Governments large and small have begun to ratchet up taxes. As a result, expect a slower economic recovery and, possibly, an attempt to increase taxes on retirement accounts.
The tax man cometh.
Not only is it going to be individually painful in 2010, but the collective hit to consumers could be enough to stall the economic recovery as well.
US total tax burden by state
That's right: 10 years.
Now that I've got your attention, let's start with the short-term squeeze, move to the long-term, then see whether there are any strategies for keeping the tax man from our doors.
I got a firsthand demonstration of the tax squeeze about a week ago. I'm the treasurer for the cooperative that owns the building where I live in New York City. November is budget time, and I met with the management company that runs our building to walk through what it would cost us to run our building in 2010.
It was shocking.An example close to home Of course, even though the Federal Reserve says there is no inflation, everything is going to be a little more expensive in 2010 than it was in 2009. Wages for the workers in our building, cleaning supplies, elevator repairs -- 3% here, 5% there.
The problem was, however, that some things are going to be a whole lot more expensive.
Fuel to heat the building is going to cost us about 38% more in 2010 than it did in 2009. That wasn't a big surprise. Heating oil has climbed in price this year, and we got lucky at budget time last year and locked in at one of the lowest prices of the year.
And taxes. Our management company estimates that real-estate taxes will go up 18% in 2010. That's a huge hit and even more painful than the much larger percentage increase in the cost of fuel, because our real-estate tax bill is roughly five times the size of our heating-oil bill.
An 18% tax increase? Gulp. More from MSN Money and MoneyShow.comBig changes for state tax lawsWill big budget deficits cause a new recession?Tax-friendly places to retireJubak on video: The great global tax dilemmaProperty taxes: Where does your state rank?Jubak on video: The impact of rising interest ratesIt's worse out West And then I remembered that we had already seen a big tax increase earlier this year. In June, the city raised the sales tax for fiscal 2010 by 12.5%.
An 18% tax increase on top of a 12.5% tax increase? Welcome to the post-financial-crisis United States of Debt.
Don't waste time feeling sorry for us here in New York. We're actually in pretty decent shape because the city had put away about $6 billion for a rainy day. That had made balancing the budget in fiscal 2009 relatively painless. Because of that surplus, the taxes didn't really hit the fan for us until the budget that began July 1 and stretches through next June 30.
You may well live in a state or city where the crisis hit earlier and harder.
California, for example, had to close what looked like a $36 billion budget gap in February. The state then watched a deteriorating economy open up an additional $24 billion budget shortfall by May.
Video: The tax man cometh -- Hoofy and Boo say so, too
And big states such as California aren't even at the top of the list when it comes to budget gaps. The top ranking goes to Nevada, with a 30% gap. Arizona comes in a close second.Many states in a mess According to the National Conference of State Legislatures, the total budget gap for the 50 states comes to $145 billion for the fiscal year, which ends in June 2010 for many states. The Center on Budget and Policy Priorities comes up with an even higher number: $178 billion.
The conference also reports that 26 of the 45 states that reported numbers expect to collect less in taxes in fiscal 2010 than in 2009.
And that's even though 20 states raised taxes in 2009 to the tune of $27 billion. A slumping economy wiped out all the effects of higher tax rates.
And then, of course, there's fiscal 2011, generally starting next July. The Center on Budget and Policy Priorities calculates fiscal 2011's gaps at $80 billion for the 35 states that have put together estimates. With state revenues expected to continue to deteriorate well into 2010, the final tally, the center estimates, could be $180 billion or more.
The center also projects that states could still show a collective budget gap of as much as $120 billion as late as 2012.
Just for some context, the worst annual budget shortfall during the 2002-05 recession years was $80 billion in 2004.
Continued: Local entities lose state funding
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Yep, they sucked us in for 30 years, and will now re-neg and change the deal at the last minute. Just when they should be giving long-term savers a break (those of us who followed the rules and will eventually pay most of the cost of our current financial crisis) they are going to screw us again, because, we’re the only ones left with any wealth to tap. My advice to every true retirement investor; roll your tax infested IRA into a Roth IRA when you have the chance in 2010. Put your life savings out of reach of the tax man once and for all. No matter what happens after that, it will truly be YOUR money.
It was, if I recall our Vice President who not to long ago made the statement that it is the PATRIOTIC duty of every Citizen to Pay Taxes.
What are you gripping about. Is that not what you asked for????
You asked for the change yo got it.
The decade of Bait n Switch. And Change the Rules in the middle of the Game...
Comcast, Marketers, Gov. etc....Then they can all step into a rocket with all their money ( because some think they CAN take it with them, and they will bury their stash in a waterproof bag in the big Hole in the moon that the astros made a couple months ago just for fun and curiosity, (A billion probly for THAT thrill!) Then they will take the shuttle rocket with their stash and go straight to heaven and all will be well! We are the MONEY ORCHARD for the government.
One of the great features of a VAT tax is that it's just about the only sure-fire way to extract more money out of the prudent. Those who have saved their after-tax dollars will get to pay taxes on them again when they spend them.
And for all those looking to escape the taxman via Roth IRAs. They sound really good now, but do you really trust the government not to change the rules when the politicians can't find enough money to buy the votes they need? When the young don't want to pay the taxes necessary to keep the promises the boomers made to themselves? I can just imagine the NY Times now... "Rich millionaires invested in Roth IRA escape paying their fair share of taxes..."
You can run, but you can't hide.
First, I would do away with tax-funded public education for any children born in 2011 and ongoing. That gives everyone a chance to figure out where babies come from, and to plan accordingly and only have children if they can afford them on their own. Period. It's fine to have a public education option (say, $5,000 per year), in addition to private schools.
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