2020 State of the Union – Economy and TaxesSubmitted by Reed Financial Group on February 13th, 2020
Listen to the President carefully – because taxes are always a popular topic
With distrust in government high and taxes seemingly changing every year, it makes sense to ask: Are we getting our money’s worth – and if not, what can we do about it?
One answer is to legally keep the tax bite as low as possible. This is not a right or left political issue, but a practical one.
Having witnessed the repressions of overreaching government in Europe, our founding fathers advocated for a healthy distrust of government. Our money proclaims, “In God We Trust.” It does not read, “In Government We Trust.”
As we reflect on President Trump’s State of the Union address from February 4, 2020, our relationship as free citizens to our government and government’s dealings with us are heatedly debated.
Henry George (1839-1897), an American writer, politician, and political economist, observed:
“It is not the business of government to make men virtuous or religious, or to preserve the fool from the consequences of his own folly. Government should be repressive no further than is necessary to secure liberty by protecting the equal rights of each from aggression on the part of others, and the moment governmental prohibitions extend beyond this line they are in danger of defeating the very ends they are intended to serve.”
Tracking polls reflect growing unease regarding state and federal government actions. A recent poll found that:
Only 17% of Americans today say they can trust the government in Washington to do what is right
Only 3% more of Americans say they can trust the government to do what is right “just about always”
Only 14% more of Americans say they can trust the government to do what is right “most of the time”
When the National Election Study began asking about trust in government in 1958, about 75% of Americans trusted the federal government to do the right thing “almost always” or “most of the time.” But trust in government has moved around considerably, beginning with a decline during the 1960s and 1970s (Vietnam War, Watergate and worsening economic conditions).
Then trust rose during the mid-80s, fell again in the mid-90s, then rose again in the late-90s as the economy grew. Not surprisingly, trust in the government reached a 3-decade peak shortly after 9/11, but declined quickly afterwards and has not moved past the 30% threshold since.
Besides staying informed, petitioning elected representatives, getting involved, and voting, what is a citizen to do?
America, Great, Taxes & Comeback
During his first State of the Union address, President Trump mentioned the word “tax” 15 times. The other two topics that were mentioned more often than tax were “America” with 79 mentions and the word “great” which he mentioned 26 times.
During President Trump’s third State of the Union address, his theme was about the “Great American Comeback.”
Irrespective of one’s political affiliation, at the root of independence, be it as a nation or an individual, is the need for agreed-upon rules. Providing a framework for agreed-upon rules is the most vital role of our government.
At the micro level, where the rubber meets your road, financial independence is the cornerstone of personal freedom. Government policies affect your generation of income and capital growth with ever-increasing tax law complexities.
We have a government that depends on taxation. Your role as a good citizen is to comply with the tax laws while taking advantage of all legal tax reduction techniques.
Chart Your Own Financial Independence
The U.S. government's total revenue is estimated to be $3.6 trillion for fiscal year 2020, which is about 16.4% of GDP, according to the most recent estimate from the Office of Management and Budget. This is on top of the expected $2.1 billion from state taxes and $1.6 billion in local tax revenues.
And individual taxpayers like you and me provide about half of that, as income taxes account for about $1.7 trillion and another third of the total, or $1.3 trillion, is from payroll taxes.
Said another way:
The federal government collected $10,548 per person
The federal government spent $13,547 per person
For those who question whether Washington will put our tax money to good use, maybe we should reframe the conversation and resolve to make ourselves as little dependent on the government as possible. Strive to save and invest so that you are not dependent on Social Security or other government programs.
English historian Edward Gibbon (1737-1794) wrote The History of the Decline and Fall of the Roman Empire. On ancient Athens, he noted, “When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility, then Athens ceased to be free and was never free again.”
Let’s discuss how you can ensure that you are taking advantage of all legal tax reduction techniques when we next meet.