Corrosive Effects of Taxes on Wealth Creation

If you Doubled the Amount in Column 1 , 20 times

Column (A) Paying No Tax…over $ 1 million

Column B paying 35% Tax Less than $25,000 (98% Less)

Controlling the corrosive effect of taxation is vitally important to accumulatng wealth. The table to the left shows the effects of doubling $1 for 20 times.

  1. Middle green column shows that if your $1 grew tax free you get over $1 million by 20th doubling.
  2. If you paid 35% taxes every time you doubled your funds you earn 98% less not 35% less.
    1. Red column shows your $1 only grows to  $22,370 which is 98% less than $1 million.

Taxation is thus far more Corrosive to Wealth Generation than Most Realize.

Therefore Lowering Taxes while Increasing Tax Free income is Prudent, Legal and Smart.

Do you Think Current Tax Rates are High?

Fact is, tax rates are at historical lows.  The table below shows the top marginal rate for federal income taxes since inception in 1913 when the IRS only taxed a small percentage of Americans and it was sold as a temporary tax. The top marginal federal tax rate has averaged 60% since income taxes were started. This does not include State taxes or other taxes. Given the state of the US federal debt, and the debt of States and municipalities taxes will go up a lot.  Budgeting for retirement using taxable retirement dollars is a fools errand in less than a decade if you are in a top tax bracket. Click here to see the math of how California based business owners earning over $416,000 will get 10 cents on the Dollar if they try to withdraw their 401(k) funds before age 59.5. They receive less than 25% of their dollar for after age 59.5.m

State Debts are worse that Federal Debt since States cannot Print Money from Air unlike US Government

Since deficits become future taxes you have to ask how well is your State being run? California and most large municipalities have large unsustainable debts. California’s public sector has a generous retirement that is 4 times more generous the the public sector retirement in Texas. California is legally required to pay for this. Yet, California does not have the money to do so. The only solution is higher taxes. What follows are facts from a San Jose Mercury News article published, January 26, 2014, by Jessica Calefati. Click here to read the is an eye opener. The bottom line is that states are in such bad fiscal shape that this will add to your future tax burden. Unlike the federal government, states and cities cannot print money.

The State of California’s needs include:

  1. $64 billion for state workers’ health care in retirement
  2. $80 billion to cover teachers’ pensions
  3. $65 billion for deferred maintenance of state roadways, bridges and other infrastructure.
  4. $25 billion for U of California pensions that are underfunded.
  5. California has 4.2 million food stamp recipients.

Click here to see How Poorly your State is Performing (all other 49 states re listed here)

You can can download a report for most US states.

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