Brace For Higher Taxes In The Future

Let’s face the fact - we have to brace ourselves for higher taxes and a big government.

Americans have been made to believe that they have more wealth than they actually have. Picture it this way; where else in the world can you easily secure easy mortgages and unsecured credit. I bet it's only in America and a few European countries. In order to finance this hyped lifestyle, America finds itself in a situation where it has to spend and borrow-excessively doing both in the process. I hope that the looming tax increase will bring some sanity and force Americans to live within their means.

Governments have always taken on budget deficits to weather financial turmoil's like depression. Economist John Maynard Keynes has also championed the idea of governments taking on budget deficits to pull their economies up from their financial woes. The US and some western countries were quick to implement this idea. However, this uncontrolled spending has plunged the US and some western countries further in debt (which by the way, should be paid back).

Incidentally, it will be the ordinary American families to foot the bills-through future tax increase.

America recovered from the 2001 recession due to the availability of easy mortgages and unsecured credit availed by the government. Even before the onslaught of this current economic crisis, up to 70% of the US GDP was backed by consumer spending. However, the credit has since dried up-banks are afraid to lend and American consumers are just not willing to spend anymore. The government is yet again forced to go on a borrowing spree in order to make credit easily accessible to banks and consumers alike. However, the questions still remain: How will the government pay back all these huge amount of borrowed money? I bet your guess is as good as mine-all solutions lead to higher taxes.

In fact, some politicians even saw this type of spending as a workable solution to tackle the ever rising inequality and the unsteady middle-class incomes. If you loose a job or your company can't offer you a pay raise, you simply borrow and pay back when thing are better.

We are yet to see if President Obama will push through the national health-care system he heavily campaigned for during the 2008 presidential elections. With voters increasing looking to government for almost everything(including managing risk), President Obama could be tempted to push though his national health-care system -However, it will be a tough political fight.

With 401(k) balances uncertain, it seems the safest net right now is social security. Although we may not see the tax increase very soon, prepare for higher taxes in the next “normal” economy. Given the deficits we face, the taxes are bound to go up. One way you can prepare for the tax increase is by saving in a Roth IRA.