Coronavirus is Tanking the Economy

Economic Forecasts

Kiplinger’s latest forecast for the GDP growth rate 

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By David Payne, Staff Economist
March 26, 2020


The interruption to U.S. and global economic activity is causing a recession both here and abroad. The domino effect from many events being canceled and workers trying to work from home is likely to cause the economy to contract in the second quarter, and possibly longer, depending on how the fight against the coronavirus goes.

Expect a decline in the second quarter of 21% at an annual rate, and a drop of 2.0% for the year, nearly equaling the 2.5% drop in 2009. There is likely to be a sharp rebound in the second half of the year, but the rebound will not be completed before the end of the year. Obviously, there is a great deal of uncertainty as to the size of the declines, and how fast the rebound will be. Politicians will ultimately determine when to lift lockdown orders.

Some of the falling dominoes are consumers who will be reluctant to make major purchases while their employment status is in jeopardy. The housing market, which should have been strong because of super low mortgage rates, may slow because people are unwilling to house hunt during the crisis. Businesses will be reluctant to hire or invest in new equipment if the economic future is uncertain.

U.S. exports to China and other countries with outbreaks are likely to suffer. Imports of goods from China to the U.S. have also been disrupted, though that is likely temporary. While lower imports boost the GDP calculation for the U.S., shortages of imported inputs can be a drag on U.S. manufacturing production.

U.S. GDP grew by 2.1% in the fourth quarter, the third consecutive quarter of roughly 2% growth. While the growth rate stayed the same, some components shifted. Consumer spending growth slowed substantially from 3.2% in the third quarter to just 1.7% in the fourth quarter. Business spending on equipment contracted for the second consecutive quarter. Construction of buildings dropped heavily for the third quarter in a row. And inventories grew by the lowest amount in six quarters.

What saved growth in the fourth quarter was a huge drop in imports, one of the reasons for the flatness of inventories. Housing was a bright spot, and government spending also contributed.

Source: Department of Commerce: GDP Data

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5 Tax-Friendly States for Retirees 2011

by Mary Beth Franklin
Friday, July 1, 2011

Where's the best state for you to retire? Here's a good place to start your search: These five impose the lowest taxes on retirees in the contiguous U.S., according to our research. All these retiree tax heavens exempt Social Security benefits from state income taxes. Many of them exclude government and military pensions from income taxes, too, or offer blanket exclusions up to a specific dollar amount for a wide variety of retirement income.

Although relocating to an income-tax-free state such as Florida or Texas may sound appealing, sometimes the best retirement destination is a state that imposes an income tax but offers generous exemptions for retirement income.

Once you narrow your search to a few key states, zero in on local taxes. Municipalities can impose hefty property taxes or other assessments, or they may layer local sales taxes on top of statewide levies. Federal taxes? If you claim the standard deduction, they'll be the same no matter where you live. But if you itemize your deductions, you'll be able to write off real estate taxes and state income taxes, reducing your federal tax bill and easing some of the pain.

#1 Wyoming

State Income Tax: None
State Sales Tax: 4%
Estate Tax/Inheritance Tax: No/No

Thanks to the abundant revenues that Wyoming collects from oil and mineral companies, its residents have one of the lowest tax burdens in the nation, according to the Tax Foundation, a nonprofit research group in Washington, D.C. There is no state income tax. The state sales tax is 4%, and counties in the Equality State can only add up to 1% in additional levies -- a very low ceiling. Plus, prescription drugs and groceries are exempt from state sales taxes. For most property, only 9.5% of market value is subject to tax, so a home worth $100,000 is taxed on $9,500 of assessed value.

#2 Mississippi

State Income Tax: 3%-5%
State Sales Tax: 7%
Estate Tax/Inheritance Tax: No/No

Mississippi offers a sweet income-tax deal for retirees. It not only exempts Social Security benefits from state income taxes but also excludes all qualified retirement income -- including pensions, annuities, and IRA and 401(k) distributions. Remaining income is taxed at a maximum 5%. In addition, the Magnolia State is home to some of the lowest property taxes in the nation. Residential property is taxed at 10% of assessed value, and seniors qualify for a homestead exemption on the first $75,000 of value. The statewide sales tax is 7%, and counties and cities may add up to 3% to the state rate. But prescription drugs and health care services are exempt.

#3 Pennsylvania

State Income Tax: Flat rate of 3.07%
State Sales Tax: 6%
Estate Tax/Inheritance Tax: Yes/Yes

True to its Quaker roots, Pennsylvania extends a friendly hand to retirees. It offers unusually generous exclusions from state income tax on a wide variety of retirement income. Pennsylvania does not tax Social Security benefits or any type of public or private pensions. Nor does it nick distributions from 401(k)s, IRAs, deferred-compensation plans or other retirement accounts. Remaining income is taxed at a low, flat rate of 3.07%. Food, clothing and medicine are exempt from state sales taxes. Property taxes can be high in the Keystone State, especially near larger cities, but rates vary widely. One caveat for the wealthy: Your heirs won’t get off so easily. Pennsylvania is one of the few states to have both an inheritance tax, paid by the heirs, and an estate tax -- though it applies only when an estate is large enough to trigger federal estate taxes ($5 million or more).

#4 Kentucky

State Income Tax: 2%-6%
State Sales Tax: 6%
Estate Tax/Inheritance Tax: No/Yes

The home of the Kentucky Derby is a good bet for retirees. It exempts Social Security benefits from state income taxes, and it allows residents to exclude up to $41,110 per person in retirement income from a wide variety of sources, including public and private pensions and annuities. Personal income-tax rates range from 2% to 6%. A 6% sales tax is imposed at the state level only. Homeowners 65 and older qualify for a homestead provision that exempts part of the value of their property from state taxes. The Bluegrass State has an inheritance tax, but immediate family members are exempt.

#5 Alabama

State Income Tax: 2%-5%
State Sales Tax: 4%
Estate Tax/Inheritance Tax: No/No
Alabama is a tax haven for retirees. Social Security benefits, as well as military, public and private defined-benefit pensions, are excluded from state income taxes. Remaining income is taxed at the state's low rates, which range from 2% to 5%. Alabama also has some of the lowest property taxes in the U.S. Homeowners 65 and older are exempt from state property taxes, but some cities assess their own property tax. The only downside is sales taxes. Although the statewide rate is just 4%, cities and counties in the Yellowhammer State can impose their own levies, and together the taxes can add up to a whopping 10% or more in some cities. Food is taxed, but prescription drugs are not.

Visit Kiplinger for more tax-friendly states for retirees.

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