Today we are going to discuss the future of taxation and we have to be really careful because when it comes to taxes nothing is ever known.
Let me explain what I mean. You might be aware of something called “tax brackets” and you might even understand that the brackets are set so that as you earn more income your tax rates go up.
Laws passed by Congress set those tax rates and currently, the law says that tax rates will go up on January 1, 2026. That is a fact, but it is not certain. You see, as with anything Congress controls, taxes could go up or down before or after then. Congress can even decide to keep the brackets the same on January 1, 2026, if they want to.
Now, I’m a political cynic and I think we can usually rely on Congress not doing much of anything, so if I had to have an opinion it would be that the tax rates will go up no later than January 1, 2026, but that is just my opinion.
In fact, if I was doing this podcast back in 2015 and somebody would have come to me and said, “Hey Brandon do you think taxes are going to go any lower?” I would have responded, “No I don’t really think they can.
The government spends a lot of money and lowering taxes would create a big deficit. I know the Republican deficit Hawks in Congress are all over Obama on any kind of spending measure.
Remember the Affordable Care Act and how much that was going to cost and how much of a fight they put up? I don’t think they can lower tax rates at all!” And I would have been wrong! That would have been dead wrong! In 2017 a Republican Congress with a Republican president passed the Tax Cuts and Jobs Act to lower tax rates.
So if that same person were to come to me again now and ask, “Hey do you think they’re going to go lower taxes anytime soon?” I would say, “I don’t think they are.
All the reasons I mentioned back in 2015 still exist. Plus you had a party that I associate with lower income taxes, the Republican Party, had control of the Senate, the House, and the Presidency when they passed that bill.
I think they took their best shot at lowering income taxes and I don’t think they’re coming back at all to lower those rates.” But that’s just my opinion.
Enough with the hypothetical past conversations, what do I think about the future of taxation in this country? Taxes are absolutely going up in the future. You know why I can say absolutely they’re going up?
Because the Tax Cuts and Jobs Act has a tax hike in it! That’s right! I mentioned this in the intro, but it is worth repeating. On January 1st, 2026 the tax rates are going to go back to the Obama era tax rates.
Now this isn’t a big spike, and historically I think those tax rates are still pretty darn low, but it is a fact that income taxes are slated to go up, there’s no doubt about that.
By the way, let’s take a moment to consider the political side of this. This is really brilliant! Despite the garbage that is today’s political landscape I have always appreciated brutally cold calculated politics just ’cause they reveal the true monster behind all the smiling faces on both sides of the aisle. Think about this Republican side of things when they passed the tax bill.
They passed the Tax Cuts and Jobs Act knowing that they could market themselves as the tax-saving party, which has clearly worked on me ’cause I just called them a tax-saving party.
And then they said to themselves, “We know the political pendulum swings back and forth so let’s say in 2026 we just happen to be out of power in any one of these branches, wouldn’t it be nice to have an automatic political win built in?
Why don’t we build in this expiration and then if we happen to be out of power we can blame the other side for raising people’s taxes! That is exactly what’s going to happen 2026 unless Congress does something sooner.
Taxes are going to go up and you know the political finger pointing is going to frame this as the other party is the party that raise your taxes! It was truly shrewd political maneuvering.
Ok, back to what I think about the future of taxes. Yes they’re going up. The very act that they passed says they’re going up. Now, taxes could go up sooner – particularly as the political pendulum swings.
This is a tricky thing to discuss on a podcast as it wades into political view and as I always say I am a political cynic. I truly don’t think that anything I say about politics will change your mind.
However, it is important for you to understand the lens through which I view the issue of future tax rates. Personally – I’ll just let you know – I’m a fan a lot of social programs.
I think we need to do a better job as a country of taking care of each other, showing compassion, and truly lifting each other up. I understand that there’s a certain price to be paid I think we need to do a lot better job about being honest with our governmental economics.
I get really frustrated with phrases from a politician saying “thing this thing is going to pay for itself” whether that’s a border wall or a healthcare system. The thing is not going to pay for itself!
The thing about American political spending is that fiscal responsibility is only the platform of the party who doesn’t have control over the purse strings. Do you remember the Obama era when you had so much Hemming and hawing from the right wing about spending?
Oh my goodness we couldn’t go a day without hearing about how spending needed to get under control, but back when the same Republican party had all both houses of Congress and the White House we didn’t hear much about how they should control spending.
I remember hearing that the decrease in revenue from lower income taxes is nothing to worry about, but every time something like Medicare for all comes up, you get those same people back up shouting about their grave concerns over this deficit spending.
By the way, the Democrats do the same thing. It’s the opposite issues they get upset about, hem and haw over the costs of a border wall but not free college tuition for all.
