Tax Increases are Here!
Every workshop I conduct often leads me to ask the participants: “In the future, do you think tax rates will be going lower, staying the same, or going higher?” Without question, 99% of the people vote higher.
One does not need to be a tax attorney to know what is ahead for all Americans. Here is why rates are going higher:
• Congress moves rates from high to low and back to high. You have been in a “low” period.
• Effective 12/31/2010, the Bush tax cuts will expire, so rates go back up to pre-Bush. This means an average of 3-5% higher for every bracket.
• The war on terrorism will continue for another generation and will require increasing amounts of money.
• Social Security and Medicare are broke. The Baby Boomers are just starting to lean on these programs, so both programs will need increasing amounts of money.
• We have a financial crisis not seen in two generations – a stimulus and mortgage bailout program were failures and thus, will require more monies to pay back these borrowed funds.
• The present administration is designing programs so that 45% of American taxpayers (the payers) will provide for 55% of American non-taxpayers (the takers). Thus, the payers (producers) will be required to ante up more for the takers (non-producers).
Now, all the hype has been…”tax the rich.” Be careful what you wish for…you will become part of the rich very soon, according to the present administration’s plan.
• A report from the IRS for the 2008 tax returns filed, only 256,000 returns out of 142 million returns filed, which is the top 2%, had an adjusted gross of over $250,000 (what some may think is rich). This top 2% paid 45% of all federal taxes collected even though they only earned 25% of all income. Hmmm…. I thought the system was to be fair…you know, top 10% pays 10%, top 50% pays 50%, and so forth. Right now, 50% of all those that earn income pays NO TAX!!
• Even if they confiscated 100% of the income of the top 2%, it would not touch the deficit. Do the math yourself.
• They asked Willy Sutton…“why do you rob banks?” He said…“cuz that is where the money is.” Look for Congressional Revenuers to come looking for more money… “where is the money” – the middle class.
To make my point, let’s look at a few new taxes that have come into effect due to the new health care law:
1) Medicare taxes will increase by 0.9% on joint household wages above $250,000 (on 1/1/2013). Thus, if a couple had $400,000 in wages, they would have a new tax of $1,350 ($150,000 x 0.9%). This amount is not indexed for inflation. So, in the future more people will creep into this area. Also, as with every tax they place on high income earners, it eventually goes down to the middle class.
2) The same upper-income couple above will be subject to a 3.8% new tax on unearned income (interest, dividends, royalties, rents, and capital gains). Say our couple earns $50,000 in interest from their bank accounts. This would produce a new $1,900 tax bill for them (sources: House of Representatives and CBO). This will have a dramatic negative effect on savings and the stock market. In all cases, see your tax advisor for details.
3) As you sell your home in the future, there will be a 4% tax on the gross sales proceeds for everyone. (Hmmm…I thought no new taxes on those earning less than $250,000 – then, they said only on those above $200,000, then they said on those above $150,000.)
You know Congress does all its tax planning based on the “static” approach. That is, they assume everything will stay static and no one will do anything to avoid taxes. In our example above, our couple will incur over $3,000 in taxes and they will do whatever it takes to lower or reduce the taxes. This avoidance will lead to less economic growth, fewer jobs, less tax revenue coming in, then they will have to raise taxes somewhere else and…well, you connect the dots. Just cut spending. Stop this madness!!
Now, I have just covered a few of the new taxes. Rather than waiting for the sword to cut you, I am demanding you take action now…or forever hold your peace.
I have been advocating for years to get your money into programs that will allow your money to grow tax-free. You can have access to the money tax-free at any time and when you die, it transfers income tax-free. This strategy is a layup with a ladder, or a stolen base on a wild pitch.
Please contact us at (713) 871-5919 or at conswella@fgmci.com to take action now. If you wait until the rates go up, it will be too late.
Ah yes….discipline or regret.