Study Shows Madison County Investment Second Only to Jefferson County

The financial services firm SmartAsset has completed a national survey of the counties in each state with the highest income from investment. 

The SmartAsset study compared counties by three metrics: Ordinary Dividends, Qualified Dividends, and Net Capital Gains, all sourced from IRS Statistics of Income County Data. 

Ordinary Dividends are payments made by a company to their shareholders and are taxed as regular income, whereas Qualified Dividends are dividends that meet certain requirements set by the IRS and are taxed at a lower capital gains tax rate. Lastly, Net Capital Gains refers to the amount an asset has increased or decreased in value. This is only realized when the asset itself is sold. 

SmartAsset then combined the three statistics to create a single investment index to rank the counties by investment income, and found that in Alabama, Madison County rates second, behind Jefferson County. 

Of the top ten Alabama counties ranked, most range quite close to their neighbors. For example, number 4-ranked Baldwin County reported Net Capital Gains of $414,734, while number 5, Mobile County, had $367,838. Baldwin County had an investment index of 0.98, to Mobile County’s 0.96. 

Jefferson County not only leads the state in investment income, but it does so by a significant margin, and in all three metrics. 

In terms of net capital gains, Jefferson County boasts nearly three times the amount as second place Madison County, $1,521,848 to $496,067. It has a similar lead when it comes to Ordinary Dividends, $660,931 to $205,714, but with Qualified Dividends, its lead rockets to nearly a five time multiplier, $527,721 to $147,372. 

As a result, Jefferson County’s investment index stands at a whopping 4.10, to Madison County’s 1.27. 

These numbers come despite the recent boom that Huntsville has experienced. The city of Huntsville has overtaken Birmingham as the state’s largest city, with the 2020 Census reporting a population of 215,000. If the population of the county doesn’t account for the discrepancy in the numbers, and neither does the mass military-industrial activity taking place in Madison County, then what is behind such a glaring gap in the data? Mobile, a port city, doesn’t have those kinds of investment income numbers. What makes Jefferson County so anomalous?

The answer could well be that Jefferson County, while home to the city of Birmingham, is also home to the affluent suburban town of Mountain Brook. The town, which had a 2020 population of 20,069, boasts an average household income of $238,595, dwarfing Huntsville’s average household income of $56,758. 

Mountain Brook is the most affluent town in the state, and that fact is far from irrelevant when it comes to explaining the vast gulf in investment income between the county in which it exists and the rest of Alabama. 

The results are illustrative of the concentration of not only wealth but of wealth-creating opportunities in the state. Participation in market investing is largely cloistered in an exclusive community, taking the lion’s share of the state’s investment income. After all, wealthier individuals not only have more capital with which to invest, but their existing wealth gives them more of a buffer when investments fail to make a return. What would be a mere setback to a wealthy investor could be a ruinous disaster to a poorer one. These conditions create a self-reinforcing feedback loop to establish and enforce the concentration of investment income. 

Is this, then, the natural and ineffable state of affairs for Alabama? 

Perhaps not. 

Huntsville is not only growing and adding jobs, but those jobs are well-paying, technical careers. These are the sort of jobs where, if one is careful and frugal, an employee could well be able to build up the sort of capital reserve to be able to invest. This can be assisted by company compensation models that encourage participation in a corporation’s market activity. 

As an example, Huntsville-based company Dynetics operated off of an Employee Stock Option plan. When science and technology corporation Leidos bought out Dynetics for $1.6 billion in 2020, Dynetics CEO Dave King reported that the deal “created a lot of millionaires,” among the 2300 employees. King also noted that “95 percent” of the company’s workforce lived in Huntsville, making it much more likely for that money to stay in and around the community. 

The story of Dynetics not only demonstrates that Huntsville tech firms can be an attractive commodity for outside investment, but that facilitating employee participation can result in further reinvestment in Huntsville. 

Alabama’s state government also has taken action to attempt to encourage market participation, and for the benefits of that participation to remain in-state. The 2019 Alabama Incentives Modernization Act eliminates the tax on capital gains for investors and employees of technology companies that move to Alabama, with the caveat that the companies must relocate to the state at least three years before being sold, and stay in Alabama five years after the company is sold.

The same restriction applies for the company’s employees to realize zero capital gains tax. For investors, the break on capital gains tax only occurs if the investors reinvest the funds in other Alabama companies for the following five years. 

It will take time for these efforts, legislative or otherwise, to take effect. Hopefully, future Census surveys will show a more equitable distribution of investment income around the state, resulting in a prosperous Alabama.

For more information, an interactive map can be found here.