One of the most common questions Bruce Hosler and the team at Hosler Wealth Management are asked: "Will taxes go up or down?" And while we don't have a crystal ball, there are some pretty strong indications that taxes are going to go up.
First, the 2017 Tax Cuts and Jobs Act, without any intervention from Congress, will sunset in 2025, returning all tax rates to their previous, higher levels.
Next, our national debt sits at $29 trillion dollars. With interest rates going up, the debt service on that number is going to go up. This will also affect Medicare, Medicaid, and Social Security going forward. Bruce and Jon take a deep dive on these topics, including a real shortage of caregivers that our country is facing in the coming decades.
Again, all indications are that taxes are going to go up. With that in mind, we conclude today's podcast by discussing strategies you can employ now.
To contact Bruce Hosler and the team at Hosler Wealth Management, visit them online at https://www.hoslerwm.com/
Or call them in their Prescott office at 928-778-7666 or their Scottsdale office at 480-994-7342.
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Will US Tax Rates Go Up or Down?
Jon: Welcome in episode, number two of the Protecting and Preserving Wealth podcast. I am Jon Jag Gay. I'm joined by Bruce Hosler from Hosler Wealth Management. Bruce, good to be back with you.
Bruce: Great, great to see you this morning, Jon,
Jon: we alluded to this in our first episode, we're gonna dive in deeper here in episode number two, and that is the future of US taxes about whether they're gonna go up, whether they go down, whether we're gonna stay the
And that's the question I ask a lot of people. If you're looking forward into the United States tax system over the next 5 to 10 years, What are the tax rates gonna do for you? Where your own personal tax rates will they go up? Will they go down or will they stay the same when they answer that question, then I say, why?
Jon: And we alluded to this again in our previous episode, but to recap for our listeners, what are some of the factors happening right now in the country that lead you to an assumption here?
Bruce: So, when I ask them why they have their own opinions, they may say the national debt, or they may say, uh, you know, all the spending, like you said for COVID last time in our last episode, but I wanna bring some other things to bear for them.
Let's examine these issues a little bit. First of all, we have the tax cuts and job act. That sunset's in 2025. So in starting in 2026, all of us are gonna revert back to those old tax rates. And we all have a, a tax increase coming unless Congress does anything. But automatically those tax rates are an increase.
Now think about that. Not a Democrat, not a Republican has to vote for a tax increase. They can just fight among themselves and we get a tax increase.
Jon: Bruce, are you saying that there are times when Congress just sits there and fights among itself?
Bruce: And sits on their hands and says, there's nothing I could do. I tell you what I don't wanna pick on the politicians, but the politicians sometimes bring it on themselves.
Jon: Right. And again, we're not left. Right. Democrat Republican here. It's a, just a straight down the middle observation.
Bruce: We're trying to just look at the numbers folks and tell you what you need to prepare for now.
So if Congress does nothing, then let's consider first and foremost, the issue that's going to consume us all, which is the national debt. $29 trillion dollars, and most of that's locked in at very low rates, 2%. It's what they've been except for now, the fed is raising rates and as they raise these rates, think of the amount of increased interest that the US government now will have to pay at these higher interest rates. It's gonna consume the entire budget of the United States government.
Bruce: It is scary when you think about that.
Jon: So let me ask you this. One big concern with all this debt the federal government has, is social programs. We're talking about Medicare, we're talking about Medicaid. We're talking about Social Security. That's a scary proposition for what the future of those programs could be at this point, right?
Bruce: It really is. And, and quite honestly, you know, I'm coming up on that age in a few years, myself, where I would look forward to getting Medicare and not having to pay $1,200 a year for health insurance.
Bruce: But I have 10,000 other baby boomers my same age that turned 65. I'm not 65 yet.
Jon: You sure don't look it.
Bruce: Yeah, thanks Jon. Turns 65 every day. Now think about that folks. You have 10,000 more people starting to claim their benefits on Medicare and the government is having to add them to and pay for those services. Now, according to the trust fund, which is the people that manage the Social Security in 2021, the trustees came out with a report, said the old age and survivor's insurance fund will be depleted by 2033. And at that time, the benefits for Social Security are gonna drop to just 76% of what they've promised each of us. So think about that. Everybody on Social Security has to take a haircut all the way down to 76%. So, you know, 25%, 24% off of what people are receiving. I know some people just live on Social Security, but,
Bruce: How is that gonna go over? I can't imagine that Congress is going to vote for cutting people's Social Security.
Jon: And the people who receive Social Security. I'm not trying to stereotype, but traditionally older Americans vote in bigger numbers than younger Americans. Those are the ones that are taking Social Security and Medicare. So I can't imagine a politician worth his or her salt is thinking, yeah, I'm gonna upset all these voters of mine by just slashing their benefits.
Bruce: Jon, that's a great point. So if you think of the choices, the politicians are gonna have - slashing benefits or the opposite is what - raising taxes.
Bruce: Raising taxes on everyone else, or slashing benefits of the Medicare and Social Security recipients. That is a very difficult, uh, decision, but not so hard that the politicians can't make it. They're gonna have to raise taxes and I'm not taking political sides here, but I don't care how conservative or anti-tax you are, if the math doesn't work out, you're gonna have to raise taxes on everybody else to pay for all this debt that we have and all these social programs that are benefiting, you know, a large portion of our population.
Jon: Let me take it a little bit deeper on each of these programs or at least two out of the big three. So, with Medicare, when Medicare started 40, 50 years ago, don't have the date off top of my head. We had less people in this country and they weren't living as long. Now, and we're gonna talk about this in future episodes when it comes to retirement. Many retirements are going 30 years. We have Americans routinely living into their nineties. They retire at 65 or 60, whatever. And then 70, 80, 90, you're paying for their health coverage into their seventies, eighties, and nineties. And if you've taken a look at the cost of health coverage or long-term care or in-home care or nursing homes or any of those things lately, they are very, very expensive.
