How Will Federal Income Taxes Change Over The Next 20 Years?

[Midpack]

So what are you planning to deal with this?

Mo’ larger Roth conversions if rates go up in the next 20 years. After 73, in 3 years, my options are much more limited, though DW is younger.

 

[rk911]

Us? Not planning anything about taxes. We donate heavily to charity thru our DAF and QCDs and that helps a bit. And I doubt either of us will be around in 20-years.

 

[Rianne]

I think taxes will increase, they have to.

 

[Cobra9777]

For a long time, I was reluctant to convert beyond the 12%/15% bracket. I was hung up on quantifying the benefit, which declines sharply as you get into the 22%/25% bracket. I remember thinking... too many unknowns for such a thin margin. But my attitude changed completely several years ago after reading some very well thought-out posts on this forum.

For me, converting at 22% reduces exposure to future uncertainty. Good or bad, big or small, makes no difference. I'm quite happy with 22%, relative to the rates I would have otherwise paid when I deferred that income. My strategy now is to settle-up sooner rather than later. Otherwise, I'm just speculating about the future.

Without conversions, we would have an enormous deferred tax liability, helplessly blowing around in the wind. It's easy for our reptile brains to imagine higher rates, greater progressivity, means testing, etc. But for me, it's just as easy to imagine a new era of economic growth, where none of that stuff is necessary, and rates drop below 22%. Obviously, that would be a nice outcome as well. Either way, I'll be happy as a pig in slop staring at my giant Roth account every time I log-in to Fidelity.

 

[Hyper]

Both sides are horrid failures so our only hope would be for DOGE to work well. I'm oppomistic yet realize neither side will give up the $ so raising taxes without DOGE will be certain. The bigger picture is the fed. As bad as both sides are, the fed has been considerably worse.
I thank the great Lord we were able to live as we did.
Given where we are, things would get extremely bad for so many before effecting us. I can't see either side allowing for that to happen?

 

[Koolau]

I think we'll know soon. Then I'll worry about taxes. Far as I can go without more knowledge.

 

[mrfeh]

Honestly, I don’t worry about it. We just do the best we can each year.

+1

Why worry about something we have no control over? Trying to predict such a thing is an exercise in futility.

 

[frayne]

Our tax system is dynamic and constantly evolving, driven by how Congress chooses to spend and collect revenue. I'm not optimistic that Congress will get its act together anytime soon, so I anticipate continued incremental increases (by way of inflation if nothing else) for the foreseeable future. As mentioned above, it's not something to worry about excessively but definitely something to keep in mind when planning ahead.

 

[Midpack]

As mentioned above, it's not something to worry about excessively but definitely something to keep in mind when planning ahead.

+1, exactly. The thread has a 20 year window, not next year as some answered. But I agree we’ll know more within a year.

 

[CRLLS]

I can't do much about how future taxes may change. As such, all I can do is "plan" for several different possibilities. Taking any action on those plans is futile. What action may be good for plan A may not good for plan B, and vice versa. As a result, I really don't plan anything except to stay on this side of the grass so I can pay whatever taxes our Congress Critters decide on.

 

[Flieger]

+1, exactly. The thread has a 20 year window, not next year as some answered. But I agree we’ll know more within a year.

I think the only thing we will know within a year is if the TCJA reverts or not. After that, we may see some change over the following 3 years, but then all of that may change with the next 4 years, and so on....

Flieger

 

[Midpack]

I think the only thing we will know within a year is if the TCJA reverts or not. After that, we may see some change over the following 3 years, but then all of that may change with the next 4 years, and so on....

Flieger

So no financial plan beyond next year?

 

[Flieger]

So no financial plan beyond next year?

Financial plan? Sure. Just no changes based on projected changes to taxes.

Flieger

 

[Marc]

Having almost no Schedule A deductions, I sure hope the larger standard deduction remains. Besides that, I don't think 22% vs 24% vs 25% will matter that much. In the long run, we are all dead.

 

[TheWizard]

Same here, and if things change, I have no way to impact the changes anyway.

That's pretty much my thought as well.
I'll deal with things as they happen...

 

[jebmke]

We are driving our Federal rate as close to zero as we can. Some of that is with munis so our State income tax will increase, which I don't mind. Going to have to get a little creating starting in 2026 as one of our RMDs will exceed the QCD limits.

 

[TheWizard]

I don’t worry about it.

