I had the honor and pleasure of sitting in on the recent NAIFA ClientCast featuring David Walker, former Comptroller General of the Federal Government and wanted to share a few excerpts as well as my commentary:
- “Taxes are going up.”: He spent the first part of the workshop using charts and graphs to document the precarious fiscal condition of our country. If Congress continues to kick the can down the road on creating permanent fixes to entitlement programs and liquidating debt, taxes will have to rise.
- “If Congress does nothing to fix Social Security, there will be a 23% across the board cut in 2033.”: David Walker is a big fan of phasing in changes to Social Security and Medicare over time. He’s also a big fan of permanently fixing these programs, not creating a temporary band-aid like Ronald Reagan did in 1984, and Bill Clinton did later in 1992. If Congress continues to paint itself into a corner by choosing inaction, solutions will eventually be forced upon us in the form of drastic across the board cuts to safety net programs like Social Security and others.
- “The better off you are financially, the more you’ll be affected by the changes to Social Security and Medicare”: In other words, if you’ve done a good job saving for retirement and are considered by the government’s standards to be someone of means, you will likely receive less Social Security and have to self-fund more of your health care costs in retirement.
- “The government will likely increase the effective tax rate for those who are better off.” Translation: the more money you have, the greater the share of the tax burden you will likely have to shoulder. David Walker did discuss the importance of broadening the tax base so that everyone is invested in the system, but he emphasized that the more you have, the more you will lose to the IRS. These increased taxes could come in the form of higher marginal tax brackets, the elimination of deductions or both.
Given the likelihood of higher taxes in the future, there’s never been a better time to introduce your clients to the tax-free paradigm I advocate in The Power of Zero. Ten years from now, your clients may just look back at this period of historically low tax rates and ask you, “Why didn’t you encourage me to pay for my taxes while they were on sale?”