What are the likely changes in tax rates in 2024?
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Speaker 1 (00:08):
Welcome back to 30 Minute Money, the podcast that delivers action oriented smart money ideas, little tiny pieces. I've got Steve Wershing with me from Focused Wealth Advisors. Hey Scott, my partner in crime, although this is not really a crime. Yeah,
Speaker 2 (00:22):
We probably don't want to talk about crimes on, I'm in a highly regulated industry. One of our compliance officers, I'm sure is going to pick that up. Did you disclose that whatever that crime is that you're
Speaker 1 (00:32):
Not being specific about Read the fine print.
Speaker 2 (00:35):
Speaker 1 (00:37):
Well, anyway, we're going to talk about taxes today. Speaking of, yeah, speaking crimes. We're going to talk about taxes that is 100% accurate, the crime
Speaker 2 (00:47):
That Congress is perpetrating on us.
Speaker 1 (00:50):
So what's your outlook Or the outlook? Yeah,
Speaker 2 (00:54):
The outlook. Well, I wanted to talk a little bit about this because we have an election year coming up, and we also have some historic, unfortunately, some historic records being set in the area of federal budgeting. And this is something to keep in mind as we start thinking about the coming elections, because the elections in a lot of ways are going to be about taxes. We've talked about the increasing federal debt because we keep running deficits. The federal debt is now over 33 trillion, a number, so enormous that no one has any idea what that means because it's so huge.
And we have the compounding problem of treasury securities. So most of that debt is denominated in government bonds and treasury bonds and treasury bonds are now three times as expensive as they used to be. So a year and a half, two years ago, you could get a treasury security that would pay one and a half percent, and it now pays around 4.5%. So as those old bonds come due and the Treasury Department has to issue new ones because they don't have the cash to just pay out the old bonds, they have to issue new ones. So they have got cash to pay off the old ones. They're replacing those old low rate bonds with higher rate bonds. And so it's just making that federal debt issue even worse. So at $33 trillion, what does that come up to? That comes out to, I forgot. It is larger than the GDP by a pretty comfortable margin.
And it's only going up. And in fact, it compounds the problem of federal budgeting because interest on that debt is taking up more and more and more of federal expenditures. So in fiscal year 22, and I think that debt payments were something like eight and a half percent of all federal expenditures. But because of the increase in rates, annualized debt payments, which means not the payments that they made in October of this year, but if you took that and multiplied it by 12 to annualize those payments, those payments are now over a trillion dollars a year that's going out. So federal revenues have not gone up that much. All of the taxes, all of the fees, all of everything that we pay government is not going up that much. But interest payments that the government has to make are going up like crazy. The cost of that interest to the government has doubled in the last 19 months. So about a year and a half, the cost of that to the government has doubled and is now 16% of the entire federal budget.
Speaker 1 (03:53):
I think they need to come up with an AI tax. That's the only way they're going to make back the money.
Speaker 2 (04:00):
I think what they need is they need a jar on a
Speaker 1 (04:08):
Table. Like a swear jar.
Speaker 2 (04:09):
Yeah, like a swear jar on a table in the Senate so that whenever any of them threatens violence like we just saw the other day,
Speaker 1 (04:18):
Come on, you want to step,
Speaker 2 (04:20):
You got to put another trillion in that jar and it's going to come out of your pork barrel project. But I just wanted to sort of, so first I just wanted to reinforce the cashflow situation of the federal government is getting worse and worse, and the time when Congress is going to have to do something about it, something substantial about it is shortening. It's getting closer and closer when they're really going to have to take action. And because we're in election year, I'm betting that in 2024 we're relatively likely to see something happen. Now, there are a couple of different scenarios. One is that the Republicans sweep everything that they take the Senate, the House and the presidency. And if they do that, they'll actually probably try to force taxes down because that's what the Republican Party has been talking about for a long time.
