Feeling like “the tax man cometh” too often?

With a recent notice from the IRS that the tax filing deadline has been pushed back to May 17th, you may be feeling a little off the hook for now. The pressure is off, at least for the moment.  However, while there is a momentary lull in the action, consider a few facts about taxation which might make you think about taxes differently. Historic Tax Rates While it’s easy to feel like you are paying too much in taxes, especially at this time of year, it’s important to put this in perspective. In 2021, the top marginal tax rate is 40.8%, which is a combination of the top marginal bracket of 37% and the 3.8% Medicare surtax for high earners. That sounds like a very high tax rate but consider that the historic average top marginal tax rate (1925-2026) is 57.5%, with rates in the 1950’s topping 90%.  The marginal tax rate considers the highest tax bracket you hit with your taxable income, while the effective tax rate is the percentage you are effectively paying when your income across all Read on! →

One positive outcome from Covid & 2020

While there are many aspects of 2020 which we might prefer be forgotten, there were a few positive outcomes from the year which need to be highlighted.  As a majority of individuals in the U.S. were sheltering-in-place during Covid-19 an interesting thing happened. Because we were unable to travel, dine out and generally entertain ourselves by spending lots of money, the U.S. personal savings rate jumped to a record 15% of gross income. As can be seen from the chart below, not since the early 80’s has the U.S. seen a savings rate even in excess of 10% and it has been as low as 3%, which occurred just prior to the Great Recession. Even though the jump in personal savings was not spread evenly throughout the population, it does represent a very positive change, one that shouldn’t be abandoned when the world returns to it’s new “normal”. It is interesting to note that in order to successfully fund retirement, it is recommended that a consistent annual savings rate of 10-15% is required. With this chart going back to 1960, Read on! →