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Burdened by the Past The Government’s Plan for Your Income and Wealth and What You Can do About It Charles Lewis Sizemore, CFA. New Special Report. In a Nutshell…. Tax rates are currently at historic lows. In a Nutshell…. Tax rates are currently at historic lows

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Burdened by the PastThe Government’s Plan for Your Income and Wealth and What You Can do About ItCharles Lewis Sizemore, CFA



In a nutshell
In a Nutshell…

  • Tax rates are currently at historic lows


In a nutshell1
In a Nutshell…

  • Tax rates are currently at historic lows

  • America’s debts are large and growing—beyond current stimulus spending, we have the retirement of the Boomers with which to contend


In a nutshell2
In a Nutshell…

  • Tax rates are currently at historic lows

  • America’s debts are large and growing—beyond current stimulus spending, we have the retirement of the Boomers with which to contend

  • Demographic trends suggest that we will not be able to “grow ourselves out of it” like we did in the 1990s. The logic of the Laffer Curve will not work this time.


Part 1 tax rates past and present
Part 1: Tax Rates Past and Present


Americans tax burden near historic low headline from the washington post april 16 2009
“Americans' Tax Burden Near Historic Low”- Headline from the Washington Post, April 16, 2009


“The nonpartisan Congressional Budget Office estimates that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”


Top federal individual income tax rates 1913 2010

Top Federal Individual Income Tax Rates that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”1913 - 2010


Federal Tax Schedule: 2008 vs. 1980 that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”Marginal Rates for Single Taxpayer(1980 Tax Brackets adjusted for inflation)

$8,025 S

$16,050 M

$32,550 S

$65,100 M

$78,850 S

$131,450 M

$164,550 S

$200,300 M

$357,700 S

$357,700 M

Source: IRS (Inflation Adjustments made by HS Dent using BLS data)


A history of the estate tax exemption amount and top tax rate
A History of the Estate Tax that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”Exemption Amount and Top Tax Rate

Estate tax rates have been falling and the exemption amounts have been rising, meaning less estate taxes paid. Will this continue?

Source: The Heritage Foundation, from data provided by the Internal Revenue Service


The laffer curve
The Laffer Curve that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”


Part 2 taxes lower but at what cost
Part 2: that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”Taxes Lower…But at What Cost?


Never ending complexity number of pages in the cch standard tax publication
Never-Ending Complexity that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”Number of Pages in the CCH Standard Tax Publication

Source: “Lessons From a Long Tax Run,” Wall Street Journal, April 15, 2009


Taxes falling debts rising
Taxes Falling, Debts Rising! that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”

Source: US Treasury


Us national debt 1791 2008
US National Debt that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”1791-2008

The growth of the national debt has been exponential

Source: US Treasury


Federal debt as a of gdp
Federal Debt as a % of GDP that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”

Source: Conde Nast Portfolio


Major fiscal exposures trillions
Major Fiscal Exposures that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”($ Trillions)

2008

Source: 2008 Financial Report of the US Government


Unfunded liabilities

Unfunded Liabilities that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”

Source: The Economist


Part 3 what now
Part 3: that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”What Now?


Japan government debt as a of gdp

Japan Government Debt that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”as a % of GDP

Source: OECD


Federal tax receipts in billions of inflation adjusted dollars

Federal Tax Receipts that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”(in billions of inflation-adjusted dollars)

Tax receipts already falling

Source: Congressional Budget Office


Taxes and the rich

Taxes and the Rich that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”

Source: IRS, Statistics of Income, 2008


Change in Spending at each Age & Stage of Life that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”

46-50

Family,

College

Kids

22-30

Young

Married

31-42

Young

Family

50+

Empty

Nesters

18-22

Single

60+

Retired


The immigration adjusted birth index
The Immigration Adjusted that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”Birth Index


The immigration adjusted birth index1
The Immigration Adjusted that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”Birth Index

The Boomer wave is about to hit our retirement programs…like a tsunami


The spending wave births lagged for peak in family spending
The Spending Wave that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”Births Lagged for Peak in Family Spending

Dow Adjusted for Inflation

Immigration-adjusted Births Lagged for Peak Spending


Real personal consumption expenditures in 2000 dollars

Real Personal Consumption Expenditures that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”In 2000 Dollars

Source: Bureau of Economic Analysis


States in crisis state budget deficits

States in Crisis that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”State Budget Deficits

Source: Wall Street Journal


Est opeb underfunding by state 2007
Est. OPEB Underfunding by State (2007) that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”

Source: Credit Suisse 2007


What form might tax hikes take
What Form Might Tax Hikes Take? that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”

  • Possible “Stealth” Tax Hikes

  • Phase-out of popular deductions such as the home mortgage interest deduction and the child tax credit—particularly for high-value properties and high-income tax payers

  • Continued tinkering with the Alternative Minimum Tax

  • Making some forms of retirement income taxable—such as Social Security and possibly even Roth IRA distributions

  • Making benefits such as health insurance taxable income

  • Using means testing to eliminate certain tax deductions and exemptions—(i.e. property taxes, sales taxes, child care credit, education, student loan interest, first-time home buyer, charitable donations)


Ed slott s recommendations
Ed Slott’s Recommendations that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”

  • 5-Step Action Plan from “The Retirement Savings Time Bomb”

  • Time it Smartly

  • Insure It

  • Stretch It

  • Roth It

  • Avoid the Death Tax Trap


Concluding remarks
Concluding Remarks that the average family forked over barely 9 percent of its earnings to the IRS in 2006, the most recent year for which information is available. The effective tax rate hit its all-time low in 2003 and has since crept up only slightly.”


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