What Pres Obama Won't Say: Your Taxes Are Going Up

(MoneyWatch)  When President Obama speaks tomorrow night, here's what he won't say: your taxes are going up. OK, maybe the lowest echelon on taxpayers will be spared, but anyone who does the simple math can see that the amount of money necessary to finance health care reform, along with existing government obligations, means that taxpayer liability is going up--and not just for the rich.

According to the CBO, the US budget deficit is expected to rise by something close to a gazillion dollars. OK, the White House expects the ten-year budget deficit to reach $9 trillion, up from the original estimate of $7.1 trillion. Given that there are few plans to cut anything out of the budget, the alternative is to raise taxes.

What the President won't say about health care reform is the following: there are not enough rich people to float the country's needs right now. This is not a political statement, it's a fact. This chart from last week's Wall Street Journal demonstrates the point that to close the budget gap over the next ten years, tax rates on the rich would need to rise to nearly 69%. Even if you think that would be a good idea, it just isn't going to happen.


So where do we go from here? Well, the former investment advisor in me says that rather than fight the concept, embrace higher taxes as a likelihood and adjust your life as much as possible. That means maxing out retirement accounts; using tax efficient vehicles like index funds or ETFs; and limiting dividend and capital gains as much as possible. Far better to prepare for the eventuality than screaming, yelling and belly-aching about it.