This is all just based on their different priorities but I just want you to see through the semantics of it and understand that no matter who’s in power the government is going to spend more than they should because our government just has an addiction to spending money. They’re going to spend money and they’re going to spend more than they have coming in!
Blue congress will run a deficit to pay for health care and college and red congress will run a deficit to lower taxes and increase spending on their own pet projects. I think it was Bill Clinton last time a surplus was run, and even then I think that was a result of Clinton’s battles with Congressional republicans and so they couldn’t agree on what to spend on!
If you look at government spending and there’s a great website called usdebtclock.org. It has a lot of numbers – it’s an overwhelming website – counting debt and a deficit.
The numbers are huge and they are scary! Take a look at that website if you are asking why I am so certain that taxes are going up. It seems to this political cynic that the only party that cares about curbing spending is the party that doesn’t have the ability to spend for themselves.
It seems to me that politicians are the neighbors telling you to mow your yard as they stand in 4-foot tall grass!
Anyway, USDebtClock.org tracks debt and deficit and those are important terms, so let’s talk about “debt” versus “deficit” for a second. A debt is how much money you owe. The mortgage I have is a debt. I owe that money to my bank, principal plus tolling interest.
A deficit, on the other hand, is how short of money you are over a period of time. If I were $500 short from being able to pay off my credit card bill each month I would be in a $500 deficit for that month.
Get it? A debt is money you owe and a deficit is when you spend more than you earn. The government not only has a debt but they’re also running at a deficit, meaning they’re adding to the debt they currently have. If the government was a person, they would be refinancing their home to pay off their credi card bills instead of curbing their spending.
The problem gets worse when you combine the poor spending habits of our government together with the aging demographics of our country. The baby boomers are aging and that means you have more and more people going on Social Security and you have more and more people going onto Medicare.
When Medicare came into power in 1965 you had more taxpayers paying for Social Security and Medicare than you have now. When Social Security first came into being there is about 16 workers for everyone Social Security recipient. Back in the 40s you didn’t receive anything until you were 67. By the way the average life expectancy, I believe, was around 63 in 1935 when the Social Security Act was passed.
If you look at that life expectancy of 63 against the full retirement age of 67, most people would never receive a Social Security check at all! This is because Social Security was designed to be insurance for people who outlived their money, not as a retirement fund.
In fact even if you did live long enough to receive a check, the average recipient would only receive a Social Security check for two years!
Today, people are expected to live into their mid to late 80s, can actually start getting Social Security at age 62 and are also receiving Medicare benefits.
So in the 1940s you had 16 workers supporting two years of payments for people who weren’t even really supposed to be whereas today you have about 2 1/2 or 3 workers for every Social Security recipient, people are living for decades after receiving Social Security instead of two years, people are eligible for Social Security at a younger age than they were in the 40s while living 20 years longer, so you have more people needing more benefits for a longer period of time with less workers supporting them and there’s no political courage to just to be honest with the math. No wonder we have spending problems!
If they wanted to solve Social Security, by the way, which I don’t think they do I think they both kind of want to see it crash and burn, and each party is hoping they’re not the one holding the bomb when it blows, but if they wanted to solve Social Security they would just change the age of retirement something like 77 or 80.
If they did that one move – that would cause some politicians to lose their jobs, that’s for sure – you would confront that math and fix the spending side of the problem.
So you have more and more people going onto Social Security, you have more and more people going onto Medicare – which wasn’t even invented when Social Security came out – so that’s an added cost to the government, and you have less and less workers to support those people and programs. How on earth is that going to get paid for but by increasing the revenue that the government receives? If you are going to raise revenue, you’re going to raise taxes, and here’s the worst part.
When it comes to the income tax hikes there’s one type of American that can tax hikes will impact the most. I’ve brought this up before, but it bears revisiting for this topic. Think about the uber-wealthy and their tax rates.
The uber wealth definitely has the income base that could be taxed more in order to raise revenue, but at a certain point, you can only tax them so much before they just stop working.
You want to disincentivize work altogether and at some point, the wealthiest people in America will stop working (or find some “creative” ways to hide their income) if you move their tax rates up too much.
Let’s then move to the least wealthy Americans. You can make the income tax rates as high as you wanted to but there’s just not enough of an income base from which to build revenue. So that only leaves the middle class.
The middle class is the only group of American taxpayers that has both the income base from which to grow revenue for the government and the potential for income tax rate growth to really generate more revenue. From a math standpoint, with nothing nefarious politically but rather just a mathematical truth, the middle class will always bear the brunt of tax increases.
I think taxes are going up the math on government spending against their obligations is just irrefutable. It’s been over a decade since economic and government watchdogs have been screaming and hollering that taxes need to double in order to cover our obligations. You have one party and then the other refusing to control their spending.