You may have heard something in the news about the government’s recent spending proposal. Today I want to take a look at it and discuss what it means for your finances.

We find ourselves at an odd point in American financial history. The government’s proposed spending plan would be the largest since World War II, but our tax rates are the lowest they’ve been since the inception of the modern tax code. This seems like an unsustainable situation, and that’s because it is. I hate to be the bearer of bad news, but it’s very likely we’ll see a tax increase by the end of 2021.

Why are taxes likely to increase? Our current debt-to-GDP ratio is at an all-time high of about 110%. Fortunately, it is easy to handle this debt because our current interest rates are low, but they won’t remain that way forever.

So what about capital gains taxes? Are they going to increase too? According to the proposed tax plan, it looks like they will.

"Capital gains hikes in the past have not always coincided with a drop in stock prices."

What does this mean for you? If you have any highly appreciated assets, like stocks, I highly recommend you sell them before the end of this year. We likely won’t see capital gains taxes this low again for a long time.

Some people think that higher capital gains taxes will cause stocks to fall, but this isn’t necessarily the case. If you look at the chart at 3:18 in the video, you’ll see that capital gains hikes in the past have not always coincided with a drop in stock prices.

At the end of the day, it’s not great news, but it isn’t the end of the world either. What’s important is that we do the right thing with the information we have.

If you have questions about today’s topic or anything else, please give me a call. I’m always willing to help.

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