BY GREG MERMEL, C.P.A.
As I write this, the phone calls coming to my office about the September 11 attacks have reached the third wave. The first wave included the frantic ones: "Have you heard from X? Is he/she all right?" The second cluster involved coping with the deep emotional after effects: anger, horror, revulsion, fear of rapidly escalating war, and either mourning the dead or comforting those who are. The third wave suggests that people are moving towards resuming the normal pattern of their lives, as both President Bush and Mayor Guiliani have frequently urged. These callers are worried about their finances.
I’ll tell you what I know, and let you know what I think, but I have to start with a warning: I have no crystal ball, no inside pipeline to the National Security Council and no psychic skills that make me know the future. I know what I expect, but I could be wrong. Also, newspaper features have a much earlier deadline than breaking news; this column is being written 12 days before it appears in print.
The Very Short Term
Within two days after the attack, the Internal Revenue Service (IRS) had announced a blanket extension of due dates for those affected by the attacks. Moving that quickly may seem cold, but September 17 was a major tax deadline and people needed to know they could focus on other matters without incurring tax penalties. The length of the extension varies depending on the type of tax and how the taxpayer was affected, so I won’t try to give specifics. (You may call me if you need to know.) But I will point out that you need not have been working or living in New York to qualify for some of the extensions. Several clients of mine were stuck in other cities when air transportation was shut down, and I had no way to get completed tax returns to out-of-town clients. The IRS extended deadlines for these situations, too.
The states of New York and New Jersey made similar announcements later. Many other states, with fewer affected taxpayers, have indicated that they will waive late filing and payment penalties on if the taxpayer explains the situation.
The Short Term
Many actors have expressed concern that there will be no work—not as artists or at their civilian/day jobs. And since no small number of those day jobs are in the hospitality industry, the reports of Broadway shows closing, hotels with single-digit occupancy rates, and restaurants laying off staff are doubly discouraging.
Stand back, take a deep breath, and do an acting exercise. Pull up the emotional memory of how you felt when something horrible happened to someone you know, or when you had a wrenching break-up of a marriage or relationship, or when someone died. Not these recent deaths, but one where some time has passed. How long did it take before you were ready to do much of anything? Your mood didn’t just spring back; rather, it crept back day-by-day till one day you realized you were OK. That’s what millions of Americans are going through simultaneously. The subscription audiences, I am told, have been there—somewhat distracted and unpredictable in their reactions, but showing up.
Life goes on, and the tourists and single ticket buyers and the folks out for a nice night on the town will return. It will take a while, but I expect that by the year-end, recovery will be well underway.
The Medium Term
Even a low-level, slow and dirty guerilla war is costly, and some callers were afraid that taxes would skyrocket to pay for it. I don’t think so. Many of you know that I was quite disdainful of this year’s tax cut bill, seeing it as all show and no substance. I still hold that view, and still doubt that many of its deferred provisions will ever take effect. But even before the attacks, our economy was sliding into a significant recession. For the past 30 years or so, the economic orthodoxy has been that monetary policy (controlling interest rates and certain related factors) is all the government needed to manage the economy. A return to the prior philosophy of using fiscal policy was already in the air, and much of the ideological opposition disappeared after the attacks. I expect to see tax cuts narrowly crafted to encourage specific economic activity, and increased government spending as a stimulus. We might even see a return to deficit spending for a year or two.
The Long Term
Investment portfolios this year have almost all taken a beating. As I write, the major stock market averages have pretty much recovered from the flood of selling that occurred when the markets reopened and are pretty much where they were before the attacks. Within that average, there certainly are dislocations. For example, airline stocks are down and security companies’ stocks up. But this happens all the time, at varying paces, as different sectors of the economy rise and fall.
Historically, the U.S. stock markets have recovered well, and even flourished, after being kicked down by cataclysmic events like Pearl Harbor or President Kennedy’s assassination. I expect to see that again.
The attacks did, I think, remove the last bits of foam from the speculative bubble we had for a few years. The declining stock market and incipient recession earlier this year taught a new generation of investors some basic principles that had long been ignored: These investments are for the long term; the long term is not a mere ninety days; things can and will change, but we don’t know when or how; and you may not be smarter than everyone else in the world.
Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or 773/525-1778 (888/525-1778 outside the Chicago area).
Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He also sometimes produces theatre.