Every new president makes changes to the tax code, so why is this time so different? The short answer is because our “books” as a country have never been in worse shape, not even during World War II. COVID related spending is only icing on the already giant cake of our current federal debt that is the result of the mishandled US financial affairs of the past several decades! The total national debt as of a week ago was 28.4 trillion dollars, and more importantly, that amounts to 128.5% of the entire GDP of the country. The previous high was 119% of the GDP in 1946.*
In 1941 the two lowest tax rates for Married Filing Jointly (MFJ) were 10% and 13% on earned income; but by 1952 those rates had almost doubled to 22.2% and 24.6% for the same MFJ return. Again, those were the LOWEST BRACKETS, that affected the lowest wage earners. The tax rates for higher wage earners were as high as 92%!*
Today, those roughly comparable lowest tax rates are at 10% and 12% respectively, and we are spending money at the highest rates the country has ever seen! If history is our teacher, then those 10% and 12% rates are likely to rise to as high as 20% and 24%, double today’s rates, or maybe worse. For the rich, determining the actual top tax rates is like a game of chess, but having been as high as 92% in the past, the base rate for the highest earners currently sits at 37%. There are many complicated “trigger” taxes that can further affect those rates for the highest wage earners, so we are not trying to attempt a completely unbiased and fair comparison. We are just saying look at the basic facts. THE PARTY IS OVER! The writing is on the wall. Tax rates are very unlikely to remain close to what they are now for long.
The tax bill is headed to the table and if another 3 trillion gets added to the 28.4 trillion total national debt, the waiter is simply going to walk even faster.
“OK so we are at the precipice of Tax Armageddon. What do I do?”