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Missed Fortune – Monetary Myopia: Why Soaking the Rich Won’t Solve the Debt Crisis

Posted on | August 14, 2011

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The Bush Tax Cuts As a Bargaining Chip

There’s been a lot of talk recently about the national debt, the debt limit debate and the likely solutions. But there are some facts that must be considered in order to see the big picture.

For instance, the Congressional Budget Office is using their March 2011 baseline rather than the January 2011 baseline when they assume that the Bush tax cuts will expire at the end of 2012.

This means that the tax cuts will not count as savings with regard to discretionary spending. In other words, the tax cuts expiring won’t give anybody any credit toward anything except a tax increase.

If those tax cuts were extended, the Congressional Budget Office would treat those tax cuts as if they added $5 trillion more to the national debt. In reality, these tax cuts would actually generate new revenue by leaving the money in the hands of the American people who would spend, save and invest it.

The tax cuts were initiated after 9/11 to bolster confidence in the economy by getting the money moving again and raising the revenue rather than raising the taxes.

From 2001 to 2003 President Bush lowered the lowest bracket from 15% down to 10% and raised the threshold from about $46,000 to $58,000 before you jumped from a 15% bracket up to a 25% bracket. By every objective measurement, during this time the government raised more tax revenue that if they had kept the tax rates high and raised taxes further.

When these Bush tax cuts expire, taxes will go up and it will hinder the economy rather than stimulate it.

The White House sees the expiration of these Bush era tax cuts as a powerful tool to influence congressional talks about deficit reduction measures. By threatening to veto any attempt to extend the tax cuts, especially for the wealthiest Americans, the president hopes to exert greater control over reforming the U.S. tax code in order to raise taxes on the rich.

The talk in Washington D.C. is to tax married couples making over $250,000 per year at a tax rate that’s nearly 20% higher than what they currently pay. Instead of being taxed at 43% their tax rate will shoot up to 62.5%.

Even single tax filers are wearing a target with those who earn $125,000 or more a year will be facing possible tax rates of 60% or higher.

The philosophy of raising taxes by going after the rich out of a sense that “they can afford it” is going to cause the economy to take several steps backwards. Unemployment will not go down. We cannot spend our way out of this crisis.

Taxes Are Only One Third of The Coming Triple Whammy

Taxes are heading up. Even, if by some miracle, the Bush tax cuts are extended, there are still plenty of unfunded liabilities that will necessitate raising our taxes some other way. Medicare and Social Security alone account for nearly $110 trillion worth of obligations that are owed to their intended recipients.

The biggest dangers of the next decade are that taxes are going up, inflation will continue to rise because the government has been printing mass amounts of money, and market volatility will continue.

The specter of double digit inflation is a daunting one for those who remember the high inflation of the early 1980s. Yet during that era, by using Missed Fortune strategies, those who linked their returns to the things that inflate were earning 15.5% on conservative, tax-free investments.

When inflation and interest rates are low, these same strategies can have you earning rates of 8-9% tax-free.

Market uncertainty over the past decade has spooked those people who, starting in 2001, went nearly 3 years on a down market and were just about to break even when the bottom fell out again in 2008. Most investors have lost nearly 40% of their IRAs and 401(k)s and their confidence is shaken.  The good news is that there’s a far better way to grow your serious money.

By taking ownership of your future, you can eliminate the triple whammy of the coming decade.

Is your serious money ready to weather the almost certain prospect of higher taxes? Could you maintain your standard of living when a 5% rate of inflation causes the cost of living to double every 15 years? Is your money positioned to remain safe when the market declines and to grow whenever the market grows?

Once you understand and live the Missed Fortune strategies, your answer will be a confident “Yes!”

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*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

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