The world is such that financial planning can often require a bit of blind faith about what will happen in the future. Sometimes, however, we can see a clear indication of what the future holds and plan accordingly. This is exactly where we find ourselves today in relation to taxes.
Let me start off by saying this article is not about politics. Taxes are going to go up in the near future and it doesn?t matter if Republicans, Democrats or Rand Paul are in charge. One only needs to look across ?the pond? to see why. The problem is debt. Governments far and wide are carrying massive amounts of debt. Whether they want to voluntarily or not, the deficits are requiring governments to slash spending and raise taxes. The United Kingdom just took steps to deal with its debt and we will soon as well.
As of the writing of this article, the national debt in the United States is in excess of thirteen trillion dollars. That effectively means each citizen of the country owes $42,000 or so if the debt is spread out among us. That is a lot of money, but it doesn?t even begin to address the real debt problem.
The federal government is famous for carrying off the book liabilities. These liabilities include things like the trillions the government owes to the Social Security fund. The unfunded liabilities for Medicare alone are more than the current national debt and only getting worse as the population bulge known as baby boomers begins to retire in mass. According to USDebtClock.org, the total unfunded liabilities come in at just over $102 trillion dollars. Yes, trillion.
The two biggest problems with the massive unfunded liabilities are social security and Medicare. The total unfunded liability due is about $14 trillion. Medicare is even worse. The cost of funding it in the future is over $75 trillion dollars. The Bush Prescription plan adds another $19 trillion to the bottom line. That is a lot of money regardless of how you divvy it up.
So, how do we deal with the coming national debt disaster? You can see the answer all over Europe. We?ll be slashing spending and raising taxes. Politically, the argument would seem to be one or the other depending on your political affiliation. The debt levels are so high, however, that it will have to be both. Given this, you need to plan for the coming tax increases. How do you do this? Get together with your accountant and financial planner to discuss subjects like converting your IRA to a Roth IRA and so on.
Like many countries, the United States has long lived on credit. The bill for that credit is about to start coming due. Prepare yourself!
About the Author
Thomas Ajava writes about financial planning for UFCAmerica.com.
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