Source: Literary Hub
We will begin today’s blog post by looking at the truth Charlie Brown shares in the cartoon above. He states that there are only two things certain in life, death and taxes. Neither are particularly fun things to talk about. Today, we are going to talk about taxes.
Why do we want to talk about taxes? It is primarily because nobody who is running for President or Congress in 2024 is discussing this extremely important topic…yet. This is a little bit surprising, as the last comprehensive piece of tax legislation that was passed is set to have many of its provisions expire at the end of 2025.
The Tax Cuts and Jobs Act (TCJA) was passed by Congress and signed into law by President Trump in late 2017. Because the law did not get a super majority of 60 votes in the Senate, many facets of the law, including personal income tax rates and brackets will expire at the end of 2025. Importantly, the 21% corporate tax rate and in the long-term capital gains tax rates do not expire.
Below is a chart from our friends at Putnam investments, showing what could happen to both single filers and those who claim married filing joint, if Congress does nothing. As you can see, individual income tax rates for almost everyone would rise 3% or more if the law simply expires. It is also true that almost everyone got a tax cut of 3% or more when the law was originally enacted.
However, I do not believe that this is the likely outcome. Please remember that in September 2017, our national debt first passed $20 trillion. At the time I wrote a blog post saying that within the next 10 years our national debt would likely rise to $30 trillion if we do not get a better handle on reducing the gap between the revenues the government collects from taxes and the money it spends. This includes entitlement programs, national defense, interest costs, and spending on other government programs.
At the time, many people thought I had an extraordinarily pessimistic view. As it turns out, I was way too optimistic. It only took the federal government 4 1/2 years, to February 2022, to see our national debt go to $30 trillion.
When President Biden and then House Speaker McCarthy agreed to a debt ceiling deal in early June this year, our national debt ceiling was $31.4 trillion. Today, according to US Debt Clock.org, our national debt is quickly closing in on $33.7 trillion. This means that in just over five months, we have added nearly $2.3 trillion to our nations credit card bill. Somebody will have to pay it at some point in the future.
All of this brings me back to the certainty of taxes Charlie Brown brought up in our opening cartoon. There are only two ways to close the annual budget deficit. The first involves raising taxes. The second involves cutting spending. Since there is little agreement on either side of the aisle on these issues, all I can do is commiserate with Chuck and say, “Good Grief”.
I believe that whoever gains control of the White House and Congress in the 2024 election will be in the driver seat to set tax policy as the TCJA expires. This is extremely important. Unfortunately, with everything else going on in the world today, nobody on Capitol Hill is talking about this. I assume by this time next year this will be front and center in the election discussions.
Even though this is not being discussed by politicians or the media at the present time, we wanted to let you know that the CFPs at Impel Wealth Management are well aware of what’s coming up and what is at stake. We know this could have significant impact on you, our trusted friends, and clients. Therefore, we will do our best to keep you in the loop as we continue “Moving Life Forward”.
© 2023 Jesse Hurst
The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
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