Many of my past blog posts discussed taxes and their effect on our ability to save for the future. On many occasions I have brought up the idea that taxes will very likely increase in the near future. It seems that France may be beating us to the punch.
France's Socialist President Francois Hollande recently announced his plan to raise the tax rate on individuals whose income is more than 1 million euros to 75 percent. He is defending his plan as part of an effort to shrink France's budget deficit.
We seem to be battling the same demons at home. Our government is running a $1.3 trillion dollar deficit, and if nothing is done between now and December, the tax rates on the upper class are set to increase.
Fortunately the rate increases won't be near those France is proposing. In fact, our top tax bracket would be just over half of France’s top bracket (39.6 percent as compared to 75 percent).
But globally, we still have some of the lowest tax rate structures. Many countries have top marginal tax rates in the low to mid-50s, including Austria, Belgium, Denmark, Finland, Japan and Sweden. The highest taxes are paid in Aruba, as someone making $171,000 falls in a tax bracket of 58.95 percent. This is still a far cry from France's proposed rates.
Historically speaking, here in America, our rates have been the lowest we have seen for the past 60-plus years. It wasn't that long ago that we had tax rates similar to that of Hollande's proposal. Back in the 1980s, the highest brackets were in the neighborhood of 70 percent, and even higher back in the ’60s, with rates as high as 90 percent.
Do I think we will get back to rates that high? No, I don't believe we will. However, is 39.6 percent as high as we will go? Only time will tell.
The best course of action is to prepare for the worst, and that means taking a hard look at how you are investing your money. Years ago, it was widely accepted that socking away as much pre-tax income as possible was a solid plan for retirement. But is this still the best strategy if taxes are likely to go up in the future?
Maybe the best thing to do is something different. Since the financial times are changing rapidly, maybe your planning techniques should be keeping pace.
Joe Wirbick is the president of the Lancaster financial services firm Sequinox. Joe specializes in retirement planning and distribution. This allows him to concentrate on developing strategies that help address the unique issues that confront retirees and those approaching retirement.