Hurricane Sandy is a week in the rearview mirror. Few were prepared for its fury or the destruction left in its wake.
To their credit, the weather forecasters had warned us more than a week in advance. I’ve noticed that people fall into one of 3 categories when presented with such information:
a) Ostriches – the folks who bury their head in the sand hoping it will go away
b) “Better safe than sorry” – the sensible citizens who take steps to prepare, such as having a generator and making sure you have enough fresh water
c) Over-reactors – the ones who grab every loaf of bread and can of soup from the grocery store shelves, pack up the car and drive to Ohio.
Which one are you? When you see a storm coming, how do you react? Are you a “hopeium” addict, a manic-panic, or do you take proper precautions?
The reason I ask is because there’s another storm approaching – except this one is going to hit from coast to coast. And that storm is rising taxes.
There’s no denying its arrival. You can wish and hope all you want to, but it’s an unstoppable train coming down the tracks.
The Congressional Budget Office estimates most middle income Americans will be paying 29.6% more in income tax in the next 2 to 3 years. If you’re in a higher tax bracket, it’s likely to be worse, especially if the Bush tax cuts expire at the end of the year.
People have suggested alternatives. The best one I’ve seen is also the simplest. Hedge Fund trader John Thomas suggests eliminating the tax code as well as every deduction – deductions for dependents, mortgage interest, medical expenses, charitable contributions – every single one. In his scenario our 1040 forms would contain only 3 lines:
The budget deficit would disappear. The IRS would shrink by 90%. Billions of dollars spent on tax preparation would be saved, and moved back into the economy.
Utopia, right? But with 1.3 million CPAs and tax preparers, 25.8 lobbyists per congressman, and one third of the largest corporations paying no tax at all… what are the odds that such a simple, fair and straightforward plan will actually come to pass? I don’t know about you, but I’m not betting my savings on it.
So now that you know higher taxes are coming, what will you do? Will you cross your fingers and hope the Congressional Budget Office is just kidding? Will you move to the Cayman Islands and convert all your assets to gold? Or will you look for a sensible way to safeguard your savings from taxes, inflation and the next stock market crash?
The storm is here. And this time you can’t drive to Ohio.
Paul Partridge is a senior partner at Sage Financial Partners, specializing in safe money strategies that protect savings from inflation, taxes, and market fluctuations. Sage Financial Partners is a Registered Investment Advisory firm and member of FINRA and the Better Business Bureau. The information above is not intended to be and should not be considered investment or tax advice.