It’s been said that the only constant is change and lately it’s been the banking crisis. Financial planning is often more about what we don’t know than what we do know. Lately, we’ve been through COVID, supply chain issues and (ongoing) issues with some of our country’s financial institutions.
What could those tax hikes look like? Let’s consider the possibilities.
Increased debt, the worry of a debt spiral, low yields, and future taxes – all make a solid plan more important than ever. Unfortunately, too many put it off until the’re “confident’, but they never get there.
I’m not sure how many of the candidates who are running on government supported Medicare for everyone majored in economics or finance – it maybe explains the obvious their all to obvious failure to address the question directly.
Elizabeth Warren, for example, promised that it won’t cost the middle class “one penny” – a feat that hasn’t been accomplished by any country now offering universal health care. According to an inciteful Advisor Perspectives article by Rick Kahler, CFP and registered investment advisor based in Rapid City, S.D., the middle class in those countries pay income taxes of up to 40% and a national sales tax equivalent to 15-25% of income.
While Senator Warren estimates the cost over a decade at $20 trillion in new federal spending – a cost the middle class is somehow to avoid – Estimates from six independent financial organizations put the figure in the $28-36 trillion range.
Link: http://www.crfb.org/blogs/how-much-will-medicare-all-cost
A Forbes article describes the tax increases aimed at wealthy individuals. Included are:
Eliminating the favorable tax rate on capital gains
Increasing the “Obamacare” tax from 3.8% to 14.8% on investment income over $250,000
Eliminating the step-up in basis for inheritors
Establishing a financial transaction tax of 0.10%
The capital gains tax increase, the step-up in basis, and the financial transaction tax will all affect middle class investors – potentially anyone with a 401(k) or an IRA. Rick Kahler points out that the American Retirement Association estimates that the financial transaction tax alone will cost the average 401(k) and IRA investor over $1,500 a year.
The 0.10% financial transaction tax, for example, would apply to all securities sold and purchased within a mutual fund or ETF, in addition to any purchases and sales of the funds themselves by investors. Mr. Kahler estimates these costs can run 0.20% to 0.30% a year to fund investors. When you consider some index funds charge only 0.10% in total expenses, the increase comes to 200% or more.
Eliminating the step-up in basis and the favorable capital gains treatment will certainly cost middle class investors more than a penny. A retiree leaving an heir $200,000 with $100,000 in cost basis, could easily cost the middle class inheritor $10,000 to $20,000 or more in taxes.
Forbes link: https://www.forbes.com/sites/howardgleckman/2019/11/07/warrens-plan-to-double-tax-wealth-is-unrealistic/#4444076e4aaf
Candidates can promise – that doesn’t cost anything – but it’s the electorate who needs to do the math. After all, our elected representatives don’t live in the same health care world the rest of us do.
Jim Lorenzen, CFP®, AIF® Jim Lorenzen, CFP®, AIF® Here’s an interesting market outlook infographic from Vanguard! Thought you might enjoy seeing it! Just click on
Jim Lorenzen, CFP®, AIF® The new jobs report shows 178,000 jobs were created last month – and much of the media has reported that number;
As you may or may not know, the Tax Cuts and Jobs Act is due to expire at the end of next year – just 16 months from now. The Biden Administration has proposed new tax increases worth knowing about.
If you are one of those asking the ‘will my money last’ question, there’s a way you can find out just what your probabilities are!
