Poll: Future Tax Rates Will Be Higher

[Midpack]

Quote:

Originally Posted by ejman My WAG is that Fed income tax rates will not go up significantly on account of very determined opposition to such happening but there will be all kinds of other creative taxing mechanisms that will compensate for that.

May be, but the net effect is the same for planning.

[MichaelB]

Total federal taxes have stayed between 15% - 17.5% of US GDP since the 50's despite endless rhetoric and copious amounts of hand wrenching and bloviating. They move above 17.5% late in economic growth cycles, and fall below 15% when we fall into recession. My guess is taxes will remain in that range for the rest of my life.

The one thing that would change that is health care.

At a state level, I would expect to see total tax revenues increase a bit over current levels, but not much.

[Totoro]

I expect taxes on high incomes and wealth increase.

That is, unless we find a way to assign basic wealth to everyone and force them to only spend its proceeds - basically an extended version of pensions to fund basic income. In that case taxes may actually decrease.

Reason for the above is that most people (including myself) will find it harder and harder contribute to the economy. Those that can will earn ever more disproportionate amounts of income and wealth.

[Happyras]

So here are the facts that most people do not pay much tax;
ACTUAL INCOME TAX PAID
% of Americans Tax Liability
47% Poll Bar $0 (47% of Americans pay no income tax at all)
37% Poll Bar $1-$10,000
15% Poll Bar $10,000-$50,000
1% Poll Bar $50,000+

The top 5% most productive Americans pay 59% of all income tax collected by the Fed Government. Despite the media labeling this category of taxpayers as "wealthy" - over half of those most productive Americans are actually small business owners taxed at the personal income tax rates.

I don't worry as much about the tax rate, as the $$$$ we have to pay taxes on. This year as I retired from MegaCorp, our small business employed a few more than the prior tax year, and WHAMMY, we lost the Health Credit for small business. We paid too much to our employees labor, bonus and benefits and took a slight loss, and WHAMMY we get to pay tax on money we loaned to the business, and are disallowed from taking the loss on our 1040. The majority of taxes are paid by small business owners like us who file SubS and get subjected to all forms of tax rules specifically targeting our business. Large Corps have teams of legal and accountants who work all year to minimize their liability.

[Happyras]

Not meaning to be off topic, but I far more expect the rules to change more than the rates.

[dallas27]

I figure future rates will be one of two things A) higher but avoidable, or B) lower but unavoidable.

Either way, I don't care, just life and you have to deal.


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[panacea]

Income taxes will fluctuate over time, probably increasing for a period of time given our current situation... at least for middle to higher income individuals. For lower income individuals I expect them to be the same. Over the long term I think taxes will remain relatively steady and my retirement plan assumes no tax increase over the duration of my life.

[samclem]

Quote:

Originally Posted by MichaelB Total federal taxes have stayed between 15% - 17.5% of US GDP since the 50's despite endless rhetoric and copious amounts of hand wrenching and bloviating. They move above 17.5% late in economic growth cycles, and fall below 15% when we fall into recession. My guess is taxes will remain in that range for the rest of my life.

You may be right, but some observations:
-- We've experienced tremendous GDP growth during the cited period, which enabled tremendous growth in government "income" over that period. Few people see a continuation of that.
-- Demographics: End of the baby boom = relatively fewer tax payers and relatively more recipients of government services.
-- Under US Treasury department projections (here, page 5, chart 5), even if our taxes are enough to cover all non-interest spending (IMO, a pretty rosy assumption), interest on our existing debt will require even more borrowing to cover the interest. In the words of the report " The continuous rise of the debt-to-GDP ratio after 2025 indicates that current policy is unsustainable."

So, something will have to give. We haven't shown much stomach for either decreased spending or increased taxes so far.

[FUEGO]

For my own model, I assume taxes will stay about the same. I only pay $1500-2000 per year (mostly state taxes) so even a doubling wouldn't be a big deal. No need to get overly conservative in all the different model assumptions when the overall model (FIREcalc and the 4% rule) is fairly conservative (works in 95% of historical scenarios).

From a macro level, we're running about a $500 billion annual budget deficit. Taxes would obviously have to increase to get to a balanced annual budget (unless we keep spending flat and the economy grows to a point where the tax base expands enough to increase tax receipts). Will fiscal discipline and a balanced budget ever happen? Call me a skeptic.

[Car-Guy]

So with the way the poll is going, (taxes are going to go up) maybe it would be best to start taking IRA and 401k distributions now rather than waiting for RMD's to kick in, especially if you will be pushed into higher brackets. Of course tax deferred money could be treated differently and taxed less.............. (or more )

Always been a consideration I guess!

[MichaelB]

Quote:

Originally Posted by samclem -- Demographics: End of the baby boom = relatively fewer tax payers and relatively more recipients of government services.

The labor force is growing and projected to continue @ 0.5% per year for the next decade.

[W2R]

Quote:

Originally Posted by Car-Guy So with the way the poll is going, (taxes are going to go up) maybe it would be best to start taking IRA and 401k distributions now rather than waiting for RMD's to kick in, especially if you will be pushed into higher brackets. Of course tax deferred money could be treated differently and taxed less.............. (or more ) Always been a consideration I guess!

