As the election year rolls along, Americans are facing an uncertain future and an election that could be the harbinger of great change. For some investors, potential change breeds trepidation and uncertainty.
Instead of fearing change, prepare for it. The following topics will most likely be part of the economic policy discussions.
Cutting the Tax Cuts?
One of the pressing issues facing the American economy is the fate of the tax cuts passed as part of the Economic Growth and Tax Relief Reconciliation Act of 2001. Unless extended or made permanent, the tax-law provisions are set to expire after 2010, which would amount to a tax increase of nearly $1.9 trillion over seven years, the largest tax increase in history.1 As many as 115 million American taxpayers would see higher taxes as a result.2
Security Blanket
Another hot political topic is the future of entitlements, chief among them Social Security. The number of Americans aged 65 and older increased almost 10% between 1995 and 2005, reaching 36.8 million.3 Those aged 45 to 64, who will turn 65 in the next two decades, increased by 40% in the same period.4 As the country experiences this demographic shift, the ratio of workers to beneficiaries will continue to decline. In 2006, there were 3.3 workers for every Social Security beneficiary. By 2030, the projected ratio will be 2.2 workers per beneficiary.5
Caring for Medicare
Another entitlement, Medicare, presents more formidable challenges. Beginning in 2011, according to a Medicare Trustees report, Medicare costs are projected to exceed income plus interest, and the Trust Fund will likely be exhausted by 2019.6 Faced with Medicare insolvency, Congress may choose to save the program by raising payroll taxes, as it has done nine times since 1978.7
Alternative Minimum Troublemaker
An issue always seemingly on the table is the alternative minimum tax (AMT). Had Congress not voted to extend a one-year patch in December 2007, the AMT would have affected 25 million taxpayers in tax year 2007, up from 4 million one year earlier.8 Because the AMT isn’t indexed to inflation, the number of taxpayers affected by the tax could grow to 56 million by 2017.9
With the election nearing, it’s important to ponder what the future holds for the economy. Call today to discuss ways to position your portfolio to take advantage of whatever changes may come.
1–2, 6–9) The Wall Street Journal, January 8, 2008
3–4) Administration on Aging, 2006
5) Social Security Administration, 2007
This material was written and prepared by Emerald Publications.
© 2008 Emerald Publications