Dear ,
What Is The Biggest Threat To Your Financial Security Right Now?
If you said taxes go to the head of the class. Now that the election is over we have a very clear understanding of where tax policy is heading. Today we are going to take a look at taxes. Not from the standpoint of whether President Obama's tax policy is a good thing or a bad thing. It doesn't matter. That is a political discussion.
What does matter is the reality of the situation and how we deal with it now. It's important to remember that we are legally entitled to reduce our taxes owed in any and all ways allowed by the tax code. Those deductions were put there for a reason and there is nothing wrong in using them.
Why Should You Listen To Us?
Well one reason that you might want to listen is that we first started warning about this back in 2007. Here are a couple of slides from the seminar we were doing back then.
At the time the national debt was at $7.7 trillion and we were asking how much the government was going to have to eventually raise taxes to cover those shortages. Based on the growth rate of the debt from 1974 to 2005 we were projecting that the national debt would be around $10 trillion by 2015. Well to show you how out of control the government debt has become, we are already blowing through the $16 trillion mark and it is only the end of 2012!
Treasury Quietly Warns: 'Expect Debt Limit to Be Reached Near End of 2012'
Based on comments like those from former Fed Chairman Alan Greenspan posted below we were speculating just how high rates might go. After all, the average tax rate on those making $50,000 a year from 1944 to 2005 was 48%. 48%!!! That's a far cry from today's rate of 15% on a $50,000 income.
So again why should you listen to us? Well back in 2007 we recognized the threat and we were offering strategies to deal with it. One of the strategies we were recommending back then was converting IRA monies to Roth IRAs. It has now been 5 years. Those that listened and implemented that strategy are now in a position to be able to take their money out of their Roth IRAs tax free for the rest of their lives. They don't have to worry about what the tax rates may or may not go up to.
So What Do We Do Now?
Great question. A lot has changed but the biggest threat is still taxes in my opinion, and not just on the wealthy. Before we get to what you can do now, let's take a look at where we are. You may remember this chart from a couple of weeks ago.
Now that we know the outcome of the election let's take a closer look at PIMCO's analysis based on what we ended up with. With the President getting reelected and the balance of power essentially staying the same with a split Congress here is how they think it will shake out.
They think the Republicans will eventually agree on tax increases for those making $250,000 a year and Bush tax cuts will be extended for everyone else. They also think that the ATM tax will be extended. This is a tax that was meant to be a tax on the rich when it was implemented but it was never indexed to inflation so it is snaring more and more middle class taxpayers. They will get no relief.
Next notice the payroll tax cut. They don't think that will be extended which means everyone; rich, poor, and in between will have less take home pay next year. For those of you that don't remember, they played with the withholding tables so people would have more take home pay in the hopes that they would feel wealthier and spend more money.
To me the most disappointing aspect is the 3 sequester items and the Doc Fix. This is a classic example of why I don't think our politicians will ever really solve our debt crisis and that we are destined to go the way of Greece.
Headlines From 2011
Let me refresh your memories. Back in the summer of 2011 there was a real concern that the US might default on its debt. At the last minute Congress came to an agreement to raise the debt ceiling. It was a temporary fix and as part of the deal a new "Blue Ribbon Bi Partisan" panel was selected from Congress to negotiate a more permanent agreement. If they couldn't come to an agreement by December of 2011, I think it was, then all sorts of automatic budget cuts would start to go into effect to bring the budget under control. That would be the 3 sequester items mentioned above.
You see what they are doing here don't you. They won't actually implement the spending reductions that were agreed upon in the original deal. They will always find an excuse. "It would be too painful" "It would sink the economy" And while all of those things may be true, I would suggest that they were all known to be a problem when they agreed to the deal to begin with.
Now the thing that really convinces me that this is just more of the same is the last thing. The Doc Fix. First let me say that I think that doctors are highly undercompensated for their services by Medicare/Medicaid so I think this particular law is a mistake to begin with but take a look at this.
Here is the relevant part of the article:
"This "doc fix" scenario, as it's called in Washington, has occurred every year for nearly a decade. Under a law passed in 1997, Medicare rates for physicians and other providers are calculated under a complex formula that was designed to curb the growth of Medicare costs, but later resulted in cuts so unpopular that Congress has annually postponed them. The legal requirement remains, however, swelling the cuts cumulatively to reach 21 percent this year."
My point is that they have tried this scam before and for over a decade they have postponed implementing those cuts and at the same time for over a decade they have refused to actually fix the problem. What did Einstein say about the definition of insanity?
So What's The Answer Mr. Smart Guy?
Folks, as we've said many times in the past there are always opportunities out there for those who are prepared. Even with what we see going on in the world we see several opportunities out there that we think deserve exploring. But the number one thing I would suggest you all do right now is take a look at your financial situation from a tax perspective.
What is your tax strategy? If you believe like I do that taxes are going to be going up on everyone eventually then wouldn't it make sense to do everything you can now to minimize your future tax exposure? Not sure how to do that then give us a call or send us an email. We'd love to help!
Until next week , Protect Your Wealth!
Sincerely,
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