InSight

Financial Planning Dentist
Investment With

InSight

Menu

Bidenflation should be called Swiftflation: How Taylor Swift is Shaping the PCE Deflator for ‘Entertainment’

Financial Planning Dentist

In a twist that could only make sense in the modern world, pop icon Taylor Swift has seemingly bent the very forces of economics to her will. Forget supply-side theories or fiscal stimuli; the key player in economic inflation—at least, within the entertainment sector—appears to be the ten-time Grammy-winning artist. To better capture this unique phenomenon, at InSight we have coined the term ‘Swiftflation.’

The Personal Consumption Expenditures (PCE) deflator, is a measure of inflation that takes into account changes in consumer behavior and a wide basket of goods and services. Within this basket, one of the categories that contribute to the overall index is “entertainment.” This category typically includes a wide variety of goods and services, such as tickets for movies, concerts, and sporting events, as well as things like television subscriptions, video games, and streaming services. Additionally, items like books, musical instruments, and other recreational goods could fall into this bucket.

The ‘entertainment’ bucket in the PCE deflator can serve as a useful proxy for understanding changes in discretionary spending. During economic downturns, for instance, spending on entertainment may decline as consumers prioritize essential goods and services. Conversely, during periods of economic growth, increased spending on entertainment could reflect higher consumer confidence and disposable income.

This is one of the more volatile ‘buckets’ that consumers spend on, and a fantastic bellwether for determining if consumers are experiencing a tightening at home. Buying concert tickets is one of the first things to get cut for families when things get tight. So as Taylor Swift sets new records for tickets, tour dates, and overall monetization of her talent the result is Inflation – or ‘Swiftflation.’ 

The idea that Taylor Swift has more control over inflation metrics than President Biden is an amusing and whimsical concept. One could argue for the sake of playfulness that Taylor Swift’s influence on consumer spending might have its own microeconomic “Swiftflation” effect. Each time she releases an album, merchandise, or concert tickets, millions of fans rush to make purchases, potentially contributing to increased economic activity and even localized spikes in demand. 

In the world of ‘Swifties’, new Taylor Swift products might seem as vital as any commodity, prompting fans to prioritize her albums or merchandise over other forms of spending. This puts Biden and the Fed’s attempts to lower inflation at odds with the market for T. Swift tickets and content. This morning’s announcement to monetize the tour footage is another consequence of the climbing ‘entertainment’ bucket in the PCE print.   

Nonetheless, the term “Swiftflation” provides a fun way to examine the cultural influence of high-profile individuals on economic behavior, even if their impact pales in comparison to governmental policy.

The Swift Effect on the Entertainment Market

The role Taylor Swift has played in raising the Personal Consumption Expenditures (PCE) deflator for ‘entertainment’ cannot be understated. Her music, merchandise, sold-out tours and even her presence in films and documentaries have created a surge in consumer spending that’s unparalleled by any other artist of this generation.

When you consider that the PCE deflator is an index used to measure the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services, Taylor Swift’s impact on the ‘entertainment’ category becomes all the more significant. The standard economic indicators have failed to anticipate the seismic shift that one individual could impart on a complex, multifaceted market.

The Driving Forces Behind Swiftflation

Limited Edition Merchandise

As every “Swiftie” knows, limited edition merchandise drops are a frequent and highly anticipated aspect of the Taylor Swift empire. When new merch hits the market, it’s like a mini economic event, causing a surge in consumer demand. This, in turn, drives up prices not just for her merchandise, but also for similar products as competitors seek to capitalize on the trend.

Concert Tickets

The price of a ticket to one of Taylor Swift’s concerts is nothing to scoff at. The high-demand, high-priced tickets have set a precedent in the live entertainment industry, driving up costs as other artists and management teams see what consumers are willing to pay for a coveted live experience.

Streaming and Album Sales

Swift’s mastery over the music industry has also skewed the average expenditure on digital music and albums. Her exclusive releases often involve collaborations with streaming platforms or special edition physical copies, both of which come at a premium.

The Ripple Effect

Swiftflation has had a ripple effect across the industry, encouraging other artists to adopt similar strategies that maximize their revenue, further increasing the PCE deflator for ‘entertainment.’ In an age where digital content could easily be considered a ‘commodity,’ Taylor Swift has managed to make her brand exclusive and elite, driving up the cost of participation for consumers who want to be a part of the experience.

Conclusions

Whether you find it empowering or alarming, Swiftflation is a testament to the enormous influence that a single individual can have on economic trends. It forces economists and analysts to consider new variables that standard models fail to account for. As long as Taylor Swift continues to innovate and dominate in her field, the phenomenon of Swiftflation is likely here to stay, adding yet another layer of complexity to the ever-evolving world of entertainment economics.

