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Missed Fortune – The Paradox of Increasing Tax Revenues By Lowering Taxes

Posted on | August 7, 2011

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The Secret To Increasing Tax Revenues: Lower the Tax Rates

In all the talk about the debt ceiling situation, there still isn’t broad recognition of the fact that our nation faces a spending problem rather than a revenue problem.

If the Bush tax cuts were extended, the Congressional Budget Office would still claim that’s costing up to $5 trillion. But tax cuts generate new revenue. The reason President Bush instituted the tax cuts in the first place was when the economy was in a tailspin following the 9/11 attacks.

Bush felt that it was better to raise the revenue that was being taxed rather than raising the taxes. When we face lean times, we tighten our belts and increase our income while decreasing our outgo.

Government always seems to be the last ones to cut back on spending in difficult times.

After 9/11 President Bush realized that the best thing to raise tax revenue for social programs was a tax decrease. He lowered the lowest bracket from 15% to 10% and he raised the threshold from about $46,000 to $57,000 before you jumped from a 15% bracket to a 28% bracket.

By all accounts, the government raised more tax revenue by getting cash flowing than if they had kept taxes high and raised them further.

When the Bush tax cuts expire at the end of 2012, higher taxes are going to hinder growth rather than help it.

The White House has one important tool to influence Congress on budget matters, and that’s the prospect of extending the Bush tax cuts beyond next year. There’s already a lot of talk about “going after the rich” in Washington D.C. these days so higher taxes are looking very likely.

After $5 trillion of increased federal debt, the unemployment rate is still sitting above 9% despite all the stimulus spending that was supposed to put the economy back on track.

This won’t help the economy or unemployment.

The 3 Challenges Your Nest Egg Will Face In the Next Decade

One way or another we’re likely to see taxes go up. Even if the Bush tax cuts are extended, there are still over $110 trillion of unfunded liabilities like Social Security and Medicare.

When government needs more revenue, it’s a safe bet that they’ll be raising our taxes in any number of ways. If your retirement nest egg is tax-deferred, it’s highly likely that those higher tax rates will deplete your money faster than you can imagine.

But higher taxes are only one of the challenges we’re likely to face over the next decade.

Inflation is also likely to sneak up from it’s usual 3% to more like 5, 6, 7 or even 10% thanks to the government printing money virtually nonstop. Inflation will raise the cost of living and that too will increase the speed with which your retirement money is spent.

Market uncertainty is the third danger we face just like in the last decade where many people lost roughly 39% of the value of their IRAs and 401(k)s and still haven’t broken even. Even a million dollar nest egg isn’t going to cut it where we’re headed in this country.

The good news is that strategies exist that will allow you to take ownership of your future and eliminate the dangers of market volatility, inflation and higher taxes.

When your money accumulates in tax free vehicle that’s grandfathered into the IRS code, you don’t have to worry higher taxes eating up your nest egg. When you tie your return to those things that inflate during inflationary periods, your money continues to grow.

And when you position your serious money to grow when the market grows and to remain safe when the market falls, market volatility is no longer a threat to your wealth.

You have options when you understand these strategies.

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

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