This is the 7th year during which I have been taking regular monthly payments out of my TSP (=401K) account, to lower my account balance in anticipation of RMDs/SS.

I think your idea is worth considering.

[RunningBum]

Quote:

Originally Posted by Midpack What Federal-State-Local taxes are you confident won't increase over the next 30 years?

Income tax for the 15% bracket people. Confident? I didn't and won't say that. I'm hoping to get Roth conversions done so I won't get hit with a higher rate in case it happens, but I'm not expecting it enough to plan for it. Meaning, I may choose to go for the ACA subsidy over getting my IRA completely converted.

[Car-Guy]

Quote:

Originally Posted by W2R This is the 7th year during which I have been taking regular monthly payments out of my TSP (=401K) account, to lower my account balance in anticipation of RMDs/SS. I think your idea is worth considering.

I started taking mine two years ago which I hope will keep me in a lower bracket by the time RMDs kick in. If they don't adjust the brackets or change the rules. Again

[petershk]

Of course it depends on what is meant by taxes, but I'll look at US federal as a proxy for general tax policy.

By historical standards, they aren't that high.

For example in 1962 the top rate was 91% on income over 3m (2013 dollars). In 1951, it was 91% on income over 1.7m.

You have to go back to 1930 to get to top tax rate of 20%.

Between 1930 and 1980 it was normal to have federal tax rate top at 70-90%.

From 1980-1990 it went from 70% to 25% and then back up to 39% by 1993...

Has stayed around that since then.

My guess is it has to do with wealth distribution, country's growth, employment, etc.

After 1929 rich people weren't all that popular , unemployment was high and the economy sucked so taxes on high earners went way up. I think today's environment isn't quite like that but the wealth disparity is causing similar attitudes and so you could see top rates creep up to 70-90% again.

That said... who knows how it manifests . For example... removing cap on SS taxes probably effects few people on this forum whereas treating cap gains as normal income has a large impact to most people.

Source: http://taxfoundation.org/article/us-...usted-brackets

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[Midpack]

Quote:

Originally Posted by petershk Of course it depends on what is meant by taxes, but I'll look at US federal as a proxy for general tax policy. By historical standards, they aren't that high. For example in 1962 the top rate was 91% on income over 3m (2013 dollars). In 1951, it was 91% on income over 1.7m. You have to go back to 1930 to get to top tax rate of 20%. Between 1930 and 1980 it was normal to have federal tax rate top at 70-90%. From 1980-1990 it went from 70% to 25% and then back up to 39% by 1993... Has stayed around that since then. My guess is it has to do with wealth distribution, country's growth, employment, etc. After 1929 rich people weren't all that popular , unemployment was high and the economy sucked so taxes on high earners went way up. I think today's environment isn't quite like that but the wealth disparity is causing similar attitudes and so you could see top rates creep up to 70-90% again. That said... who knows how it manifests . For example... removing cap on SS taxes probably effects few people on this forum whereas treating cap gains as normal income has a large impact to most people. Source: U.S. Federal Individual Income Tax Rates History, 1862-2013 (Nominal and Inflation-Adjusted Brackets) | Tax Foundation Sent from my HTC One_M8 using Early Retirement Forum mobile app

We're drifting (thread topic) a little here --- but I don't put a lot of stock in tax rates alone, especially the top tax brackets. Deductions have expanded considerably over the decades, few individuals (or corporations) pay anything like the tax rates themselves. Look at effective tax rates over time, though that's a little harder to find...

[Danmar]

Tax rates are certainly increasing in Canada. My max marg combined fed and provincial rate has gone from 39% in 2014 to 48% this year. This is on incomes over about $200,000. Doesn't Seem as high in US? Tax deductions are credits are immaterial.

[samclem]

Quote:

Originally Posted by samclem -- Demographics: End of the baby boom = relatively fewer tax payers and relatively more recipients of government services.

Quote:

Originally Posted by MichaelB The labor force is growing and projected to continue @ 0.5% per year for the next decade.

Relatively fewer . . . Relatively more. Maybe it would have been clearer if I'd said: More retirees (and others) depending on relatively fewer workers.





(note--percentages are before the start of the ACA subsidies)

[MichaelB]

Quote:

Originally Posted by W2R This is the 7th year during which I have been taking regular monthly payments out of my TSP (=401K) account, to lower my account balance in anticipation of RMDs/SS.

This makes sense to me. This is like dollar cost averaging vs trying to guess when to invest money. Trying to guess if taxes will be higher also requires us to guess which ones will rise, and when they change. What are the odds we will get this right? If most taxes are income based, it seems safer to me to spread the flow of income over time as smoothly as possible.

[Sunset]

I believe future tax rates will effectively be higher, either by adding in more brackets or increasing the rate per bracket, or removing common deductions or increasing the dividend rate and capital gain per bracket.

I've seen it in IL and I'm sure IL is not done raising the rates and the feds will join in too.