It may surprise you to know that tax rates change dramatically over time.

Everything from income tax to estate tax changes based on new laws approved by the government. Financial advisors like me keep up with these changes so we can help clients like you find ways to reduce the amount of tax you pay, especially as you're heading into retirement.

Let's take a quick look at how and why, so you can understand how they affect your money.

What Causes Tax Rate Increases?

The single biggest driver of tax rate changes is the government's need for money. Historically, tax rates increase dramatically when the government needs to fund something expensive, like a war.

As an example, let's look at what happened during World War II. This may seem like old news, but it's crucial for understanding how the government sets our tax rates. To pay for the war, the government raised the top marginal tax rate to an all-time high: a whopping 94%! That means, in the years 1944 and 1945, everyone in the top marginal tax rate who made an extra $100 would have had to pay $94 to the government. Crazy, right?

Since the Cold War, however, our tax rates have been declining. As of the 2022 tax year, the top marginal tax rate was 37%. But there are signs that the tax rate is VERY likely to climb. Let's look at the evidence:

  • The war on terror increased the government's financial commitments, but our taxes haven't been dramatically increased...yet.
  • The financial bailouts of 2008 and 2009 created even more government spending, but our taxes haven't been dramatically increased...yet.
  • As Baby Boomers age, programs like Medicare and Social Security increase spending, but our taxes haven't been dramatically increased...yet
  • The COVID-19 pandemic created even more government spending, but our taxes haven't been dramatically increased...yet.

What do all these expenses create?


How will the government pay for this debt?

By increasing your taxes in the future.

You can see the evidence for yourself. Check out the U.S. Debt Clock website, which tallies the growing national debt second by second. It also calculates the average amount of debt per taxpayer.

Higher Debt = Higher Taxes

What's going to happen when the government can no longer make minimum payments on that debt? What's going to happen when the government can no longer borrow money from foreign countries or print more money to artificially satisfy its creditors?

It will have to raise taxes on its citizens.

But not just any citizens...the wealthiest citizens. The citizens with cash savings, with money in their 401(k)s and IRAs.

After all, a family living on the poverty line has little, if anything, to contribute. Even middle-class families can't contribute enough to make a dent in the amount of money our government owes.

The people it will turn to are its wealthiest citizens - the ones paying the highest top marginal income tax rate.

That's why it's crucial to take advantage of the financial products that give you the most protection from a future increase in taxes.

One of those products? Cash value life insurance. It provides benefits including a tax-free cash payment to your family if something were to happen to you, a cash value account that you can use for tax-free retirement income, riders that let you tap into the death benefit in the case of terminal or chronic illness, and more.

Ready to Do Something About It?

I can help protect your retirement from the higher taxes we all know are coming. Let's talk about ways to reduce or eliminate your future tax liability.

Call me or email me today - the longer you wait, the more it could affect your bank account.

This is general information and not intended to serve as legal, tax, or other financial advice. Please consult with your attorney and/or CPA regarding your specific situation.