• Bridget Sullivan Mermel CFP(R) CPA

Tax Increases and Other Financial Predictions

Updated: Mar 10




TRANSCRIPT


Tax Increases and Other Financial Predictions


Bridget: Politicians can't agree on anything. We all think there's going to be gridlock in Washington coming up. Nothing's going to get done. And we're going to remain in crisis mode forever. That's what John and I are going to talk about today on Friends Talk Financial Planning.


I’m Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois.


John: And I'm John Scherer, I run a fee-only financial planning practice in Middleton, Wisconsin.


And politics sure are the talk of the day! As we record this, we’re, what, two weeks out? Not even three weeks out from the election. And even though I hate how the voting is done, it's still on a lot of people's mind. And this divisiveness, right?


Bridget: Right.


John: That is really an unsettling topic. And just when you have these sort of things, it's like, how do you think about that for a number of levels? But then applying it to your personal financial life, what decisions do you make? How does that change things? What do you say to people, Bridget? How are you addressing that? I'm sure it's coming up.


Bridget: It's coming up in meetings. Yeah, because people are feeling discouraged, and they’re feeling like the country's not all going in the same direction. And everybody recognizes that. And so you feel like nothing is going to get done.


And the first thing I do is say, it’s certainly understandable why you feel that way. I am actually trying to stop watching the news except for once a week, because it stresses me out too much. I try to keep up on the local news very briefly, just because I need to know what the new, the latest is on the COVID situation. But otherwise, I'm really trying to tune out, only because it stresses me out. So I will hear about stuff, even if I'm not spending hours a week consuming, that…


John: like, ambient noise coming in, right? You get it whether you want to or not.


Bridget: Yeah, well, it's like a diet. I put myself… I watch Sunday, at least one Sunday show. I watch some comedy shows about politics, and I watch on Fridays. So I get enough. That's enough for me to know about what's going on. So that’s the first thing I’d recommend.


John: I really appreciate these conversations and our whole series here is like two people talking, like when we see each other at conferences. And I really appreciate your approach.


Of course, you're nervous about things and it's anxiety-filled. I'm such a linear thinker; I want to get to the facts. And it's useful, but it's a really great reminder for me that the feelings are like, “Oh, Yeah. All this stuff going on…” And what you read about… It'd be almost crazy if you weren't sort of anxious about what's going on, whatever your political views are on the thing.


And then I think there’s also some balance. I tend to focus on: what are the actual facts here? What are we talking about? And then having that blend of the two.


Bridget: Right. Exactly.


John: And then for me, one of them is just accepting like, “Oh Yeah, you're nervous.” Well duh, of course, right.


Bridget: Of course. The other thing is that I think that maybe everybody gets more clicks and more viewers or eyeballs if they focus on what the parties disagree on.


John: Yeah, what’s wrong.


Bridget: And actually, they agree on a couple of things that I think are important when we're thinking about our finances. So there's an implicit agreement. Both parties are not talking about the deficit.


So I actually kind of think in the long-term the deficit’s important. But neither party is address talking about addressing deficit problems in the short-term, which harkens back to by macroeconomic class days that says, “Yeah, you shouldn't rate taxes during a recession, because it's just going to make things worse.” That was one of the lessons from the past is: don't raise taxes during recession.


And I think everybody agrees that we have a recession. Maybe it's not as bad as everybody thought it was going to be, but there's… definitely the economy has contracted.


John: It certainly is interesting. I appreciate that. And I've said this all along, too. It's easy to focus on what's wrong or what you don't... But there are things that you agree on, and the idea of the deficit is really interesting, right? When is the last time you heard anything about that? And my argument on that is that when interest rates are, on the 10-year treasury is at 0.8%, that doesn't cost very much.


Bridget: Right.


John: When interest rates, when suddenly we're paying 5% on that debt, boy that's going to be a bigger ticket item.


Bridget: That’ll be a different situation.


John: It’s a scary thing. But then the flip side to it also is -- so there I go with my facts -- well, here's what they're actually going on out there. There is some agreement. Okay.


Bridget: Yeah!


John: Listen, and then the other side of it is then, as I think about it, “Okay, what can I do about it? What action can I take?” And it's sort of like, well, as I see it, there's just not that much you do about it, right?


Bridget: I don’t work in Washington.


John: Right. But it's interesting to think about. It's good to communicate with our legislators on our opinions. But when it comes to financial planning and what we do, like, I don't do anything about it. And I don't recommend it. And sometimes I wonder like, “Okay, should I be doing something?” I don't think so. What about you guys?