I want around 120k/year and most/all of that will come from tax deferred accounts. Effective tax rate with 24% marginal tax rate is 18% and with 28% marginal tax rate it’s 22%. A 4% difference, almost 5k. I can think of better ways to spend 5k, but overall it’s not that much.

That may not be accurate.
Firstly, the inflation adjusted Taxable Income dollar amount where the 24% bracket starts is/was not the same as where the 28% bracket started. (I don't recall exact details.)

And, if TCJA sunsets, then we get back Personal Exemptions and unlimited SALT deduction.

The dollar amount of my Federal income tax didn't change that much when TCJA started and I suspect the same if it ends...

 

[DEC-1982]

Just thought I'd ask this thoughtful group what you're actually planning on long term? And why?

It's a key variable for all of us in long term planning, and it would seem we're on an unsustainable path running $1.5-$2T annual deficits - unless you subscribe to MMT I guess.

PLEASE LEAVE POLITICS OUT OF THIS ENTIRELY.

I've read several Tax Foundation articles, such as Considering Tax Reform Options for 2025 (and Beyond) - but even the most aggressive recommendation does little to curtail recent deficits.

I welcome spending reductions but I don't see how we can avoid tax increases over and above inflation over the next 20 years, and I am planning accordingly.

I am not planning to make any changes.

My take - let's wait and see how the future unfolds.

 

[tulak]

That may not be accurate.
Firstly, the inflation adjusted Taxable Income dollar amount where the 24% bracket starts is/was not the same as where the 28% bracket started. (I don't recall exact details.)

And, if TCJA sunsets, then we get back Personal Exemptions and unlimited SALT deduction.

The dollar amount of my Federal income tax didn't change that much when TCJA started and I suspect the same if it ends...

That’s why I calculated the effective tax rate. But yeah, it’s a ballpark estimate, doesn’t take into consideration deductions, and assumes rates would only revert. Lots of assumptions, but the point is, for planning, if taxes go up, the hit isn’t too bad. At least in my case, which is why I don’t worry about it.

 

[teej1985]

If it changes, I'll worry about it, I'm not too worried, as I suspect we'll always have a progressive income tax system and thus the high spenders will be paying more taxes as they need to pull more income to fund their lifestyle.

 

[Texas Proud]

One of the problems with trying to anticipate is that you could be wrong... and what you do might hurt you in the long run..

There were people who spent a lot of money when I was young and a tax accountant trying to prevent estate taxes... and guess what... all wasted as the amount has gone up so much most do not have to worry...

I remember one tax professor who said he could give the same test year after year and have different answers according to what laws passed...

 

[scrabbler1]

Income taxes will increase only if the political and fiscal consequences from not raising them exceed the political and fiscal consequences from raising them. Will that day arrive? Not any time soon.

As for the impact the 2017 TCJA had on me, my taxes increased slightly in 2018 and 2020 but decreased slightly in 2019, 2021, 2022, 2023, and 2024. I didn't come out ahead, by less than $100, until 2022. However, it became easier to produce my income tax returns, along with those of some of the 3 people whose returns I do (all by hand with the aid of a spreadsheet) because of the doubling of the standard deduction. With the passage of time, going back to the lower SD would not necessarily make those returns tougher to do.

 

[Closet_Gamer]

If you look inside the spreadsheets/calculators, I assume aggregate tax collection from me will be about what it is today and inflation will be 3% over the long haul. I think tax revenue will need to increase but there are so many ways to increase it that I don’t know how that might actually affect me as an individual.

I am more concerned about my inflation assumption, especially as one way to deal with the debt issue is to quietly inflate it away.

I’m planning on dealing with both of these risks by:

1 - managing portfolio construction

2 - ensuring my essential expenses are MUCH lower than my planned SWR

 

[HarveyS]

I think you mean high earners, not necessarily high spenders.

If it changes, I'll worry about it, I'm not too worried, as I suspect we'll always have a progressive income tax system and thus the high spenders will be paying more taxes as they need to pull more income to fund their lifestyle.

 

[HarveyS]

In my current plan I use 24.8% income tax (fed). I live in a no income tax state. Was pretty close to that in 2014, but lower in following years. I have never adjusted my assumed future tax rate, but this thread has me thinking maybe I should consider reducing future tax rate estimates to be more in line with what my actual rates have been. More and more of my income is coming from qualified dividends and LTCG so a reduction is probably warranted. That would free up some $ to BTD!