Debt Ceiling Looms… Again

By on October 11, 2016 in Retirement with 0 Comments

Image of capitol building with yellow warning sign in foreground with words 'debt ceiling ahead'

How did you learn to budget? Was it from a parent? A professor? Perhaps a self-help book? Odds are it was probably not from your local politician, was it?

Have you been able to avoid personal budget mistakes, or have you had to learn some budgeting lessons the hard way? Have you ever stumbled on the slippery slope of consumer debt (credit cards or other types of loans)? Have you experienced the hamster-wheel cycle of continually trying to force your finances to catch up to your lifestyle?

Credit Card marketers push cash-back rewards or travel miles as an additional benefit of the already irresistible appeal of spending money that you haven’t yet had to sweat for! They show credit allowing normal every-day Joe’s to visit exotic locations, experience unforgettable moments, and even apply social pressure – implying that cash ruins other shoppers’ days by slowing down checkout lines!

Think about what percentage of ads you see that talk about easy financing, rewards points, or no money down. From Rent-A-Center to car loans, from credit cards to mortgages – a portion of every industry relies on the underlying truth that American’s don’t want to delay gratification. Arguably, the industry that relies on this message more than any other is… politics.

Politicians are marketers too; Presidential Candidates spend millions establishing their brand. Ever since the debate between Kennedy and Nixon, where radio listeners declared Nixon to be the hands down winner and TV viewers watching the nervous, sweaty Nixon next to the suave, debonair Kennedy screamed the opposite, the game changed.

Now it is not just political acumen that gets you elected. Today, politicians have image experts, body language coaches, and a whole staff of spin-doctors and pollsters. They are not only a brand, but there is also a huge sales team that is selling them to you.

When the political branding experts look at the American culture, they see the same underlying truth that big business has been capitalizing on for years – the willingness to trade the future for the present.

Regardless of party lines, the political holy grail of marketing messages is to give more for less. Better care, roadways, and schools, all for less taxes, because that’s what we the people want… regardless of the feasibility of this financial alchemy.

It is this marketing mentality – this willingness to mortgage our future to appease today’s voters – that has permeated both parties and slowly paved the way for the US Government to become dependent on credit to provide the lifestyle Americans currently expect. We are literally borrowing money to provide the land of the free and the home of the brave. The incredible part is that even with the National Debt topping $19 trillion, we are still maintaining some of the most population friendly tax conditions in US history. So it is not surprising that we are heading into an election staring down the barrel of another debt ceiling crisis, one in which the stakes have continued to grow higher and the political derisiveness has grown deeper.

Why do I write about Uncle Sam running out of budgeting money for the 6th time since the Great Recession? Because of the implications that this political game of fiscal chicken may eventually have on your taxes!

Uncle Sam hitting the debt ceiling again doesn’t mean that he has run out of tax revenue; he already operates at a deficit each year. No, the debt ceiling is when he runs out of BORROWING ROOM! The debt ceiling is not when Uncle Sam has spent that month’s paycheck, it’s when he has spent that month’s paycheck AND maxed out his credit cards! Remember the furloughs of 2013, when the government could not afford to keep the lights on?

Much like a credit card wielding teenager learning how slippery the slope of living beyond your paycheck can be, the government continues to spend and borrow money. But there is one undeniable economic truth – we can never borrow our way out of debt. Under all of the political spin, there are only 3 options: we can either cut spending, raise revenue, or some combination of the two.

But since neither of those options is likely to inspire popularity amongst voters, the politicians and their marketing teams are going to do everything they can to balance the budget without announcing and campaigning on a rally for higher taxes and tighter purse strings.

This means that they will look to utilize “stealth taxes”, means of raising tax revenue without officially changing income tax brackets. This could mean lowering or eliminating deductions, it could be eliminating income caps on Social Security taxes, it might mean making a larger percentage of your Social Security benefit taxable, lower estate or gift exemptions, or it might mean less federal funding to the states, pushing the states to raise tax revenue.

A prime example of this is the tuition and fees deduction (which currently allows you to claim up to $4,000 in deductions for post-secondary education) that is set to expire at the end of this year if left unchanged.

Would you buy a mortgage where the bank said, “Hey, don’t worry about payments or interest until you sell the house – when you sell it is when we will decide how much of that house you own and what percentage is ours…”? OF COURSE NOT!

But if you think about it, that is very similar to the proposition of tax deferred investments! Uncle Sam gets his cut of your tax deferred retirement nest egg before you do, and he doesn’t tell you what percentage you owe him until you need the money at some point years and years down the road… So if you would never consider that deal from a bank for your family’s home, why is it appropriate for 100% of your retirement savings? Diversify!

Where do you think taxes will go 10-15-20 years from now? If you think that taxes will return to the higher rates of the past then now is the time to “buy” your taxes through the use of Roth IRAs, Roth TSP, and Cash Value Life Insurance!

Taxes are “on sale” today with a large variety of “cash back offers” (deductions) available, but unlike a President’s Day Weekend Sale, we don’t know when this one will end.

So now is the time to take advantage and build your shelter from the tax storm clouds looming on the horizon! It is absolutely imperative that you coordinate with a federally focused retirement planner and a tax professional to align your assets with your beliefs now while the proverbial iron is hot!

Get more retirement resources at Tom's website, www.WalkerCPG.com

© 2016 Tom Walker. All rights reserved. This article may not be reproduced without express written consent from Tom Walker.

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About the Author

Tom Walker is a Chartered Federal Employee Benefits Consultant and founder of Walker Capital Preservation Group, Inc. He believes strongly in empowering today’s federal employees through benefits education at retirement workshops and through featured publications. He has compiled many greatly informative resources at his website, www.WalkerCPG.com and WalkerCPG Facebook page.

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