Tax Increases

I'm as scared as hell, and you should be, too. I reviewed the package of tax increases passed and proposed today and know a lot of clients will suffer.

Many people will suffer income tax rates above 50% federal and state combined. And the government needs more money to stay solvent. Your money.

Even though the marginal tax rates may not reach 50%, when combined with phase-outs, the tax burden will increase by more than half for a large number of people. The higher your income, the deeper the bite.

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All the money the government pumped into the economy over the last several years will turn to inflation unless removed. There are only two ways to remove the money: higher taxes or higher interest rates.

At one time I felt inflation would accelerate. I still do, but with less conviction. The tax increases will mute the push-pressure on prices.

To put tax increases in perspective, consider this: If your taxes are 30% and rise to 35%, your tax burden has not increased 5%, but over 16%. The 5% increase is against your total income. Five divided by thirty is 16.6%, the real increase in taxes coming out of your pocket. This is money that could be used to buy goods and services, creating jobs. Now, it will go to the government for public spending and debt servicing.

My gut feeling is that the economy has seen the worst this round. Even if the economy improves, it will not translate to a higher standard of living. And if you have debt it will be worse yet. You pay debt off with after tax dollars.

It is in your best interest to reduce debt and prepare for a major transition in our economy, and I'm not just talking about alternative energy.

On a brighter note: Weather has sure been nice.

Don't throw anything at the nice accountant. Congress made the rules, we are just the messengers.