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

[teej1985]

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

I intentionally meant high spenders. If you don't spend a lot, there is not a necessity to earn a lot. If one did earn a lot but did not spend a lot, and was taxed more, this would be an incentive for early retirement.

 

[pb4uski]

I don't fret about this much since it isn't anythng that I can control or really even do anything about. I do think that the current historically low tax rates are unsustainable. There isn't enough discretionary spending to make much of a dent.

 

[pb4uski]

I believe that the sunset of tax laws will not happen and there will be some sort of change this year.
Not too concerned about it currently.

I think you are correct but I don't think it is wise since tax rates are historically low and deficits are historically high.

 

[ncbill]

I view Roth conversions as a hedge against future tax brackets.

Which I expect to be higher than the up to 15% (MFJ) we're paying now for Roth conversions.

Don't forget just how much higher those brackets were, even for MFJ households of moderate income.

E.g., my grandparents (born before WWI, both teachers who worked until the early 1980s) who paid a federal tax rate of 20% on their first dollar of income (until JFK took office, whereupon it dropped to ~15%)

No zero percent federal tax bracket for them until the early 1970s.

 

[scrabbler1]

I view Roth conversions as a hedge against future tax brackets.

Which I expect to be higher than the up to 15% (MFJ) we're paying now for Roth conversions.

Don't forget just how much higher those brackets were, even for MFJ households of moderate income.

E.g., my grandparents (born before WWI, both teachers who worked until the early 1980s) who paid a federal tax rate of 20% on their first dollar of income (until JFK took office, whereupon it dropped to ~15%)

No zero percent federal tax bracket for them until the early 1970s.

Most of my tax-deferred income came in the 1990s, so my top marginal rate at the time was 28%. That bracket went down to 25% under W before dropping to 22% with the TCJA. The 15% bracket got a 10% carve-out under W which has not changed since then, which is why I have barely broken even with the TCJA since 2018.

 

[Texas Proud]

Just popped into my head reading about ROTH conversions... and the problem with trying to anticipate future taxes...

Remember that some people are talking about taxing ROTH earnings in one way or another...

If this comes to be (I doubt it) then people who are doing this are going to be taxed twice... when converting and when taking out of ROTH... the devil is in the details but throwing out why trying to anticipate tax changes can be really hard...

 

[Midpack]

Just popped into my head reading about ROTH conversions... and the problem with trying to anticipate future taxes...

Remember that some people are talking about taxing ROTH earnings in one way or another...

If this comes to be (I doubt it) then people who are doing this are going to be taxed twice... when converting and when taking out of ROTH... the devil is in the details but throwing out why trying to anticipate tax changes can be really hard...

Not impossible of course but who is seriously recommending that? Give us a source.

Are you suggesting the likelihood of changes in tax structure are similar to a move to tax Roth IRAs?

 

[jebmke]

Just popped into my head reading about ROTH conversions... and the problem with trying to anticipate future taxes...

Remember that some people are talking about taxing ROTH earnings in one way or another...

If this comes to be (I doubt it) then people who are doing this are going to be taxed twice... when converting and when taking out of ROTH... the devil is in the details but throwing out why trying to anticipate tax changes can be really hard...

IMO earnings in the Roth would likely only be taxed once. If they changed the treatment, earnings prior to the change would likely be considered part of the basis and tax would apply to earnings that occur after the enactment of the change.

 

[TheWizard]

Just popped into my head reading about ROTH conversions... and the problem with trying to anticipate future taxes...

Remember that some people are talking about taxing ROTH earnings in one way or another...

If this comes to be (I doubt it) then people who are doing this are going to be taxed twice... when converting and when taking out of ROTH... the devil is in the details but throwing out why trying to anticipate tax changes can be really hard...

NOBODY is seriously proposing to tax Roth earnings twice; you are making this up.
There have been some ideas floated about limiting how much money can go into a person's Roth accounts...

 

[Koolau]

IMO earnings in the Roth would likely only be taxed once. If they changed the treatment, earnings prior to the change would likely be considered part of the basis and tax would apply to earnings that occur after the enactment of the change.

Every once in a while there is talk of a national sales tax or whatever. THAT would tax Roth funds that were spent.

 

[jollystomper]

I just assume they will go up. Even if the rates go down, we will have added income (my SS, which will also triple DW"s SS, and RMDs) so we will likely never be in a lower bracket than we are now. But we can deal with that fine .

 

[mwilson]

Every once in a while there is talk of a national sales tax or whatever. THAT would tax Roth funds that were spent.

Tariffs are essentially a sales/VAT tax on imports that would also tax Roth funds that are spent ... which a lot of people are talking about.

I don't think Congress would directly tax Roth withdrawals but perhaps place caps or ending further contributions or perhaps indirectly via means testing.

 

[Montecfo]

My spreadsheets all reflect current law. It is not something I worry about, but my guess is something similar to the current regime will remain in place. But I don't see tax changes as material to my retirement planning as these will be at the margin, I expect.

What we need to do is cut spending and limit its growth, while not raising taxes. There are many ways to cut spending and change our fiscal trajectory.

We need to grow our way out of it. Slowing growth via higher taxes for example will balloon deficits and make matters worse.

 

[Midpack]

^^^ Please stay on future tax rates, and not on tariffs, deficits or other.

