Tax Hikes
The discussion around capital gains tax, particularly in relation to seniors, is crucial as it directly impacts their financial stability and tax burden during retirement. Here's a summary of the key points regarding capital gains tax and its implications for the elderly:
Taxes are a large part of American life. For most households, the top two expenditures are housing (rent/mortgage) and taxes. There is no larger bill. Some of these taxes are straightforward, such as income tax; some are not, such as capital gains, property, estate, etcetera…
What is clear is that the Tax Cuts and Jobs Act (made effective by the Trump Administration on January 1, 2018) lowered the tax bill for all Americans, and Biden has stated he will not renew it. Biden has also promised that anyone making $400,000/yr or less would not pay a penny more in taxes. These two ideals are incompatible. One cannot dispose of a tax cut for people making $25,000/yr and not raise taxes on those individuals; this makes no sense.
Now, Biden is threatening to raise taxes for a large portion of Americans making under $400,000/yr again. Biden has proposed an increase to the capital gains tax. Luckily, only Congress has the power to tax, not the Executive branch, but with all the Biden rubber-stampers in Congress, this is not a cause to abandon.
When capital gains tax increases, the burden falls to the middle class, the elderly, and our children to pay for it. Capital gains tax is assessed in situations involving the sale or exchange of:
A home
stocks
bonds
ETFs
crypto
And many more
While a change in this rate impacts nearly all Americans, it dramatically affects one of our most vulnerable populations: the elderly. When working with a financial advisor, usually a plan is set forth with a mixture of cash, non-taxable assets, and capital assets subject to capital gains. Altogether, this is referred to colloquially as a “nest egg”.
If the tax burden of a withdrawal from your nest egg, the amount you need to accumulate therein increases as well. For example, say you planned to retire on $8,500 per month. Assuming a growth rate of 3% and a capital gains tax of 15% one would need $4M in their nest egg to hit this number (this is highly dependent upon how long they have been saving and what the asset mix is, for the sake of brevity, we will say the entire value at retirement is principal invested in the capital markets).
Now, under the same conditions, if the capital gains rate would be 20%, the number goes up to $4.25M. Again, at a capital gains rate of 30%, we would have $4.86M. The capital gains tax determines how easily an American can retire without becoming reliant upon the Government.
This is why it is crucial to fight against these tax hikes. A tax hike causes We, the People, to become more impoverished. A more impoverished people is more reliant upon its Government. A more reliant people is more subjugated. We do not bite the hand that feeds us, after all.