“If something cannot go on forever, it will stop.”
That quote, from the late economist Herbert Stein, pretty much explains the U.S. spending, budget, and borrowing situation, and why tax planning is an imperative for Americans as they look toward the future.
As of today, the U.S. national debt has surpassed previously undreamed-of heights. Its immensity is such that paying off the debt is a dream as well.
People can, and will, argue over how we got here, who’s responsible, who’s not responsible, and other aspects of the issue. And the debt gets bigger. The conflicts over taxes and spending, and what should be cut or raised, are to some degree chicken-and-egg discussions. Viewpoints and opinions vary, on all sides. And the debt gets bigger.
After the presidential election and the next administration takes charge, will taxes be raised? Will they be cut? Will spending be curtailed? Will it be increased?
Who knows? What’s certain is that the debt level and its increases over the last 30 years – regardless of the reasons or their justification – can’t go on forever.
Individually, our impact on the country’s spending, budget, and total debt is akin to dropping a grain of sand in the Pacific Ocean. However, it’s important that as citizens and taxpayers we each know the scope of this problem and why tax planning is so important.
This debt isn’t the government’s: it’s ours. And it’s expanding like "Ghostbusters’" Stay Puft Marshmallow Man.
In 1990, the national debt was $3.2 trillion. By 2000, it had reached $5.7 trillion. In 2010, it was $13.5 trillion. As of today, the debt is approximately $27 trillion. With this debt comes interest payments.
According to the treasurydirect.gov website, through the first 10 months of the 2020 fiscal year, American taxpayers paid $484 billion in interest alone on the federal government’s debt outstanding. And the debt gets bigger.
Interest payments are about five times more than the federal government spends on transportation, eight times more than on the justice system, and a little under four times more than is spent on education.
In terms of annual spending and the accompanying deficit (different from the debt) in 2020 federal spending was set at $4.8 trillion. COVID-19 is wracking government tax revenues, and trillions are being borrowed for stimulus payments. On Sept. 2, the Congressional Budget Office estimated the 2020 budget deficit at $ 3.3 trillion, exceeding 1990’s entire national debt.
That shares the scope of the problem, which is, in a word, gargantuan: A stack of one trillion, one-dollar bills would be 68,000 miles high, about one-fourth of the distance to the moon. This year’s budget deficit stacked similarly would just about reach the lunar surface.
In January, President Donald Trump will be inaugurated for his second term, or the administration of President Joe Biden will take office. While we might be able to guess in which direction each would go, we can’t know for certain. What we can see coming is that at some point the federal government will be on a desperate, if not frantic, search for money.
All sorts of suggestions are possible about IRAs, Simplified Employee Pension (SEP) Plans, 401(k) strategies, tax shelters, business taxes, tax deferred income, and a range of other financial planning tools. However, everyone’s situation is different, so here’s a recommendation: Sit down with your accountant or financial advisor and discuss with them what you should do, now, regardless of who is elected. If you don’t have an accountant or financial advisor, find one.
What can’t go on forever, won’t, and the position you want to be in is that of saying, “I’m glad I did that,” rather than, “Why didn’t I?”
