Through the pandemic, the government has utilized stimulus strategies that have never been used before. Through the first four stimulus packages, estimates are that the government has put over $2 trillion of cash into the economy through a variety of avenues. This is obviously needed to bridge the economy through the pandemic to recovery.
We are already hearing news stories about the fiscal impact of the pandemic on state and local governments, which typically are required to operate based upon balanced budgets and may have less ability to issue bonds or otherwise borrow than the federal government. As a result, there are many stories in the news about reductions of government services and likely tax increases to rebalance their budgets.
So why the title of this blog? In the context of our government income and expenses, if it feels a little like December with a lot of spending going on at unprecedented levels (without the gifts under the tree), then you are on the right track. What we are just beginning to hear rumblings of is the credit card bill that is on its way. Whether it is grants to use as individuals, forgivable SBA loans, payments to medical providers and researchers, all of these disbursements represent costs or expenses for the government which must be paid for either through tax or other government revenues, or in the case of the federal government, through expanded borrowing. In either case, all of this must be paid for at some point. In the context of likely trends, it is a foregone conclusion that taxes are much more likely to go up versus staying the same or decreasing. An economic recovery will certainly help government revenues just through increased economic activity, but that will only cover some of this spending.
As a business owner, investor or individual taxpayer, you should be thinking today of how to best position your fiscal house to protect against these tax increases, to preserve your savings or retirement, and to fortify your business operations for upcoming tax increases. It pays to think expansively about what might come to fruition, such as increases in property taxes, sales and use taxes, new taxes (such as value added taxes, carbon taxes), etc. All of these alternatives will likely be in consideration as the government attempts to reform their fiscal posture.
While January after the holidays often represents a time of reckoning, there are always things that you can do in advance to mitigate the financial damage of holiday spending. Likewise, preserving cashflow and taking some pre-emptive measures to shore up your finances will give you a head start as we all begin to pay back the funds expended during the pandemic. If you need assistance with strategies to avoid the January hangover, please contact your Wipfli Financial Advisor or Relationship Executive.