So the next time you find yourself pondering why your concert ticket or limited-edition album cost so much, remember: you may very well be witnessing Swiftflation in action.

More related articles:
Articles
Peter Locke

Backdoor Roth 

If you’re looking for tax free income in retirement getting as much money into your Roth is the way to go. Tax free growth turns into tax free income. Executing on backdoor Roth strategies can be a little confusing but the math is highly predictive. If it’s right for you, it will support the broader tax strategy in retirement. When you retire most people think their tax rates will go down substantially. However, for those that have done a great job saving in their 401ks and IRAs, building their rental property empire, acquiring high growth assets, or anyway that’s not an asset in a tax-free account then you’re probably going to stay in a high income bracket throughout retirement. When you take into consideration social security, pensions, RMDs, and rental incomes you may have a difficult time not paying a large percent to the government. If you’re trying to sustain an income of $100,000 in retirement you cannot simply take out $100,000 from your 401ks and IRAs without losing a large chunk of it to taxes. So you’ll have to take out more and more each year in order to sustain your income due to inflation. However, if you’re receiving $100,000 per year from your Roth IRA then you’ll dramatically reduce your effective tax rate for your other tax-deferred distributions due to the Roth distributions being tax free. Unfortunately, for those high earners you may be thinking it’s not feasible or a smart strategy. I am here to tell you that for some it truly doesn’t make sense but for the majority of people it does and here’s how. If you’re in the 35%+ tax bracket this is a difficult decision; however, if time is on your side it still may be a good idea. For those that are in less than a ~35% tax bracket you’re in a great spot. First, let’s tackle the 35%+ individuals and families. For high income earners, you have a couple of options. Invest a portion of your 401k contributions to your Roth 401k each year. Some clients like doing a half and half strategy where half goes to the pre-tax 401k and half goes to their Roth 401k up to the annual 415(c) limits. That way, they’re taking advantage of some tax deduction but not fully. Another way is to do a Roth conversion or a backdoor Roth  conversion. Now be very careful here, because if you have rolled your 401k into your IRA then certain rules apply to you which I will touch on. You cannot make a Roth contribution if you file single and make over $139,000 (2020) and can only make a partial contribution if you make between $124,000 – $139,000 (tax year 2020). If you’re married and file jointly, your phase out is between $196,000-$206,000 (tax year 2020), meaning if you make over $206,000 then you’re ineligible. So here’s what you can do: A Roth conversion is taking money from your deductible pre-tax IRA and converting it into a Roth. You pay income tax now and the money grows tax deferred for life.  You can withdraw that money penalty free after the age of 59.5 or earlier if it’s a qualified distribution. A backdoor Roth conversion is when you make a non-deductible contribution to an IRA and convert that money into a Roth. The great thing about this strategy is any person with any income can make a non-deductible or after-tax contribution (a contribution that doesn’t reduce your current year tax liability). Before you do this you MUST understand this key rule. If you have a traditional IRA or rollover IRA (not 401k), then you must do a pro rata conversion, which for most, isn’t a great option. For example, I have 100k in my IRA and I open a non-deductible IRA and contribute the annual limit ($6,000 if I am under the age of 50 and $7,000 if I am 50+) and want to convert my $6,000 over since I already paid taxes on it and I want it to grow tax free. Well the IRS doesn’t allow you to just convert the after-tax/non-deductible contribution on it’s own and forces you to take a portion of both. In this case, $6,000 makes up 6% of all my IRA money so then I can only convert 6% of my after-tax contribution to my Roth and the rest has to come from my deductible pre-tax IRA because the IRS wants its money now forcing you to pay income tax when you didn’t want to. Don’t worry, you’re not out of luck. If, let’s say, you only have money in a 401k, then you can do a backdoor Roth conversion now. However, if you moved your 401k into an IRA and haven’t contributed any more to it then you could move that money back into a 401k at your current employer or a solo 401k if you’re self-employed and don’t have employees. By doing this, you no longer have to do the prorated conversion and are eligible to make non-deductible contributions and convert them immediately to a Roth. Before you do this, please consult with a tax advisor as we’re not tax professionals. For those that aren’t earning over the income thresholds set out by the IRS each year, you can simply contribute directly to a Roth without all these extra steps. Keep in mind that you’re only allowed to make one contribution or multiple contributions for a total of the annual limit to either the IRA or the Roth (or split the total to both). If you’re under the income threshold then contributing to a Roth may be best but consult with a tax advisor first. Converting money by using a backdoor Roth strategy is similar to delaying social security. After a certain amount of years and growth you break even and it starts paying off. So, if you’re older and your life expectancy isn’t expected to be very long this option may not be for you unless you

