World’s Major Economies Fall Behind U.S.
2 min
Economies in the U.K. and Japan shrank at the end of last year, underlining the widening gulf between robust growth in the U.S. and more anemic conditions in the rest of the world.
The decline in activity in Japan came as a surprise to economists and meant that it has slipped in the global rankings of the world’s largest economies behind Germany and into fourth place.
In the U.K., the economy shrank for the second consecutive quarter, the shorthand definition of a recession. The U.K.’s statistics agency Thursday said gross domestic product fell at an annualized rate of 1.4% in the final three months of 2023, compared with a 3.3% increase in the U.S. over the same period.
U.K. consumer spending, the main driver of the U.K. economy, fell over the second half of 2023 even as wage growth outpaced inflation for the first time in two years, boosting consumers’ purchasing power. Japanese consumers, who are still seeing prices rise faster than wages, also cut their spending in the final quarter.
The growth numbers from the U.K. and Japan mirror similarly weak conditions in much of continental Europe and China .
The divergence between the U.S. and the rest of the rich world is in large part a story of surprising U.S. strength . The U.S. grew much faster than economists had expected it would at the start of 2023, while Europe was badly hit by high energy prices from the Ukraine war and rising interest rates. Economists forecast the growth gap will narrow somewhat over the course of the year, but remain wide.
U.S. consumer spending has been more resilient in the face of rising interest rates than in other parts of the world. Government spending in the U.S. has also remained at historically high levels for periods outside of recessions, giving the economy an added boost.
The Organization for Economic Cooperation and Development earlier this month said it expects the U.S. economy to grow by 2.1% this year, while it sees the U.K.’s economy growing by 0.7% and Germany’s economy by 0.3%.
To be sure, the declines in activity in Europe and Japan have been relatively modest and are a reflection of slow-growing economies that by nature fall into contraction more often than those that have a higher sustained level of growth.
And while economic output declined in a number of rich countries as 2023 drew to a close, job markets in Europe and Japan remained tight, as they were in the U.S. As a result, many economists hesitate to describe the U.K. and Japanese downturns as full-blown recessions.
Policymakers expect economies to pick up as inflation ebbs in the months ahead.
“We’re seeing some signs of a pickup,” Bank of England Gov. Andrew Bailey told lawmakers Wednesday.
Japan’s unemployment rate fell to an 11-month low in December, and the Bank of Japan ’s Tankan survey “showed that business conditions across all industries and firm sizes were the strongest they’ve been since 2018.”
Many economists expect the Bank of Japan to end its policy of negative short-term interest rates in either March or April, although the bank hasn’t confirmed that.
“We doubt that today’s GDP figures will prevent the Bank [of Japan] from ending negative interest rates in April,” said Marcel Thieliant , head of Asia-Pacific at Capital Economics.
The decline in its GDP during the second half of the year, and the yen’s weakness relative to the euro, meant that Japan dropped from third place in the global rankings of economic heft when measured in U.S. dollars.
Germany takes over the third-place spot behind the U.S. and China, despite Europe’s largest economy contracting during 2023. Japan lost its second-place spot to China in 2010 .
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Strong family financial planning can help reduce taxes and support younger generations. From intrafamily loans and asset gifts to inheritance disclaimers, strategic cooperation can create meaningful financial benefits—when families have the trust and structure to make it work.
4 min
Happy is the family whose members—parents, grandparents and grown children—trust each other enough to cooperate on shared goals, especially financial ones. When that is truly the case, Uncle Sam’s tax rules can help as well.
This matters especially now that mortgage rates are above 7%, and many families are looking for ways to help younger members. If the elders have resources and are confident younger ones can cooperate, a family loan could make homeownership possible while providing the elders with a useful income stream.
Other strategies can actually lower taxes, such as when funding 529 plans or Roth IRAs, or when someone inherits a traditional IRA with required withdrawals larger than they will need.
Here are three strategies useful for functional families.
Intrafamily loans
It is perfectly legal for families to lend money to a relative for a down payment or even a private mortgage.
But it is important not to cut corners, says Ryan McKeown, a CPA with Modern Wealth Enhancement in Minnesota. If the loan is for a down payment, be honest with the mortgage provider and have a formal agreement. The lender owes tax on the interest payments received.
