Due to unprecedented spending by members of both political parties over the past decade, the U.S. government’s debt has now grown to approximately $13 trillion. That number is only expected to increase over the next ten years as the government produces massive annual budget deficits (a fancy word which means the government is spending more money than it is bringing on a yearly basis). So what does this mean to you and me?
The most obvious implication is higher taxes. One of the primary sources of income for the government is taxing American’s personal income. Debt pressures in Washington are likely to produce tax increases once the economy begins to rebound. But don’t be fooled into thinking that the recent discussions about raising taxes on what Washington considers the “rich” – those earning more than $250,000/year – is the cure for what ails us. The additional revenue that increasing taxes on these wealthy taxpayers will only put a small dent in the pile of debt our government has accumulated. I believe tax increases for all income levels are inevitable over the next decade. But even those measures are likely not enough to bring our nation’s debt addiction under control.
Look for other “creative” revenue solutions like a “Value Added Tax” (VAT) to begin to gain traction in Washington soon. Common in Europe and other parts of the world, a VAT is basically a tax that is levied at each level of production for almost all goods and services. This tax results in a significant increase in the cost of things bought and sold. It is considered a “hidden” tax because, other than the higher price, most consumers aren’t aware that they are paying for it when making purchases. Never underestimate how creative a government can be when looking for ways to increase its revenue streams.
Given all this, The Wall Street Journal’s Brent Arends has a good article on how to protect yourself (somewhat) from the burdens of America’s debt. Arends provides easy-to-understand, practical advice; however, I find it odd that he leaves out any suggestions to utilize Roth accounts to protect yourself from future tax increases.
