The tax policies of our nation and your local community are the most important elements of your financial security. How taxes are raised and spent impact everything, nothing is missed. Physical security, energy, communication, mobility, health, education, opportunity, the value of life and the happiness of the country are directly impacted by tax policy.
There are of course, individual things that you can do for planning such as pension contributions, deferrals, trusts, insurance, etc., but tax deductions have been significantly reduced over the years. They will not do too much to offset the effects of general tax policy.
The glamour of a stock or bitcoin going up gets far more attention regarding personal wealth than the biggest investment most of us will make, which are all the different taxes we pay.
Taxes are really an investment in us and our country. The problem is that we cannot have a mature conversation about them. The politicians are terrified to address the issue except in terms of cutting taxes. Unfortunately, that’s the worst thing to do now. By simple accounting, we are not paying enough in taxes. Whether that is fair or not, is sadly immaterial. The reality is that given the state of our country and what we have previously committed to, we are not raising enough money to pay for it. And it is going to get worse.
National security, health care, infrastructure, legal justice and education are all suffering from a lack of funding. The Social Security and Medicare Trust funds are in trouble.
There are legitimate concerns over our tax levels compared to other countries. Lower corporate rates of foreign countries have been an impairment to American business. Yet higher personal rates over there have been a benefit to their citizens. However, everything has to be adjusted in total. What is the overall policy of raising revenue and where should that revenue be spent? To piecemeal various parts is what has caused much of the problem. For decades, the politicians have tried to sprinkle the fairy dust of “trickle down” to get support for tax cut legislation. This is a theory that does not work well in practice. Powerful interests will always find a way to stop any substantial wealth from trickling down. The real trickle down would have been increasing wages. You don’t see that happening anywhere.
With the recent tax act, the critics were correct. Permanent tax cuts for large corporations and business owners with temporary tax cuts for the middle class is playing out in dangerous fashion. As predicted by the opponents of the legislation, the tax savings for business have been used for buyouts, buybacks, and dividends. The projected deficits all this will create have been dramatically underestimated. The recent tax act will just make things worse. It will increase our debt and further divide the nation by increasing the wealth gap between segments of our citizens.
There will most likely be an effort on the part of government at all levels to try to increase taxes and find new sources of tax. Be watchful, as this will have a significant effect on your overall financial health. Real estate is very vulnerable as it is an easy target to tax. Many municipalities have already increased taxes on real estate and will proceed with even more. Income taxes will go back up unless there is different legislation. Also, estate taxes will most likely be changed in time. Internet security and climate change will create new financial challenges as business will try to get the government to pick up most of the cost to manage those problems. It seems that in those two areas, taxes will need to increase well beyond current estimations. Pensions will be at risk. Many states, municipalities and corporations are unfunded and may require some type of government bailout. There are regular discussions behind the scenes on this subject and pension plans could become a target very easily in the future. When Social Security was instituted, there was no plan to tax it. The traditional notion of financial planning in general and tax planning in particular will give way to confusion and discord.
Without serious national discussion, your financial security is at high risk. Taxes are interwoven into everything. We need to focus on the tax management of our society and do whatever we can to redirect policy to more consensual and productive endeavors. This will have to be a national educational process. Our leaders must lead.
A last note on taxes. We can now see how our President operates. So it is quite obvious that his tax returns do not reflect his statements on his personal wealth or on the taxes he pays. If his tax returns were in any way favorable to him, he would not only release them, he would be bragging about them on Twitter.