 

[Montecfo]

I gave my opinion on future tax rates and my reasoning which is exactly what the thread asks. We seem to be having a good discussion with several references to impactors on future rates, including deficits (many references). I do not think this is hurting the discussion in any way.

 

[Texas Proud]

Been away a day...

My point on ROTHs was that someone had proposed taxing them like regular IRAs... sure, not likely but if you know what hits the fan it might one day happen...

And I bet there are very few out there that know their 'basis' in their ROTH... you just do not keep it.. so everything coming out would be taxed... so money going in was taxed... money coming out is taxed... that is taxing some of the money twice...

I am pointing this out that trying to make decisions of what MIGHT happen to taxes going forward is a fools game... and you could be really wrong... not that this is a serious proposal...

 

[Flieger]

I'm wondering if, as being discussed, SALT is modified/increased, would they make it retroactive to the 2024 tax year? Retroactive impacts have been done in the past.

Flieger

 

[SnowballCamper]

My prediction is that unsustainable government spending continues until international currency markets dethrone the dollar. This is a long way off. The latest idea (cryptocurrency) fails the criteria of being a stable store of value, and could be disrupted by quantum computing. The politicians have no incentive to fix the problem, because the fix is in increased taxes or reduced services, both very unpopular to the masses. I think the years of %2 (or less) inflation for the dollar are gone forever. I suppose it is possible for one of the very high, draconian tax brackets to come back (~70%) and that might work.

 

[USGrant1962]

I'm wondering if, as being discussed, SALT is modified/increased, would they make it retroactive to the 2024 tax year? Retroactive impacts have been done in the past.

Flieger

I think that's highly unlikely. IIRC, the times tax changes were retroactive were when the law was passed mid-late year and was retroactive to the beginning of that year, not the prior year.

 

[starry night]

I think you are correct but I don't think it is wise since tax rates are historically low and deficits are historically high.

The sunset of the TCJA will automatically happen, unless Congress acts to extend it.
I think it is pretty certain that new bills will be introduced to put in place new tax laws.
Congress will not want to EITHER continue the TCJA reforms (which were offered as an appeasement for the 2017 tax cuts for the wealthy — intended to expire at end of Trump’s presumed second term), nor will they want brackets to return to the pre-Trump levels.
New tax proposals are surely coming.

Attachment is a summary of the TCJA policies ending 12/31/25.

https://crsreports.congress.gov/product/pdf/R/R47846#:~:text=Expires%2012%2F31%2F2025%20Marginal,are%20annually%20adjusted%20for%20inflation.

 

[Montecfo]

I'm wondering if, as being discussed, SALT is modified/increased, would they make it retroactive to the 2024 tax year? Retroactive impacts have been done in the past.

Flieger

The current discussion seems to be around 1-1-25, not 1-1-24. Straight up repeal seems unlikely due to cost. But I think they could raise the cap.

And if they pair it with an AGI phaseout it might not be that costly. And might really help retirees.

Here is some analysis from UPenn.

Lifting the SALT Cap: Estimated Budgetary Effects, 2024 and Beyond — Penn Wharton Budget Model

The House of Representative is considering legislation that would retroactively double the cap on deductions for state and local taxes (SALT) for married filers for just 2023, which PWBM previously estimated would cost $12 billion. This brief examines the cost of cap increases if enacted for tax yea

budgetmodel.wharton.upenn.edu

 

[Montecfo]

My prediction is that unsustainable government spending continues until international currency markets dethrone the dollar. This is a long way off. The latest idea (cryptocurrency) fails the criteria of being a stable store of value, and could be disrupted by quantum computing. The politicians have no incentive to fix the problem, because the fix is in increased taxes or reduced services, both very unpopular to the masses. I think the years of %2 (or less) inflation for the dollar are gone forever. I suppose it is possible for one of the very high, draconian tax brackets to come back (~70%) and that might work.

I have same concern. But I do not see crazy high tax rates coming back as that model is bad for the economy and tax dollars raised as a percentage of GDP were not meaningfully more under that regime if at all.

 

[Taco]

My point on ROTHs was that someone had proposed taxing them like regular IRAs... sure, not likely but ...

I am pointing this out that trying to make decisions of what MIGHT happen to taxes going forward is a fools game...

Your point is that some wacky change could come our way (i.e. Roth gets taxed like traditional IRAs) that none of us would have foreseen / planned for. So it is a fools game to make predictions / decisions about these unknowns.

But some things are easier to plan on than others.

I don't think tax rate changes fall into the wacky bucket. Rates have changed multiple times in my lifetime. It would actually be quite shocking if they stayed the same for the next 30 years.

There are also just 3 possibilities on what future rates might do:
1. Go down.
2. Stay the same.
3. Go up.

Regarding #1, rates are already historically low and we continue to have big deficits each year. I think #1 is very unlikely. And, if rates were to go down, it would most likely be minimal. Like the 22% bracket goes to 20%.

I think #2 or #3 is much more likely.
Regarding #3, I would not be surprised to see the 22% bracket go to 25%, and then later on to 28% - or something similar to that. As recently as the year 2000, income over ~44K was taxed at 28%.

So, I don't think it is a fools game to make some educated guesses about future rates and take actions accordingly. For example, with whether or not to do some Roth conversions.

 

[Koolau]

One wishes the Laffer Curve had objective values on the X and Y axes. Such specificity would certainly make tax policies more straightforward. YMMV

 

[aaronc879]

I can't imagine how they could go down overall. Tax revenue needs to be increased.