Now that your tax money is in the hands of Uncle Sam, what will he do with it? How will the government allocate your contribution to the overall budget?
Your Social Security payments are easy; they go to pay Social Security benefits to current retirees, and for now, they fully fund that obligation. (The future is another matter.) Some of that money also goes to cover a portion of Medicare's expenses; the remainder is covered by general federal revenue.
Your income taxes are divided among several broad budgetary categories. A surprisingly large chunk is spent on the military (27%) and military-related veteran's benefits (5.1%). Another 22.7% goes to various forms of healthcare for U.S. residents, including the rest of the Medicare bill plus Medicaid. 13.9% of your tax money goes to pay interest on Uncle Sam's debt--paid out to Treasury bill and bond holders every six months. Unemployment benefits take up another 9.8%.
In the "Everything Else" category on the government spending pie chart, a surprisingly low 4.5% is spent on running the government, including various agencies such as the FBI and immigration services. A total of 4% goes to housing programs, community development and block grants, while education gets a 2% slice of the pie--for programs like Head Start, and also the Pell Grants for college students. Less than 2% is spent on scientific research, international affairs, transportation and energy.
If you'd like to get a receipt from the government for your taxes paid, which itemizes how that money is spent, well, good luck petitioning the IRS. But you can get a fairly accurate receipt from the National Priorities Project here: http://nationalpriorities.org/interactive-data/taxday/ . Just type in this year's tax payment from your 1040, find your state, push a button and you'll see what you paid for in terms of government services, interest and overhead. Depending on how you feel about our government spending priorities, it may make your tax experience more or less painful.
Sources:
http://money.cnn.com/2014/04/11/pf/taxes/how-federal-income-taxes-are-spent/index.html
http://nationalpriorities.org/interactive-data/taxday/
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Tuesday, April 29, 2014
Monday, April 21, 2014
GLOBAL TAX RATES
Tax day has arrived in the U.S., along with the usual complaints about the complexity and financial burden that federal and state taxes (and FICA) impose on our lives. But have you ever wondered how U.S. taxes compare with what citizens in other countries have to pay?
Recently, the accounting firm PricewaterhouseCoopers calculated the tax burden, for tax year 2013, for people living in 19 of the G20 nations. (The 20th member is the European Union, which has a variety of tax regimes.) The report looked first at people who are in the upper-income levels--a person with a salary equivalent of $400,000, with a home mortgage of $1.2 million. After all income tax rates and Social Security (or equivalent) contributions have been taken out, what percentage of her income would this person have left over?
The people we should have the most sympathy for on our annual tax day live in Italy, where this person would get to keep $202,360 of that $400,000 income--or 50.59%. A comparable person living in India would keep 54.9%, while someone living in the United Kingdom would keep 57.28%.
Here's the full list. Notice that the U.S. is about in the middle of the pack:
19. Italy - 50.59%
18. India - 54.90%
17. United Kingdom - 57.28%
16. France - 58.10%
15. Canada - 58.13%
14. Japan - 58.68%
13. Australia - 59.30%
12. United States - 60.45%
11. Germany - 60.61%
10. South Africa - 61.78%
9. China - 62.05%
8. Argentina - 64.02%
7. Turkey - 64.64%
6. South Korea - 65.75%
5. Indonesia - 69.78%
4. Mexico - 70.60%
3. Brazil - 73.32%
2. Russia - 87%
1. Saudi Arabia - 96.86%
Before you conclude that the U.S. is below average on this list, you should know that PricewaterhouseCoopers applied New York state (13.3%) and New York City (maximum 3.9%) taxes on the American calculation. If it had used Texas or Florida state tax rates instead, the U.S. would easily have ranked somewhere in the top ten.
And this list is somewhat skewed because so many European countries are left off it, because they are lumped into the EU. It also doesn't include Canada, which imposes a 29% top federal tax rate on its citizens, and then tacks on a maximum 25.75% rate at the province level.
PricewaterhouseCoopers did include many of the EU countries when it calculated the tax burdens on people with average incomes, and here the list looks somewhat different. The accounting firm assumed that a hypothetical married couple, with two children, earned the average income in each nation, and then calculated the overall tax rate the family would have to pay.