If the loan is for a private mortgage, both sides should have legal representation with a formal written agreement, including payment terms. The lender owes tax on the interest, and the borrower often can deduct it if he or she itemizes.
To avoid IRS trouble, the interest rate shouldn’t be lower than the agency’s Applicable Federal Rate at the time of the loan. Currently that is about 5% for loans longer than nine years; about 4.5% for loans three to nine years; and about 4% for loans three years or less. Currently, traditional mortgage rates are generally above 7%.
In addition, the lender could use the $19,000 annual gift-tax exemption (described below) to forgive some or all of the interest or principal annually. If both lenders and borrowers are married, that is up to $76,000 a year. There is no tax for the borrower on such forgiveness, because it is from a gift.
If you’re going this route, McKeown advises against having a fixed plan to forgive the debt. Instead, do it in one-off letters specifying the amount—and keep careful records. Otherwise the IRS might try to treat the loan as a taxable gift.
Asset gifts
Powerful tax-saving moves for families often use gift-tax provisions. Under current law, anyone can give anyone else up to $19,000 of assets annually, free of gift tax. That means a married couple with three grandchildren could give them a total of $114,000 in 2026.
The gifts can be cash or other assets, like stock. For noncash gifts, the cost basis—which is the starting point for measuring taxable gain after a sale—“carries over” to the recipient. So if someone buys $1,000 of stock and gives it away when it is worth $5,000, the recipient’s cost basis is $1,000. If the recipient later sells the shares for $8,000, the taxable gain is $7,000.
Here’s an example showing how gifts could save a family taxes. Grandma is a widow of modest means, while her child and spouse have prospered. The couple has two children, and they want to contribute $5,000 to a 529 college-savings plan for each—but they need to sell stock to do it. Their tax rate on the sale would be 18.8%, and they would need to sell about $11,000 of stock.
However, Grandma’s federal tax rate on the stock sale is 0%. If the couple gives $10,000 of shares to Grandma, she could sell them, pay no tax, and fund the grandchildren’s 529 plans. This saves about $1,000 of tax.
These moves are legal, and they could be used in other ways, such as to help a young person fund a Roth IRA.
But trust among family members is essential: Under the law, givers can’t put conditions on a gift. Grandma could use her stock proceeds to take a cruise, but she makes 529 contributions instead.
Mark Sellner, a retired tax attorney and CPA living in Sarasota, Fla., uses this strategy. His children sell stock he gives them and fund 529 plans for his grandchildren.
The family’s tax savings aren’t huge, but he likes other benefits. The sales by his children don’t boost his adjusted gross income, which in turn could raise his Medicare Irmaa premiums or his 3.8% surtax on net investment income.
Sellner doesn’t worry about his children using the funds for another purpose.
“There can’t be any strings attached to gifts. Of course, it is up to us to decide whether to make them in the future,” he says.
Two caveats: The “kiddie tax” applies to most children under age 24, and it is levied at the parents’ rate on investment income above $2,700 in 2026. Consider this before making gifts to a young person.
Investors who give away stock also forgo the step-up, an important provision that exempts assets held at death from capital-gains tax.
Sellner knows he’s losing a step-up, but says, “The children could use a little more now. Why should they wait 20 years to get it?”
Disclaimers
A disclaimer is a highly useful strategy in which one heir renounces an inheritance in favor of another heir. Assuming family members cooperate, this can save taxes.
Here’s one example. Dad died and had a large traditional IRA that he left to Mom. She has enough assets and income to cover her expenses, and she lives in a state with a stiff estate tax. The inherited IRA would put her estate over the threshold.
Also surviving are three young-adult children. If Mom disclaims all or part of Dad’s IRA within nine months of his death, that amount could go directly to the children. They will have 10 years to empty the account, and the family as a whole will likely save estate and income taxes.
Disclaimers have many key details, especially regarding beneficiary documents. Although heirs have great freedom in choosing what assets to disclaim, the rules about who gets disclaimed property are rigid. It is best if the original owner names tiers of heirs so that if one disclaims, the next recipient is clear.
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