And if they do that, then the situation will get way worse. So I think that's a relatively unlikely scenario. If the Democrats take over, if the Democrats win the White House, the Senate, and the House, then chances are taxes are going to go up, and they're probably going to go up pretty significantly because nothing will be standing in their way. And I don't want to say just Democrats like to do spending because both parties like to do spending like crazy, but I think the Democrats have a little bit less resistance to raising taxes because they're more fans of it,
Speaker 1 (05:56):
And they're going to want to raise taxes on all the big business and all the huge corporations, or at least make it sound like that.
Speaker 2 (06:05):
Yeah, that's it. Exactly. That's it. Exactly. Is they're going to try to make it sound that way. They make
Speaker 1 (06:10):
It sound like if it's going to, the
Speaker 2 (06:11):
Numbers aren't there. If all you do is tax the highest wealth earners in the country, there's just not going to be enough money to fix
Speaker 1 (06:19):
It. There aren't as many of those people. Exactly,
Speaker 2 (06:21):
Exactly. I've seen those studies where they, let's forget about how we tax it. Let's just say we take all their wealth. There's a hundred percent wealth tax on the rich. You'd still only make a tiny little dent in the problem. I mean, there's no way they can fix this problem without them taxing everybody. That's true. That's true. So it's just not going to happen. The most likely outcome is that there's a mixed result. So some parts of the Congress will still remain under Republican control and some will remain under democratic control, and the President will be of one party or another, and chances are that they will be prompted to take action, but the likelihood is the action will not be dramatic. There'll be a lot more brave talk than actual action, but there's a pretty good chance. Imagine that. I know, right? But chances are there will be at least a little bit of tax increase next year. Now, again, we know taxes are going up. It's already written into the law. 2026, they're going back to 2017 levels.
Speaker 1 (07:21):
And you're talking about income taxes. Yeah,
Speaker 2 (07:24):
Income taxes, yep. That's the 2017 Tax Cuts and Jobs Act. That's sunsets in 2025. So we know the rates are going up in 2026. They may go up before that. They may go up more than that. If the 2024 Congress decides to take some action on it, it will probably not be enough action. It certainly won't be enough action to solve the problem. It may not be enough to make a really significant dent in the problem, but it would be a step in the right direction. So we might see taxes go up before 2026, or they might go up more than is currently scheduled to go up in 2026.
Speaker 3 (08:07):
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Speaker 2 (09:32):
Now, why do I harp on this? What use is this to you?
Speaker 1 (09:37):
Speaker 2 (09:38):
The use of it is it puts an exclamation point. It emphasizes the importance of taking full advantage of whatever tax bracket you are in now, because we know they're going up and they may go up a lot more than they are currently scheduled to go up. So if you are in a 1222, even 24% bracket, make the most of it. Put as much as you possibly can into the tax-free bucket, or to realize taxes so you can not have to realize 'em later when you're in a higher tax bracket, but make the most use of your tax bracket today because it's going to be a lot more expensive down the road. Yeah,
Speaker 1 (10:17):
I would assume that that's your 30 minute action item
Speaker 2 (10:20):
Then. That is exactly the 30 minute action item check that you have maximized your current tax bracket. That's your action item.
Speaker 1 (10:29):
The outlook is interesting. I don't want to say it's grim, but it ain't great.
Speaker 2 (10:34):
Right? Well, with good tax planning, it can be a lot brighter than That's the
Speaker 1 (10:39):
Thing. That's the thing. That's the thing. You've got the information to help people make the best of whatever the situation is going to be. So I invite our listeners and viewers to check back in our many podcast episodes to see the episodes about taxes that we've covered, because a lot of great information there. And how do we get there? How do we get there, Steve,
Speaker 2 (11:03):
How do we get where? How do we get to
Speaker 1 (11:05):
To the podcasts?
Speaker 2 (11:06):
Well, we get to the podcast by going to three zero minute money, 30 minute money. Or you can go to Focus 12 advisors and you can see the little, all the last three episodes at the bottom of the homepage. There you go.
Speaker 1 (11:18):
He said it and he says it better than I do. I'm Scott Fitzgerald from Roc Vox. This has been 30 minute Money and we'll catch you next time.