Wow, I’m not sure where to start on this one.
I think the U.S. is facing uncertainty across a broad spectrum of issues.
Setting the election, the Russia-Ukraine conflict, the Israel-Hamas conflict, and trade tension with China aside for the moment, I would say the largest issue this country faces would have to be the combination of spending and the future of taxes.
It may sound a bit cliché, but at some point, we’re going to have to pay the piper.
U.S. spending far outpaces revenue, evidenced by the ever-growing national debt and budget deficits. The national debt is quickly approaching 36 trillion.
A lot of the proposed solutions are inadequate at best. The notion that this country’s spending problem can be solved by increasing the rate at which companies and the wealthy are taxed, in one form or another, is not based in reality—it’s a flawed way of thinking.
If we’re completely honest with ourselves, these proposed tax hikes are for votes in the upcoming election, not a practical solution to this country’s spending problem.
If you take a look at the federal budget, discretionary spending for 2023 was about 1.7 trillion vs. 3.8 trillion of mandatory spending. Discretionary spending represents only 27% of total spending and is the only portion of spending Congress controls.
Mandatory spending, on the other hand, represents 62% of total spending. Mandatory spending is really what we need to focus on.
Reforming Medicare, Medicaid, and Social Security should be the priority.
Remember that spending will only increase for these programs because we have an aging population. Tax revenues totaled 4.4 trillion, and we spent 6.1 trillion in 2023. If the government was able to increase tax revenue by 20% across the board, we’re still barely scratching the surface, especially when you consider the fact spending on Medicare, Medicaid, Social Security, and interest on the national debt will only increase for the foreseeable future.
How does this affect us directly?
We need to look for tax-efficient opportunities and higher returns. A lot of investors are preparing for the possibility of significant changes to capital gains rates, carried interest policies, and wealth transfer rates. We need to be a step ahead of this.
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