\u201cOur new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.\u201d So said Benjamin Franklin in a letter to Jean-Baptiste Le Roy in 1789.<\/p>\n
Franklin, clever and erudite as he was, lifted the phrase from Daniel Defoe\u2019s The Political History of the Devil, written in 1726. Defoe himself stole it from Christopher Bullock\u2019s The Cobbler of Preston (1716). You can\u2019t blame any of them; it\u2019s a great line.<\/p>\n
Death and taxes are the everyday milieu of financial advisors. It\u2019s the nature of their job to help their clients work through the challenges of dying too soon and, conversely, living too long. On the one hand, they may not have had the time to build up enough wealth to support their heirs, and on the other, they may outlive their nest egg.<\/p>\n
Threats to clients\u2019 financial plans, things like inflation, high interest rates, market corrections, regulatory changes, and a million other things beyond their control, are ever-present. And, as we are experiencing right now, several can happen simultaneously.<\/p>\n
As difficult as these things are to control, they are equally difficult to predict. We can neither say when a bear market will happen nor when it will recover. Sometimes, a bad earnings report can see a stock rise, and sometimes, a great one is greeted with a sell-off.<\/p>\n
For this entire century, it\u2019s been extraordinarily difficult to predict who would win a presidential election, and even if you could get that right, it\u2019s been just about impossible to reliably predict what the victory would mean for the economy or the markets. There are just too many moving parts, too many variables, too much noise in the system.<\/p>\n
But, there is another threat to financial security, and this one seems inevitable: the staggering size and scope of U.S. Government debt. You may not realize how much trouble the U.S. financial house is in because it gets only lip service out of Washington and not even much of that. But I can\u2019t imagine a rational argument that we\u2019re not in really big financial trouble.<\/p>\n
Every American taxpayer is already on the hook for over a quarter million dollars, and that\u2019s before even thinking about the time bombs that are Social Security and Medicare, or the fever dreams of the climate action lobby. You may be in favor of the social safety net and Net Zero, but whatever your policy preferences are, those solutions are undeniably going to be hugely expensive.<\/p>\n
Potential outcomes, such as rationalizing or inflating the debt or devaluing the dollar, will have massive and unpredictable consequences for the American enterprise and in foreign affairs. Political instability carries massive and unpredictable threats of its own.<\/p>\n
In this blog, we play the role of Chicken Little. Our cry is not \u2018the sky is falling\u2019, it\u2019s \u201cthe taxes are rising!\u201d There is not enough wealth among the truly wealthy to bail us out; a broader and deeper taxation scheme is almost certain to be proposed, and that may wreak havoc on the financial plans of many millions of American families\u2014on people like you. Our point is that it\u2019s more important than ever to get serious about tax strategy.<\/p>\n
High inflation, high interest rates, a slowing economy, and a rocky market all constitute real threats to retirement security, thereby making planning more important than ever. In a cruel twist, Americans who live a healthy lifestyle are likely to continue to live longer, compounding the planning problem.<\/p>\n
You may want to spend a sobering quarter-hour at a website called usdebtclock.org. The site reported on April 29 that per capita debt is $103,080. Each taxpayer in the U.S. is on the hook for $266,951. If that shocks you, go to the website and look around, but be prepared for some more really, really scary news.<\/p>\n
Things are only getting more serious. CNBC estimates that the debt will grow by another trillion dollars every 100 days. Higher interest rates only make things worse: CBS has reported that the interest on our national debt will hit $870 billion in FY2024, higher than the $822 billion we\u2019ll spend on defense this year.<\/p>\n
Federalbudgetinpictures.com notes that \u201cFrom 2020 to 2024, a span of just four years, the federal government added $11 trillion to the national debt as a result of a massive spending spree. It took the government 220 years, from George Washington to Barack Obama, to initially reach $11 trillion in debt.\u201d Eleven trillion added to our nation\u2019s debt in just four years should be alarming.<\/p>\n
In a previous blog, we\u2019ve referred to the passage in The Sun Also Rises, where a formerly wealthy man is asked how he went bankrupt. \u201cTwo ways,\u201d he said, \u201cgradually, then suddenly.\u201d When you are $34 trillion in the hole and adding another trillion every three months or so, it seems \u2018suddenly\u2019 cannot be far off.<\/p>\n
When suddenly finally arrives, something is going to have to be done, and that something may very well be significant tax increases on virtually everyone. Not just income taxes, either, but possibly taxes on everything, including, if folks like Senator Elizabeth Warren get their way, on your wealth.<\/p>\n
We mention this not to ruin your day but to suggest that the time to consider ethical and legal tax strategies is now. We strongly recommend that you make the move from tax compliance to tax strategy, which is the common approach of the wealthiest families.<\/p>\n
Families with enormous wealth really care about the 40% tax on their Estates, and you can imagine why. The rest of us should consider what may happen if capital gains rates were to double and income brackets were to revert to the levels of the 50\u2019s and 60\u2019s. If either of those were to happen, it could destroy the best-laid plans of advisors and families.<\/p>\n
Modern advisors appreciate the threat of debt and its potential resolution and look to the examples of family offices that incorporate tax planning and risk management into their asset management strategies. Building real financial security may require a new way of thinking about wealth management.<\/p>\n
We can only wonder what Franklin would say if he were with us now, but I\u2019m guessing he might channel Oliver Hardy: it\u2019s another fine mess you\u2019ve gotten us into. The wise investor will get serious about tax strategy without delay.<\/p>\n","protected":false},"excerpt":{"rendered":"
Legislation, like the weather and inflation, is something we react to, not control. When planning for long-term financial security, we can hope for the best and plan for the worst, but it\u2019s not only nearly impossible to predict what Congress will do, it\u2019s pure speculation to predict what the impact of new legislation will be. However, investors should be concerned that the epic and rapidly growing mountain of government debt may become their personal problem before too much longer.<\/p>\n","protected":false},"author":1,"featured_media":3745,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[32],"tags":[],"class_list":["post-3744","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-family-office"],"acf":[],"yoast_head":"\n