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Navigating Future Tax Increases

January 09, 2024

There has been growing concern about future tax increases. At Harford Financial Group, we specialize in holistic planning, particularly in retirement income and tax management. In this blog post, we will focus on the significant factors that suggest tax hikes are on the horizon.
The Sunset of the Tax Cuts and Jobs Act:
In 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law, bringing about substantial tax cuts for individuals and businesses. However, it's crucial to recognize that these tax cuts have an expiration date. The TCJA will sunset in 2025, meaning that unless new legislation is passed, tax rates will revert to their previous levels starting in 2026.
What Could This Mean for Me?
Without new legislation, marginal tax brackets and the threshold for each marginal tax bracket will increase (except for the 10% tax bracket). In certain circumstances, this could move individuals from the 12% tax bracket up into the 25% bracket, a 13% marginal tax increase in just one year.

The Soaring U.S. National Debt:
Another indicator of future tax increases is the staggering national debt, which has surpassed $30 trillion dollars. This mounting debt puts immense pressure on the government to find ways to bridge the deficit, and one solution is to raise taxes.
The $30 Trillion we owe is one of many factors to consider. More importantly, it is the rate at which we accumulate new debt. If we look at our nation's debt to GDP (Gross Domestic Product), our current debt to GDP ratio is a staggering 101%. This is a deficit that has not been reached since the end of WWII. Projections show that our national debt could continue to outpace our GDP into the future.

What Does this Mean for Me?
Below is a graph that compares the top marginal tax rates for capital gains, corporate income, and, most importantly, ordinary income. Looking back to post-WWII, we see that the top marginal tax rate was over 90%. Over time, as the U.S. debt-to-GDP ratio fell, ordinary income was taxed more favorably. Our concern is that marginal tax rates will increase like they did following the Second World War.

Marginal Tax Rates

At Harford Financial Group, we understand the importance of comprehensive retirement income and tax management planning. As tax changes loom, we emphasize the importance of proactively securing your financial future. We will continue to focus on the value of tax management strategies, including Roth conversions, tax deduction creation, and the use of life insurance products, to ensure that our clients can retire comfortably and with confidence.