The U.S. government is spending trillions of dollars to support our economy through this pandemic. Most of this is money we do not have. The government will be borrowing trillions of dollars on top of our already big national debt. This prompts a lot of people to ask two questions.
- How are we going to pay for this down the road? Higher taxes, right?
- Is all this extra money being pumped into the economy going to cause massive inflation?
I find one of those questions easy to answer. Yes, it is likely we will end up paying for this stimulus through higher taxes. The easiest way for the government to do that is to let the current tax rates sunset in 2026. They could also raise taxes independent of that. I will not try to figure out when they will raise taxes and by how much. Instead, we should focus on what we can do about it. Save more today and make sure we are taking advantage of the lowest tax rates I expect to see in our lifetimes.
The inflation question is much harder to answer. Printing a lot of money can cause inflation, but only if people are spending it. Right now, people are reluctant to spend money, either because they are worried about their finances or because they are worried about their health. That is not likely to change in the short-term, meaning it is hard to see inflation picking up this year.
Of course, if there is anything we learned this year, it’s that life is completely unpredictable. I am not paid for my opinions on future tax rates or inflation. I am paid to help people make reasonable decisions based on information available today and then to adjust these plans as circumstances change. Let me know if you would like help with that.
Legal Disclaimer: These posts do not constitute an offer or recommendation to buy or sell any securities or instruments or to participate in any particular investment or trading strategy. They are for informational purposes only. CTW gathers its data from sources it considers reliable. However, CTW makes no express or implied warranties regarding the accuracy of this information or any opinions expressed by the author and may update or change them without prior notification.