Danger! Danger, Will Robinson!

I grew up watching the 1960's television show Lost in Space. Those of you that remember the series may recall the retro-futuristic set design, less than subtle acting, and costumes in color pallets that would make late-era Elvis cringe. Thankfully, the first season was filmed in black and white. What I remember most vividly, however, is young Will Robinson being warned of impending danger at every turn by the human-like Robot that accompanied the family on their fateful voyage. The dangers faced by the Robinson family as they careen into the unknown may be a fitting metaphor for the interesting times that we live in today. There are signs of danger and action is required. 

If asked a year ago to peer into the future, the events of the past several months would have been unfathomable to most of us. In late March, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which infused $2 Trillion dollars into an economy reeling from an unprecedented shutdown brought about by a viral pathogen. The Act included direct payments to many Americans of up to $1,200/$2,400, depending on marital status, and federal unemployment benefits for eligible workers. The bill passed unanimously in the Senate- a prospect as unlikely to occur as encountering a highly verbal robot- and included a host of other relief provisions. A few of these include penalty-free access to retirement funds for those impacted by Coronavirus, the temporary suspension of required minimum distributions from IRA and 401(k) plans, and small business relief designed to prevent layoffs and business closures. The business-related relief came in the form of the now well-known Paycheck Protection Program and Economic Injury Disaster Loans, as well as the less publicized but highly impactful modifications to business net operation loss rules and the suspension of the excess loss limitation (ELL). And if there still isn’t something in here for you, you might be heartened to know that the interest expense limitations are increased to 50% from 30% for tax years beginning in 2019 or 2020.

The government acted swiftly and decisively to infuse money into the economy to help keep the ship on course and to stop the economy from entering a deep recession. The rub is that we now find ourselves in a state of suspended animation, as news of COVID-19 spikes and economic uncertainty obscure the path forward. Lost in Space fans like me can be forgiven for seeing a parallel. While the government’s actions may have been necessary, they come at a price. According to the Committee for Responsible Federal Budget the US budget deficit is expected to hit $3.8 Trillion this year. https://www.crfb.org/blogs/whats-2-trillion-coronavirus-relief-package 

Let’s face it, the federal government wrote a check against a bank account with nothing in it. If you or I wrote that check we’d be expected to honor it, and if the Robinson family wrote it they might be thrown into a pit of “space vipus”. I’m still not sure what that was, but the message was clear. In the same vein, we will pay for this this. Perhaps more accurately, future generations will be footing the bill in the form of increased taxes. Regardless of who is elected to office in November, the rapidly increasing budget deficit will have to be reduced. Failing to do so will eventually result in interest payments that are so high that they throttle economic growth. How to distribute the pain has not been agreed upon, but increases in taxes on wages will surely be an easy remedy. Removing the Social Security wage base is a quick and easy way to increase tax revenue, as is taxing certain fringe benefits like health insurance premiums for high earners. Generous provisions such as the estate tax exemption of $11.58 million may face the budget axe, and even the much revered basis step-up at death may be curtailed. If I were donning my Will Robinson space suit while preparing to be cryogenically frozen and thrust into space, I might predict a future increase in capital gain rates, or even a federal value added tax. I was correct, by the way, in my prediction about the loss of the stretch IRA, and all of this sounds less crazy when juxtaposed against being frozen and shot into orbit.

 If you agree with my prediction that taxes will increase in the future, you might also inquire about what steps can be taken today to better plan for that future. A few ideas come to mind: Roth Conversions, accelerated gifting, GRAT’s, CLT’s, accelerating income and more. If you’re not familiar with these terms, I’d be happy to discuss them with you. Perhaps you know what “space vipus” is and would care to share that with me. When it comes to planning, there is no simple answer and one size will not fit all. Every person’s voyage is different and must be treated accordingly. With summer here, it’s a good opportunity to connect with an advisor to plan the next steps of the journey. 

 To quote Jeff Last, another forward-thinking individual: “Sometimes after a storm people say there was no warning. There was a warning but nobody listened”.

 If you want to have a brief chat lets connect.

Sincerely,

Jonathan Gassman CPA, CFP, CAP

9 East 40th Street

New York, NY 10016

T: 212-221-7067

The Retirement Maven

The Gassman Financial Group

DISCLAIMER: Any accounting, business, financial or tax advice contained in this communication, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. The opinions and analyses are subject to change at any time. If desired, The Gassman Financial Group including Gassman & Gassman CPA PC and G&G Planning Concepts Inc., would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired services. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.

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