What, you ask does Arthur Laffer have to do with Delaware statutory trusts? Plenty, if you want to make money. This is because in a world where most people are wrong most of the time (professional, academic and government economists) he has the disconcerting habit of being right.
In a world dominated by liberal economists who think it’s governments job to stimulate/provide economic growth, Laffer prefers to leave this to the private sector. To this end he has unflinchingly promoted tax cuts and business deregulation.
His lonely journey began during the economic malaise of the 1970s. In an era characterized by high taxes, inflation, big government and a moribund economy, he was the prophet crying out in the wilderness ‘less is more.’
He would become the leading champion of reducing income tax rates and a key player in the Reagan cuts of 1981 that touched off an economic boom lasting two decades.
After 8 years of a flat-line economy under the anti-business Obama administration, he struck again in 2017 helping to shape Trump’s tax cuts. This effectively doubled economic growth from 1.5% to 3%.
As an aside, when everyone else was preparing to celebrate the inevitable coronation of Hilary Clinton, Laffer was predicting Trump would win the presidency. This wasn’t a mere hunch on his part but based on numerous historical parallels.
He peered into his crystal ball again in April of 2018 following passage of the Trump tax cut with an article entitled So Long, California, Sayonara, New York. In it, he predicts the SALT (State And Local Tax) provision in the bill, capping the deduction for state and local taxes at $10k, will turn the steady trickle of people and money leaving high tax blue states for low/no tax red states into a flood.
Over a year later, this is exactly what’s happening. People, money and business are fleeing high tax states like New York, New Jersey and Connecticut for tax havens such as Florida. This is attested to in numerous subsequent Wall Street Journal articles (High-Tax State Exodus 12/28/2018, Out-of-State Buyers Flock to Miami 2/4/2019, etc.).
A recent article in the WSJ Mansion section goes into detail regarding its impact on the Greenwich Connecticut housing market. For years one of the wealthiest zip code in the nation, houses are now selling for half the original asking price or going to the auction block. This is because their owners, the exclusive NYC hedge fund crowd, have decamped to Southern Florida.
Many commercial real estate investors acting on Art Laffer’s prognostication have already seen 50-75 basis point appreciation in the acquisition cap rates of their Florida rental properties.
The inherent illiquidity of commercial real estate makes any purchase a long-term investment. This is exacerbated by the fractional ownership nature of DST properties. Therefore, it is only prudent to take direction from someone like Laffer with a 50-year track record of getting things right. Follow his advice, follow the money and it takes you straight to the Sunbelt.
Peregrine Private Capital | Lake Oswego
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Lake Oswego, Oregon 97035
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Disclaimer
This material and views are prepared solely by the author and does not necessarily represent the views of the its affiliates. Statements concerning financial market trends are based on current market trend, which will fluctuate. Projections are inherently limited and should not be relied upon as an indicator of future results. Historical figures and performance are not indicative of future results. This is for informational purposes only and does not constitute an offer to buy or sell any investment.
DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated.
Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This information is not meant to be interpreted as tax or legal advice.