Denmark - 34.8%
Austria - 31.9%
Belgium - 31.8%
Finland - 29.4%
Netherlands - 28.7%
Greece - 26.7%
United Kingdom - 24.9%
Germany - 21.3%
United States - 10.4%
South Korea - 10.2%
Slovak Republic - 10%
Mexico - 9.5%
Chile - 7%
Czech Republic - 5.6%
(China, Russia, South Korea, Indonesia and Brazil would assess 0% taxes on this hypothetical family)
Does this mean that the U.S. tax system is fair? Or equitable? It depends on your perspective. Tax rates in the U.S. have been as high as 94% on all income over $200,000 (1944-45), and as low as 28% (1988-1990), with the bulk of years coming in between 40% and 70%. Meanwhile, some countries assess more taxes from corporations than from their citizens, while some have it the other way around. And some nations are evolving. At the beginning of World War II, individuals and families paid 38% of the total federal tax burden, and corporations picked up the other 62%. Today, thanks to aggressive lobbying, corporations have turned that around and then some. Individuals and families pay 82% of today's total federal income tax haul, and corporations pay 18%.
We should also remember that high taxes don't necessarily correlate with economic misery or poverty. Consistently, Belgium, which had the highest tax burden on average wage-earners (and imposes a top 50% rate on upper-income citizens), also consistently scores as one of the happiest countries in the world.
Sources:
http://www.bbc.com/news/magazine-26327114
http://billmoyers.com/2013/10/03/the-us-has-low-taxes-so-why-do-people-feel-ripped-off/
http://www.tax.ny.gov/pdf/current_forms/it/nyc_tax_rate_schedule.pdf
http://www.ntu.org/tax-basics/history-of-federal-individual-1.html
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Recently, the accounting firm PricewaterhouseCoopers calculated the tax burden, for tax year 2013, for people living in 19 of the G20 nations. (The 20th member is the European Union, which has a variety of tax regimes.) The report looked first at people who are in the upper-income levels--a person with a salary equivalent of $400,000, with a home mortgage of $1.2 million. After all income tax rates and Social Security (or equivalent) contributions have been taken out, what percentage of her income would this person have left over?
The people we should have the most sympathy for on our annual tax day live in Italy, where this person would get to keep $202,360 of that $400,000 income--or 50.59%. A comparable person living in India would keep 54.9%, while someone living in the United Kingdom would keep 57.28%.
Here's the full list. Notice that the U.S. is about in the middle of the pack:
19. Italy - 50.59%
18. India - 54.90%
17. United Kingdom - 57.28%
16. France - 58.10%
15. Canada - 58.13%
14. Japan - 58.68%
13. Australia - 59.30%
12. United States - 60.45%
11. Germany - 60.61%
10. South Africa - 61.78%
9. China - 62.05%
8. Argentina - 64.02%
7. Turkey - 64.64%
6. South Korea - 65.75%
5. Indonesia - 69.78%
4. Mexico - 70.60%
3. Brazil - 73.32%
2. Russia - 87%
1. Saudi Arabia - 96.86%
Before you conclude that the U.S. is below average on this list, you should know that PricewaterhouseCoopers applied New York state (13.3%) and New York City (maximum 3.9%) taxes on the American calculation. If it had used Texas or Florida state tax rates instead, the U.S. would easily have ranked somewhere in the top ten.
And this list is somewhat skewed because so many European countries are left off it, because they are lumped into the EU. It also doesn't include Canada, which imposes a 29% top federal tax rate on its citizens, and then tacks on a maximum 25.75% rate at the province level.
PricewaterhouseCoopers did include many of the EU countries when it calculated the tax burdens on people with average incomes, and here the list looks somewhat different. The accounting firm assumed that a hypothetical married couple, with two children, earned the average income in each nation, and then calculated the overall tax rate the family would have to pay.