So you've got more people living longer, care is more expensive. I don't believe that, uh, the people who came up with Medicare anticipated having to pay for all these things. When the program first started.
Bruce: Jon, you hit the nail on the head. This should be one of the primary concerns that our clients and our audience should be worried about. The challenge of our generation will be, is there enough caregivers to give quality care to all the baby boomers that are retiring and need help? And it's getting more and more expensive. You know, everybody wants to stay in their home. Nobody wants to go to a nursing home.
Bruce: And if you look at the cost of having someone come into your home and, and provide care 24/7, the government certainly can't take this on, but just the medical costs, as people are older, they use more medical expenses than that.
So this program is less funded than Social Security. Social Security, they have ways to try and solve that bridge, but the Medicare challenge, that's the bridge too far. And that's gonna be the one that is really gonna demand help. And from what I'm reading is the Medicare trust fund looks like it's running outta money in 2023, 2024.
They're gonna have to start pulling funds in from somewhere and you just wait and see pay attention to the news folks. Because you're gonna see news about Medicare in the next couple of years and how they have to fund that and the concerns that they have over that.
Jon: That's really interesting. Obviously we had talked about the financial shortfall here, but the caregiver shortfall is another whole layer of this onion that I hadn't even considered with more and more people and needing more people to take quality care of them.
Let me come back to the Social Security piece of this. So full disclosure, I'm 41 years old. I will be 65 in the year, 2045. What you're saying here, Bruce, I'm not gonna lie. You're scaring me a little bit here. I pay into my Social Security every month and I would like to see that payout when I am of the right age to collect that Social Security in 2040, whatever I elect to start taking it.
What do you say to somebody like me? Who's, uh, a little bit nervous here?
Bruce: If they make no changes, Jon, you can expect to receive right now, 76% of what they've promised you.
Bruce: That's what I tell you. So the flip side of that is, is if you don't think that you can trust that number. Then you better start saving and preparing and planning and Protecting and Preserving the Wealth you have, you have a long runway, so you need to start today of planning for that. Both the need for long-term care, but the need for retirement funds that Social Security is not gonna be able to provide. And even if they raise taxes, the system is gonna be strained in providing all those resources to all the hands that are out. I mean, we haven't even talked about all the people coming into our country right now. That are gonna need to be supported as well. The millions of people that we're adding to the population in the United States. And, and I'm not taking a political side on this, because Lord knows we need workers, right?
Bruce: We need people to work in the United States, but, those people take resources just like you and I do when we turn on Medicare and turn on Social Security. And I'm not sure that we have the funds in the federal government, that they have planned for all these additional people. So, that's another challenge. And so if those people are not planned for the government has to raise taxes. In a scary amount of way, you know, a couple years ago in 2019, my wife and I went over to Europe, Jon.
Bruce: And we talked to our drivers of the cars and the, the drivers of the cars that we had, uh, driving us back and forth to the airport and around, I asked them, well, how much do you pay in taxes? And they said, their tax rate is 65%.
Bruce: 65%. And so I don't know that the United States is gonna go to 65%. But certainly we're headed in that direction and how soon that happens. I don't know, but a lot of people are waiting for the other shoe to drop. When some of this questionable printing of money starts, the chickens come home to roost, and we see that the tax rates have to go up to pay for all this spending.
Jon: We've already seen that some of that with inflation in the first four months of 2022. And then also, if you look historically taxes are as low as they've been historically in the history of our country.
Bruce: You know, Jon, that's exactly right. Taxes are on sale right now. And that's one of the conversations I have with clients when they come in and I'm asking these questions are tax rates stay the same, are they gonna go higher, go lower. They say, they're going higher. And I say, then I use a legal term. I said, so can we stipulate and stipulate is a term that attorneys use in court.
Bruce: That they make an agreement - can we stipulate? Can we agree? That taxes are on sale today. And if we can agree that taxes are on sale today, how much do you wanna buy?
And people are kind of put off by that for a minute. They're thinking - "buy taxes?" And what the opportunity is really to convert that traditional IRA and pay the taxes on it while the taxes are on sale, convert to that Roth IRA and lock in those tax rates to make sure that they don't pay a higher tax rate like 65% in the future, if they wait too long.
Jon: One of the things you and I were talking offline before we started recording today, Bruce, and you talk about this dirty little four-letter word, this dirty little four-letter word that all of this comes down to. So, you know, tell your kids to put their earmuffs on, but what four-letter word are we talking about here?
Bruce: The four litter word, that challenges everybody is math.
Bruce: The math does not tell us that we can keep tax rates the same as they are today folks. That four letter word which should not be a swear word, but it feels like it when we say it like this, is the math does not add up that we can keep the tax rates that we have today.
Jon: All right. We start to wrap up here, Bruce. Any final thoughts
Bruce: Folks, while the tax rates are on sale strategically plan to convert your IRA to a Roth and take advantage of these tax rates that are on sale today. That's my thought for the day.
Jon: That is a good one. We'll leave it there. Bruce. If somebody wants to come talk to you and the wonderful team you have at Hosler Wealth Management, what are the best ways to reach you?
You know, you can reach us folks at hoslerwm.com that's Hosler, H O S L E R wm.com. Or you can call the office, Prescott (928) 778-7666 or Scottsdale (480) 994-7342. We look forward to hearing from you.
Great stuff, Bruce. We'll talk to you again soon.
Bruce: Thanks, Jon.