Bridget: Yeah, I've been having tax meetings with people where we do pretty comprehensive tax planning for the end of the year and see what opportunities people have. And I tell people like, if I were to bet, I wouldn't guess that there's going to be any tax legislation next year, because I think they've got other things on their minds. They’ve got the Coronavirus.


And then there's all this stuff that’s pretty easy that nobody’s going to disagree on, or there's not going to be that much disagreement. Get that stuff done first. Then they'll start using that stuff they call “political capital” and maybe get a tax thing up. But I think that there's other stuff that they're going to want to do before they even get to taxes.


John: What's the low-hanging fruit, right?


Bridget: Exactly. And so I don't see it. I believe that during the Biden administration, there will be tax changes. Yeah, I believe that there will be. But I don't think that there's going to be much right out of the gate and that there's tax planning things to implement this year.


And actually, my memory is of the Obama administration. The first year when he got in, the economy was in doldrums. There was a lot of other stuff he was trying to do. And major tax legislation didn't come for a year to.


John: Yeah, interesting. And you brought up Macroeconomics. I had a flashback to college -- and it wasn't necessarily a good one -- but the idea, it's interesting, that a lot of people are nervous about. Okay, what's going to happen with taxes? Are those going to change? How is that going to affect me? And who knows? Maybe things happen. Maybe they don't.


But it's interesting when you think about that idea of, well, Jeez, if we are in a recession, if that's where, if the virus continues to cause… raising taxes in that environment is not an awesome philosophical thing.


Bridget: It’s bad. They’re not going to do that.


John: And you go, “Okay, that's an interesting take that I haven't heard a whole lot about.” And that carries some water with me.


Bridget: Again, not that clickable.


John: Yeah, right. Exactly.


Bridget: That’s just not going up.


John: Right. Not very scary. Or it doesn't sell a lot of ads, as you say. Oh, go ahead.


Bridget: No, I was just going to say I was thinking that we might talk about the stock market, too. Before the show, we were talking about a graphic that we have found. And this is from Carl Richards from the “Behavior Gap.” And we were talking about how the stock market – so different topic from taxes, although taxes fit in here, too – how that fits into the graph.


John: I was going to say, I disagreed a little bit with you that it's about the stock market, but it's about taxes, it’s about interest rates. This one carries… Listen, what can I control? Right? That's the only thing I can do anything about. And then there's a lot of important things that I can't do anything about. Like the stock market.


Bridget: Right.


John: And it's that middle part. What am I saving? Am I being smart with my tax things?


Bridget: Refinancing my house, right? Okay. Interest rates are low. I can refinance my house. That goes into this here, because I can control that.


John: And it's interesting as I look at this stuff, the things on the right, the things that you can control seem oftentimes so unimportant, because they're easy. I can control it. And the things that are important that matter but I can't control, that so often takes -- like the deficit, I can only do so much about that -- but it takes on such a big thing mentally, because it is important. And I think it's the fact that I can't do anything that causes that agitation.


Bridget: Right. Stress.


John: And to be in the middle of that… I kind of forgot what we were talking about. That's a great that's a great illustration on that, Bridget. And I'll tell you one thing that as you were talking about the gridlock, and who knows what's going to happen, and maybe they won't get anything done. And my internal response was, “Well, good! They can't screw anything up, right?”


So it is an interesting take that hey, we want things to improve, but maybe not doing anything to make things worse, that's not necessarily a bad option either, right? So from the anxiety standpoint, maybe gridlock is a reasonable thing. And who knows? We just don't… it's on the left side, things that are important but we can't control.


Bridget: Right.


John: Well, great. I think this is a great look at... And again, I appreciate so much that idea that feelings and facts are both important, but two different things. And so as takeaways from this, for viewers, appreciate that your feelings are…of course! But then there’s also the facts that balance that off, and don’t get swept away by that. And think about that middle part on Carl’s graph, right?


Bridget: Absolutely. So it seems like this is a great place to wrap it up. We always like to talk a little bit about ACP, or the Alliance of Comprehensive Planners. It’s a not-for-profit group of financial planners that John and I both belong to. We operate in the same fee-only, tax-focused philosophy.


And the other thing we’d like to do is encourage you to subscribe. If you want to help the channel, subscribe, and that gives us a little respect from YouTube.


John: That’s right. Thanks so much, Bridget for the conversation. See you next time!


Bridget: Thanks!



At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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