Financial Figures

from Valley Business FRONT, Issue 165, June 2022

Career FRONT

National debt, interest and taxes

Federal spending on pandemic relief, the war in Ukraine, and a variety of other non-typical areas has caused national debt to skyrocket. What’s owed by the public – that’s you through your taxes – increased from $14.6 trillion in 2017 to more than $21 trillion in 2020. As of February 2022, the federal debt was about $30.29 trillion. It’s not just the debt we owe. According to Treasury Direct, a government site, interest expense on outstanding debt for 2021 was $562,388,232,682.17. Ouch.

People often forget when they advocate for more “government support” that someone pays for that. That someone is you. As you start to look at investment strategies, consider the cost of interest alone on that debt. Now might be a better time to invest in a ROTH instead of a traditional IRA, for example. Chances are your taxes will be higher tomorrow, even with reduced retirement income.

Responding to rising interest rates

Interest rates on borrowing, which are tied to inflation, are rising. Because of this, it’s a good time to shop around. Different banks offer different products. That includes everything from business lines of credit and expansion loans to mortgages and variable-rate personal loans. When rates are rising, it’s usually smart to lock into fixed-rate solutions.

Think about what you’re doing with savings and investments too. Higher interest rates mean you can make more with FDIC insured options. These have paid little or nothing recently, but now that’s changing. It makes sense to find the best rates.

Controlling taxes

Don’t forget, different income gets taxed at different rates. For example, capital gains are taxed at 0-20%, depending on your income. Those who make $41,675 or less pay none, earners making over $459,750 owe 20% to Uncle Sam. If you’re a high earner, you might want to consider flipping some of your income strategies. As laws and personal circumstances change keep an eye on what’s working for you.

The last president who paid off the national debt was Andrew Jackson. That was in 1835. It’s unlikely we’ll ever see zero federal debt owed in our lifetimes. Smart future planning includes considering rising federal debt in investment strategies.