America’s Fiscal Condition
January 1, 2008, the nation’s first Baby Boomer, Ms. Casey-Kirschling, led what is often referred to as America’s silver tsunami. Over the next two decades, nearly 80 million Americans will become eligible for Social Security retirement benefits, more than 10,000 per day on average.
In his letter dated May 19,2008 to Congressman Raul Ryan, then ranking member of the Congressional Budget Office, CBO Director Peter R. Orszag stated, “Under current law, rising costs for health care and the aging of the population will cause federal spending on Medicare, Medicaid, and Social Security to rise substantially as a share of the economy. If tax revenues as a share of gross domestic product (GDP) remain at current levels, that additional spending will eventually cause future budget deficits to become unsustainable. To prevent those deficits from growing to levels that could impose substantial costs on the economy, the choices are limited: Revenues must rise (Increase taxes) as a share of GDP, projected spending must fall (reduce government spending), or both.
“…under an assumption that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double.
The tax rate for the lowest tax bracket would have to be increased from 10 percent to 25 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent; and the tax rate of the highest bracket would have to be raised from 35 percent to 88 percent. The top corporate income tax rate would also increase from 35 percent to 88 percent.”
Many Americans have saved the lion’s share of their retirement in tax-deferred accounts like 401(k)s and IRAs because of the perceived tax advantages. Today, however, we are marching into a future where our nation’s debt load is at an all-time high and threatening to spiral out of control. The Federal deficit in December 2008 was just over $11 Trillion. In December 2018 the deficit is $21.9 and climbing.What does this hold for the future of tax rates in America? If tax rates go up, how will this impact your cash flow in retirement?
Here’s alarming news most Americans don’t want to hear: tax rates have to double or our country will go broke. Given this reality, millions of Americans need to fundamentally change how they save for retirement! They need to experience the power of the zero percent tax bracket. Why? Because if tax rates double, two times zero is still zero!
- Work for the same company for entire career
- Retire at age 65 and receive a pension
- Pension Income covered most lifestyle expenses
- Rely on Social Security only for supplemental income
- Put less emphasis on one’s own investments
- Average person works for seven different companies during their career
- The 401(k) replaced the pension for many American workers
- Retirement for many is mostly self-funded
- Social Security may cover very little of lifestyle requirements
- Some may never fully retire, but choose to stay engaged at some level
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