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Debt and Taxes

August 24, 2020

Two economic unknowns are here.

 

One is what to do about the national debt. The other is what to make of Joe Biden’s tax positions. In many ways, the potential results of each situation look bleak.

 

Record Debt

 

At the end of June, the national debt stood at $26.5 trillion. It’s the highest level of any country in the history of the world. Currently, it’s equal to 132.5 percent of our gross domestic product, also an all-time high.

 

The federal budget deficit for fiscal year 2020 is projected to top $3.7 trillion – and that’s before another stimulus bill is passed. There is no talk whatsoever about balancing the budget, not even among the fiscally conservative Republicans.

 

And sadly, way too many Americans are oblivious to the national debt.

 

The debt per citizen is $80,313 (the highest rate ever). The debt per taxpayer is $213,102, also a record. If Americans were billed that much, maybe it would get their attention.

 

The Treasury says it takes $386 billion to pay yearly interest on the debt – that’s with interest rates at record lows. If they rise, look out.

 

Joe’s Takes on Taxes

They haven’t been examined much, which I think is somewhat by design. Four bad things could happen if there is a Biden Administration:

  1. Social Security taxes wouldn’t be capped at $137,000 of income
    Earnings from $137,000 - $400,000 would not be taxed, but income above that would be taxed at the 6.2-percent rate. I assume self-employed people would be liable for the 12.4-percent combined rate.
     

  2. Long-term capital gains would be taxed as ordinary income
     

  3. The cost basis of an investment wouldn’t be stepped up upon death, leaving descendants with large capital gains tax liabilities
    This is big and would be a compliance nightmare. Hardly anyone has full cost basis information for investments possibly spanning decades.
     

  4. Corporate tax rates would jump from 21 to 28 percent
    Is this ever a good idea?


It’s unclear if the market has caught a whiff of Biden’s plans yet. But if/when it does, expect dips.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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