Cutting Taxes and Your Retirement

Cutting Taxes and Your Retirement

by Doyle Ranstrom on Jul 26, 2020

A politician who runs on cutting taxes is actually saying, "charge it" and "let's send the bill to your kids or grandkids."

In my presentation, "Long-term trends that may affect your retirement", one trend I discuss is Federal income and expenditures and resulting federal deficits.  Before the pandemic, I believed the federal deficits would be a major factor for long-term financial security for retirees, and the federal financial situation is much worse now.  

First of all, as an independent moderate, I have no loyalty or allegiance to any political party.  A while back, someone I respect greatly said to me, "When it comes to federal spending, we have two political parties, tax and spend and borrow and spend".  I completely agree with this.  The political parties may spend on different things, but they both spend.  

Since 1940, the US has had very few budget surpluses.  The last being 1998-2001, the last three years of the Clinton Administration and the first year of the Bush Administration.  Since then, like most years before, there was a deficit each calendar year.  Friends from each political party always blame the other political party.  At this point, since I have not heard anything new in years, nowadays when this happens, I take a sip of my wine or beer, smile, stop listening, and go into one of my happy places.

  • A study done by the Watson Institute at Brown University estimated the US Government had spent or obligated $6.4 Trillion dollars on wars with Afghanistan, Iraq, and Pakistan.  Much of this spending was done off books so would not show up in annual deficit.  The same study estimated that unless this specific debt is paid down, the interest payments alone will be about $8 Trillion by 2050.
  • According to a report issued by the Congressional Research Service issued in 2019, the tax cuts of 2017 provided only a fraction of the economic gain in 2018, the economy's strong performance came largely from factors already in place. What the tax cut did do is lower tax rates for corporations which went largely to corporate stock buy-backs which increased the value of the stock which benefited stockholders.  At the same time, the federal deficit was almost $800 billion in 2018, so an independent moderate like myself could make the case the increase in market values of corporate stock who took advantage of the reduction in corporate tax rates to buy back stock was due to deficit spending by the federal government.  In other words, American tax papers funded the increase in stock prices thru deficit spending. 

What is not included in the study, is during the same time period, the current administration disbanded the NCS team responsible for pandemics.  The administration also proposed cuts in the CDC budget.  We are now spending literally trillions increasing our deficits because National leaders did not understand financial responsibility, risk management, or long-term planning.  

Which leads to this, a politician proposing a tax cut in this environment is the equivalent of a baby boomer voluntarily going from working full-time to part-time, running up a charge card to spend the same amount plus a little more, and then handing the bill when it comes due to their children and grandchildren.

We cannot tax cut our way out of this.  Nor can we borrow our way out of this. We can invest our way out of this as long as the investment goes into:  

  • Rebuilding our infrastructure.  In addition to repairing an outdated and depleted infrastructure, this will create good-paying jobs which means people paying more taxes which increases retirement security. 
  • Developing a comprehensive health care plan that includes basic health care for all citizens, a commitment to public health services, and investment in research and technology including but not limited to dealing with infectious deceases and avoiding pandemics.  This has the potential to reduce the per capital cost of health care in the US which before the pandemic was over $10,000, improve public health which also decreases the total cost of total health care and avoids future infectious deceases and pandemics.  All good for retirees.  
  • Investment in public education from kindergarten through post-secondary led by experienced educational professionals. This includes but is not limited to science classes which teach all types of science and how science works and history classes which teach history as it happened, not as some would like to believe it happened.  A better educated pubic are able to obtain higher-paying jobs which leads to higher government revenues which are good for retirees.  Also, hopefully, having better-educated voters will lead to more thoughtful and informed National leaders.   

We can come out of this better, but cutting taxes will hurt, not help our long-term financial security.   

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.