Read More »
November 23, 2020 No Comments
New
Kevin Taylor

An InSightful Guide to Profit Sharing for Plan Sponsors

At InSight, we encourage profit sharing as a valuable option within a 401(k) plan, allowing employers to make pre-tax contributions to their employees’ retirement accounts at the end of the year. Contrary to its name, profit sharing doesn’t necessitate that your organization generates profits for the year. Instead, it provides flexibility for rewarding employees with additional retirement contributions based on your discretion.   Why You Should Consider Profit Sharing: There are numerous advantages to making profit-sharing contributions, including: Tax-Deductible Contributions: Profit-sharing contributions are typically tax-deductible for the previous tax year. Financial Assessment: You can assess your finances before deciding the amount to contribute. No Minimum Requirement: No minimum amount for profit-sharing contributions exists. Contribution Limits: While profit-sharing contributions don’t count toward the annual deferral limit, they are limited to 25% of eligible compensation (the deduction limit) for the plan year. Additionally, total contributions per participant can be at most $66,000 ($73,500 with catch-up contributions) for 2023 (the annual additions limit). Inclusive Contributions: You can contribute to all employees, even those who don’t personally contribute. Vesting Options: Vesting schedules can be chosen to incentivize employee retention. Please note that if your business is part of a legally related group, you may be obligated to distribute profit sharing across all entities involved.   How to Make Profit-Sharing Contributions: InSight simplifies the process of implementing profit-sharing plans. If you plan to make a profit-sharing contribution, follow these steps: Verify Plan Settings: Ensure that your plan includes the desired profit-sharing allocation formula. Formula Options: Pro-rata and flat dollar profit-sharing formulas are available for InSight Core and Enterprise plans. New comparability is also an option for Enterprise plans or can be added for a fee in Core plans. Initiate Profit Sharing: InSight will create a profit-sharing task on your administrator dashboard in the first quarter after receiving compensation data. Simply complete this task to initiate profit sharing. Confirmation Notice: After your request is submitted, InSight will provide you with a confirmation notice to review before processing the profit-sharing contributions. For more details on the availability of profit sharing and specific timelines, please refer to our resources. This guide aims to help plan sponsors navigate the profit-sharing process with ease, providing a valuable benefit to both employers and employees.

Read More »
November 15, 2023 No Comments

Account Types: SIMPLE IRA

Simple without being simplistic Annual Contribution Max: $13,500 Why we like SIMPLE IRA’s: They are easy to set up and require little to no fiduciary oversight Employee’s can direct the assets with total control Low contribution limits {Total elective contribution = $13,500 (2020)} Works well at a startup, or low revenue business The commitment is predetermined (Employer contracts with employee to have salary reduction) Earnings grow tax deferred on all contributions Not required to meet all of the nondiscrimination rules applicable to qualified plans and don’t have the burden of annual filing requirements Employer deposits match on regular basis tax deferred without payroll tax Employee elective deferrals are not subject to income tax but are subject to payroll tax Why we don’t like SIMPLE IRA’s: They have low contribution limits They match a small percent of the income Employer cannot have more than 100 employees Employees who earned $5,000 during any two preceding years OR are expected to earn $5,000 during the current calendar year qualify 100% vesting in all contributions and earnings Employer is required to make either matching contributions to those employees who make elective deferrals or, alternatively, to make non-elective contributions to all eligible employees Simple IRA’s are available for employees who want to be very hands off but still provide a benefit to employees.  The employer has two options, match contributions or make non-elective contributions to employees. If matching is selected, the employer is generally required to match the employee’s deferral contributions on a dollar-for-dollar matching basis up to three percent of the compensation of the employee (without regard to covered compensation limit) for the entire calendar year.  Alternatively, instead of matching the employees contributions, the employer can make non-elective contributions of at least 2% of each eligible employee’s compensation (up to the covered compensation limit of $280,000 for 2019) . The employee can then choose to make additional contributions as well. If the employer makes the contribution, it must make non-elective contributions whether or not the employee chooses to make salary reduction contributions. If the employer chooses a 2% contribution, it must notify the employees within a reasonable period before the 60-day election period for the calendar year. These plans are generally simple to set up, but the larger the company grows and the more the company wants to raise the contribution amounts these plans become less effective. 

Read More »
December 11, 2020 No Comments

Pin It on Pinterest