8 – Prepare for higher taxes
No matter who is to blame (it’s really irrelevant at this point), the Great Recession and subsequent government bailouts, programs and stimuli are resulting in trillion dollar plus budget deficits as far as the eye can see. To correct this, the government can cut spending and shrink government and/or raise taxes. In all likelihood, there will be a combination of both which should result in continued subpar growth with rolling bouts of weakness as the country works through its problems.
The successful investor should prepare for higher taxes after the election, especially regarding dividends and interest. They may not all be called “taxes”, but in the end, it will mean less money for Americans and more for Uncle Sam. Many states have already raised income taxes to plug holes after the stimulus money ran out, but they have also increased sales taxes as well as removing tax exemptions from certain goods and services. 2012 is a transition year and we should expect modest tax increases on higher income earners and huge increases on estate taxes, not to mention the surtaxes beginning next year to fund ObamaCare.
While President Obama and Congress successfully compromised in December 2010 to avoid the largest tax increase in history, the truth of the matter is that it was only a Band-Aid. Americans agree that our tax system is a complete mess and the entire code must be simplified and overhauled. The bipartisan deficit reduction commission gave Congress the cover to do so, but once again, partisan politics got in the way. At this point, it appears as though comprehensive tax reform with fewer brackets, lower rates and much fewer deductions won’t be discussed until after the election.
