Casey Snyder and Tom Sedoric, Wealth Managers

When we advise clients that tax rates likely aren’t going to be lower in the foreseeable future, we encourage them to mitigate the risk within their plan and portfolio by working together to create future tax flexibility and efficiency . When they ask us why this will be the case, it is our obligation to educate them about a wide range of issues.

When families gather around the holiday dinner table in the coming weeks, there will likely be many personal, and perhaps political, discussions as a presidential election year is right around the corner. Yet, it is likely that few, if any, will talk about issues that may have the most significant and complex economic impact on every generation for decades to come. We are speaking about debt - historical levels of debt. There is a critical mass of debt issues that interact to create a quiet perfect storm that few want to confront, much less talk about. Here are three:

Not surprisingly given the election cycle, there are some policy proposals by Democratic presidential hopefuls to eliminate either part or all student loan debt. In theory, it seems a reasonable attempt to help younger Americans get better financial footing. But the fine print of paying higher taxes for such a proposal provides yet another generational clash of priorities.

  • Consumer debt is relatively easy to understand while public pension liabilities seemingly defy believability. There are dueling figures but one of the best-case scenarios is offered by a Pew Charitable Trust study from earlier this year. Overall, there were $4.1trillion in pension obligations to workers and retirees in 2017 and $2.9 trillion in assets which leaves a funding gap of more than $1.2 trillion. 

In a recent Wall Street Journal article on the tightrope that pension fund managers walk, Spencer Jakab wrote:

The very fact that stocks and bonds have enjoyed bountiful returns since the 1980s explains why they probably won’t in the future.

On another front, Congress has tackled private pension liabilities. In July, the House passed with bipartisan support the Butch Lewis Act which would create a loan program through the Treasury Department to help struggling multiemployer defined benefit pension plans to borrow necessary funds to put plans back on solid financial footing.

  • The problem of collapsing private pension plans is real and paying to plug the financial dike will also be real. The same can be said of rising obligations for Social Security, Medicare, Medicaid, national defense, and the unknown environmental costs of global climate change. We have talked before about the rising federal debt and with each passing day it grows larger. The 2019 federal budget of $4.4 trillion required borrowing of $960 billion, or 3.9 percent of GDP, up from a little more than two percent of GDP in 2015. The Office of Management and Budget estimates that if current budget underfunding continues, the budget deficit in 2029 will encompass 4.5 percent of GDP. The federal debt will grow from 77.8 percent of GDP in 2018 to 95.1 percent of GDP in 2029.

The trends we have highlighted do not guarantee that taxes will rise – after all, in 2017, Congress did pass $1.5 trillion in personal and corporate tax cuts that have yet to pay for themselves – but they do portend stormy weather whether we talk about them or not.

 

 

 

 

 

This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed.

The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates.  All opinions are subject to change without notice.  Neither the information provided nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.  Past performance is no guarantee of future results.\

This material does not provide individually tailored investment advice.  It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it.  The strategies and/or investments discussed in this material may not be appropriate for all investors.  Steward Partners recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Wealth Manager.  The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives

Securities and investment advisory services offered through Steward Partners Investment Solutions, LLC, registered broker/dealer, member FINRA/SIPC, and SEC registered investment adviser.?? Investment Advisory Services may also be offered through Steward Partners Investment Advisory, LLC, an SEC registered investment adviser.?? Steward Partners Investment Solutions, LLC, Steward Partners Investment Advisory, LLC, and Steward Partners Global Advisory, LLC are affiliates and separately operated.??The Sedoric Group is a team at Steward Partners. 

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