Rising taxes on the horizon

How investors are preparing for rising taxes on the horizon

Our federal deficit exceeds $15 trillion. When Congress is forced to address the debt ceiling again in 2013, our national debt will be well over $17 trillion. 

Today our highest federal tax bracket is at 35 percent, which is historically low. Since 1913, the highest average federal tax bracket was above 60 percent. Considering the amount of debt we have acquired due to Wall Street’s bailout of $800 billion in 2008, and quantitative easements 1 and 2, it has become evident that tax rates have nowhere to go but up. 

In the span of less than four years, we have accumulated 50 times more debt than any time in U.S. history. So the question is, what have you done to prepare for rising federal income taxes? 

It’s no big secret that the last decade has been referred to as the lost decade. Trillions of dollars have been lost due to toxic assets, and investors are hoping to see any light at the end of the tunnel. Recent market concerns have been concentrated around the troubled Euro, unemployment and lack of spending. Why has little concern been directed to our mounting debt, which just recently exceeded $15 trillion? 

 I believe it’s because Washington is trying to establish a future political platform (based on the outcome of the presidential election) in order to deal with our debt crisis, which is causing the can to be kicked down the road. 

Let’s face it, our super Congress already failed once to put the necessary budget cuts into effect. Remember, within the first year of the upcoming presidential election, our debt ceiling will need to be raised again. We all saw how messy that was this past August. 

Eventually concerns within the market will be redirected to how we are going to pay back an out of control federal deficit. Both political and economic forces will be forced to take center stage to help start putting a dent into our federal deficit. 

What every financial professional will eventually ask themselves is, what have I done to protect my client’s money from rising income taxes? How am I going to protect my clients from anticipated inflation with less net spendable dollars? 

Rest assured, those who take measures to protect themselves against these concerns will be well equipped to protect their long term financial goals. 

Indexed universal life can be a perfect remedy against the threat of rising taxes. For example, investors applaud that IUL will allow you to shelter up to and just over $100,000 per year into a tax deferred vehicle that still falls under the modified endowment contract limitations.

Over the last decade, many IUL policies have achieved more than a 7 percent average return (before any fees taken out) by eliminating market volatility, a strategy many investors are taking time to learn more about. 

Investors embrace the idea that they can potentially withdrawal a portion of their funds tax free at any age without penalty. Furthermore, they take comfort in knowing that insurance repositories that offer IUL will not leverage their assets and have reserve pools in place, mandated by the state, to protect the investor’s deposits. 

In these unprecedented times where our federal debt is spiraling out of control amidst a global recession, IUL is being taken very seriously by investors from all walks of life. Investors are actively pursuing avenues that will protect their future net spendable dollars and eliminate their losses from market volatility. 

Everyday stereotypes that have limited the exposure of these products in the past are being erased due to the proven performance of IUL policies over the last decade. Even those financial planners’ who denounced these types of products in the past are now implementing these products into their client’s portfolios. 

IUL will continue to be explored by investors for several years to come. Although they are not for everybody, IUL is a proven tool that can bring financial security into an insecure financial world.