Are taxes poised to increase? What are the factors shaping the future of taxation?
Unless you’re a tax attorney or CPA, you probably don’t like talking about taxes. However, if you’re like most people, you certainly realize their impact on your wealth and financial well-being.
So, let me ask you, what does your gut tell you about the future taxation landscape? Do you share my opinion that taxes are more likely to increase than decrease?
Here are the reasons I think taxes will rise, perhaps dramatically, in the next decade. By the way, when I talk about taxes, I include income and state and local government taxes, property taxes, and sales taxes.
Government budgets are feeling the strain.
Over-promising, under-delivering federal, state, and local governments are feeling the pinch of economic reality.
Escalating expenses, inflation, underfunded pension plans, and loss of corporate tax revenue are plaguing most American cities and states, creating significant budget gaps. The easy solution, of course, is to increase existing taxes or add new ones. After all, why should government cut back on its spending when it can just squeeze more money from the citizenry?
Increases in social spending. In times of economic downturns and uncertainty, you would think governments would look for ways to cut back on social spending.
Unfortunately, this is seldom the case.
Politicians base their election and re-election campaigns on how much “free stuff” they can promise their constituents. Usually, though, they fail to factor in what it will cost in the future to keep those promises. Higher taxes are again the go-to solution to meet the costs of expanded social programs and services.
Crushing debt on the federal level. Bureaucrats tend to be somewhat dismissive of the growing national debt, downplaying its impact on working Americans. Deficits in the trillions have become the norm. The Congressional Budget Office projects that the United States government will run trillion-dollar deficits for the next DECADE.
This trend will result in a deficit of around $20 TRILLION by 2033.
Interest costs alone were over $478 billion in 2022, forecast to rise to $1.4 trillion by 2033.
In the next couple of years, the US will spend more on interest than we do on Medicaid and Social Security! Compounding this debt is a temptation by the Federal Reserve to print us into economic recovery.
The thorny problem of demographics. Political mumbo jumbo aside, demographics is one often-overlooked and misunderstood reason why many experts believe taxes must increase. Aging populations worldwide present challenges, particularly regarding pension systems such as Social Security and health insurance options like Medicare. By 2030, nearly 19% of the US population will be 65 or older. The shift to a more aging population has significant federal, state, and local revenue implications. As the remaining Baby Boomers retire, along with Gen-Xers and Millennials, the nation’s labor force participation rate is expected to decline.
With that drop comes a severe decline in revenue and spending, impacting federal, state, and local governments. Since many retirees earn less and spend less when they stop working, an aging population will likely reduce government revenues. What will politicians do to make up the shortfall? They won’t cut back or have a garage sale to raise cash. Instead, they’ll hit the “Increase Taxes” button.
Regulation and environmental priorities.
The global push toward environmental sustainability and implementing international treaties with various climate change provisions will likely involve more significant tax burdens. Such initiatives come with a high price tag; governments will pass those costs on to citizens. Incentivizing environmentally friendly practices may increase individual carbon taxes and corporate taxes.
Changes to international tax rates. As globalization continues amid the rise of digital economies and cross-border transactions, countries will face increased challenges in capturing revenue from multinational entities. I anticipate a push to reform international tax systems so there is a fair distribution of liabilities. The implementation of a global minimum tax rate could result in increased revenues for governments across the globe.
So, as you can see, factors reshaping the global taxation landscape make it more than likely that citizens of many countries, including the United States, will see an increase in the percentage of their income that goes toward tax obligations. Economic realities, expanded social safety nets, changing demographics, international taxation, and rising government debt all point toward a world in which tax planning will become increasingly important.
Individuals and businesses must discover novel and effective ways to address the evolving tax landscape and adapt.
Finding solutions to these issues is a core tenet of my “Untaxable Wealth Transformation” process.
