Tags: tax | ira | gold

Taxpayers Will Foot the Bill for Federal Government Overspending

Taxpayers Will Foot the Bill for Federal Government Overspending

Trevor Gerszt By Friday, 23 February 2018 04:08 PM EST Current | Bio | Archive

With the return of trillion-dollar deficits, investors need to worry about the future. It may be nice to receive tax cuts today, but several more years of rising deficits will drive up the national debt, result in more interest expense, and most likely cause Congress to raise taxes again in the future. That’s why investors need to prepare now and save as much as they can, because those increased taxes in the future  will diminish their opportunities to save.

CBO Budget Projections

The Congressional Budget Office last published its detailed budget projections in June 2017. At that time, CBO was projecting that the 2018 budget deficit was going to be $563 billion. That would increase to $689 billion in 2019, $775 billion in 2020, and $879 billion in 2021. Since that time, a series of bills have been passed that will likely increase those sums significantly.

The tax cuts that were enacted into law are expected to decrease government revenue this year, increasing the deficit. Additional spending on disaster relief and new spending in the recently passed budget deal will add even more money to the deficit. The national debt has already increased by $416 billion in fiscal year 2018, and we’re not even five full months into the year. At the current rate of growth, that equates to an FY 2018 increase of just over $1 trillion.

The deficit for FY 2019 is expected by many budget analysts to be around $1.2 trillion, which would mean that CBO’s estimates for future years are severely underestimating the rate of growth. It wouldn’t be at all unusual to expect similar, if not larger, increases in FY 2020 and FY 2021.

CBO’s estimates for the total national debt are similarly low. In June, CBO estimated that the national debt would be $21.221 trillion at the end of FY 2018, a sum that looks like it will be easily exceeded. By the end of FY 2021 the debt was expected to be $23.878 trillion, a figure that now looks like it will actually be closer to $25 trillion or more.

Interest Expense on the National Debt

Making things worse is the interest expense on all that debt. In FY 2017 the federal government spent $458 billion on interest on the national debt. As the debt increases, that sum will increase. And as interest rates continue to increase, that sum will increase even more. The current average interest rate on federal debt is just over 2%. In 2005 it was closer to 4%, and in 2001 it was over 6.5%.

Almost 14% of Treasury’s marketable securities held by the public is in the form of short-term T-Bills, with maturities of less than one year. Over 60% is in the form of notes, with maturities ranging from 2 to 10 years. Those short- and medium-term securities are the ones that will be most affected by rising interest rates. And if rates rise higher than expected, interest on the the debt will rise faster than expected too.

If the federal government suddenly faces an increase of hundreds of billions of dollars in interest expense, where will it get the money? Is it going to cut spending by decreasing Social Security benefits or telling the Navy that it can’t have those new submarines? Or will it take that money from taxpayers by increasing taxes?

Tax-Deferred Accounts

That’s why it’s important to take measures now to minimize your tax exposure in the future. Individual retirement accounts (IRAs) right now fall into two types, traditional and Roth. Traditional IRAs allow you to use pre-tax money from your salary to make investments. You only pay taxes in the future when you take a distribution from those accounts. Roth IRAs allow you to use post-tax dollars, but then you don’t get taxed when you take a distribution. Roth IRAs are generally recommended when you expect to end up in a higher tax bracket in retirement than the bracket you’re currently in.

All of those retirement accounts are a lucrative target for overspending lawmakers. Total IRA assets are estimated at around $8.6 trillion, while total 401(k) assets are estimated at $5.3 trillion. Even just a small tax on those assets, or on contributions, transfers, distributions, etc. could net the federal government large amounts of money.

Some sort of additional tax on retirement assets isn’t out of the question. The topic was discussed during the debate surrounding this year’s tax cut bill. So you should expect that the prospect of taxing retirement accounts will rear its head again at some point in the future.

Save Now to Secure the Future

That’s why it’s important to save as much as possible now in order to build up your savings so that you can either absorb a tax hit or more easily shift your assets to avoid any future taxation that may hit retirement accounts. You won’t be the only one in that boat either, which is why it’s important to choose assets, too, that will be resilient in the face of any future obstacles.

Gold is an ideal asset for that, as it has been trusted by investors for centuries as a hedge against inflation, a safe haven in financial downturns, and as a store of value when governments get greedy. With a gold IRA you can invest in gold as with a traditional IRA, enjoying all the same tax benefits. You can even roll over existing retirement account assets into a gold IRA tax-free. And when it comes time to take a distribution, you can take that distribution either in gold or in cash. So if you’re looking to protect your retirement savings and ensure that you can retire comfortably, you owe it to yourself to look into investing in gold.

Trevor Gerszt is America's Gold IRA Expert, CEO of Goldco Precious Metals, and holds a position on the Los Angeles board of the Better Business Bureau.

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With the return of trillion-dollar deficits, investors need to worry about the future.
tax, ira, gold
Friday, 23 February 2018 04:08 PM
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