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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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slide1
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.
slide8
“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.”
slide10
Federal Tax Schedule: 2008 vs. 1980Marginal 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 TaxExemption 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

never ending complexity number of pages in the cch standard tax publication
Never-Ending ComplexityNumber 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!

Source: US Treasury

us national debt 1791 2008
US National Debt1791-2008

The growth of the national debt has been exponential

Source: US Treasury

federal debt as a of gdp
Federal Debt as a % of GDP

Source: Conde Nast Portfolio

major fiscal exposures trillions
Major Fiscal Exposures($ Trillions)

2008

Source: 2008 Financial Report of the US Government

unfunded liabilities

Unfunded Liabilities

Source: The Economist

federal tax receipts in billions of inflation adjusted dollars

Federal Tax Receipts(in billions of inflation-adjusted dollars)

Tax receipts already falling

Source: Congressional Budget Office

taxes and the rich

Taxes and the Rich

Source: IRS, Statistics of Income, 2008

slide24
Change in Spending at each Age & Stage of Life

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 index1
The Immigration Adjusted 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 WaveBirths Lagged for Peak in Family Spending

Dow Adjusted for Inflation

Immigration-adjusted Births Lagged for Peak Spending

states in crisis state budget deficits

States in CrisisState Budget Deficits

Source: Wall Street Journal

est opeb underfunding by state 2007
Est. OPEB Underfunding by State (2007)

Source: Credit Suisse 2007

what form might tax hikes take
What Form Might Tax Hikes Take?
  • 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
  • 5-Step Action Plan from “The Retirement Savings Time Bomb”
  • Time it Smartly
  • Insure It
  • Stretch It
  • Roth It
  • Avoid the Death Tax Trap
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