencies and started investing further. He noticed many details the untrained eye might not, such as featured landmarks, like castles, that were built after Terrus had passed away.

Some of the painting were misidentified and instead painted by Terrus’ contemporaries like Pierre Brune, Balbino Giner, and Augustin Hanicotte.

Read the full story here.

Sometimes the opposite happens, when a piece of “unexceptional” art is discovered to be done by a notable artist and can be authenticated. Last year in Madison, NJ, a sculpture that had been boxed up and stored for years, and then positioned in a corner of the Hartley Dodge Foundation (it doubles as the town hall) was investigated further by a temporary archivist.

At the time of the discovery, they had no idea how the piece even came into the possession of the Foundation. Scholars were able to uncover the statue’s history and verify that this sculpture was not only done by the legendary Auguste Rodin, but that it was also the only known political or military figure sculpted by Rodin. It now has an estimated value of $4 million.

Read the full story here.

Where there is wealth transfer, there is the IRS, and they need a representation of value so that they can impose taxes.  If one needs to be certain of the value of a piece of art, they can request a direct IRS statement of value of art appraised on $50,000 or more (plus a $2,500 filing fee).

If the taxpayer has his or her own appraisal done, there may be an audit on the items worth $20,000 or more by the Commissioner’s Art Advisory Panel. This panel is made up of 25 non-compensated art experts who do not know the tax consequences of the valuation (higher is better for charitable contributions, and lower is better for estates keeping the art in the family).

The IRS panel may not agree with the appraisal for a number of reasons. The marketplace may have shifted and the value of all sales of that style of art may have increase/decreased. The authenticity of the art could was not determined well enough by scholars, museum curators, dealers, auction houses, or others. The provenance and title isn’t well enough documented.

There is a standard for professional art appraisals: Uniform Standards of Professional Appraisal Practice (USPAP), which the IRS requires to be used.