Denmark - 34.8%
Austria - 31.9%
Belgium - 31.8%
Finland - 29.4%
Netherlands - 28.7%
Greece - 26.7%
United Kingdom - 24.9%
Germany - 21.3%
United States - 10.4%
South Korea - 10.2%
Slovak Republic - 10%
Mexico - 9.5%
Chile - 7%
Czech Republic - 5.6%
(China, Russia, South Korea, Indonesia and Brazil would assess 0% taxes on this hypothetical family)
Does this mean that the U.S. tax system is fair? Or equitable? It depends on your perspective. Tax rates in the U.S. have been as high as 94% on all income over $200,000 (1944-45), and as low as 28% (1988-1990), with the bulk of years coming in between 40% and 70%. Meanwhile, some countries assess more taxes from corporations than from their citizens, while some have it the other way around. And some nations are evolving. At the beginning of World War II, individuals and families paid 38% of the total federal tax burden, and corporations picked up the other 62%. Today, thanks to aggressive lobbying, corporations have turned that around and then some. Individuals and families pay 82% of today's total federal income tax haul, and corporations pay 18%.
We should also remember that high taxes don't necessarily correlate with economic misery or poverty. Consistently, Belgium, which had the highest tax burden on average wage-earners (and imposes a top 50% rate on upper-income citizens), also consistently scores as one of the happiest countries in the world.
Sources:
http://www.bbc.com/news/magazine-26327114
http://billmoyers.com/2013/10/03/the-us-has-low-taxes-so-why-do-people-feel-ripped-off/
http://www.tax.ny.gov/pdf/current_forms/it/nyc_tax_rate_schedule.pdf
http://www.ntu.org/tax-basics/history-of-federal-individual-1.html
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Monday, April 14, 2014
THE RETIREMENT WE IMAGINE, THE RETIRMENT WE LIVE
Examining the potential differences between assumption & reality.
Financially, how might retirement differ from your expectations? To some degree, it will. Just as few weathercasters can accurately predict a month's worth of temperatures and storms, few retirees find their financial futures playing out as precisely as they assumed.
As you approach or enter retirement, you may find that your spending and your exit from your career don't quite match your expectations. You may be surprised by these developments, even pleasantly surprised by some of them.
Few retirees actually outlive their money. If this was truly a crisis, we would see federal and state governments and social services agencies addressing it relentlessly. The vast majority of retirees are wise about their savings and income: they don't spend recklessly, and if they need to live on less at a certain point, they live on less. It isn't an ideal choice, but it is a prudent one. Health crises can and do impoverish retirees and leave them dependent on Medicaid, but that tends to occur toward the very end of retirement rather than the start.
You may not need to retire on 70-80% of your end salary. This is a common guideline for new retirees, but according to some analysts, you may not need to withdraw that much for long.
In the initial phase of retirement, you will probably want to travel, explore new pursuits and hobbies and get around to some things you may have put on the back burner. So in the first few years away from work, you might spend roughly as much as you did before you retired. After that, you could spend less.
Bureau of Labor Statistics data is very revealing about this. JP Morgan Asset Management recently studied U.S. household spending and found that it peaks at age 48. The average U.S. household headed by people aged 65-74 spends only 63% as much as a household headed by people aged 55-64. Additionally, the average household headed by people 75 and older spends only 72% as much as the average household headed by people aged 65-74.1
In the big picture, households run by those 75 and older typically spend about half as much per year as households headed by people in their late forties.1
Further interesting analysis of BLS statistics and retirement spending patterns comes from David Blanchett, the head of retirement research at Morningstar Investment Management. He sees a correlation between career earnings and retirement spending, one contrary to many presumptions. Comparatively speaking, he notes that higher-earning retirees commonly have to replace less of their income once their careers conclude. As he commented to Money Magazine, "the household that makes $40,000 a year might have an 85% replacement rate, and the household making $100,000 a year might need 60%."2
Why, exactly? The upper-income household is watching its costs fall away in retirement. The home loan, the private school tuition, dining out due to convenience, the professional wardrobe, the car payment, the workplace retirement plan contribution - this is where the money goes.
When these costs are reduced or absent, you spend less to live. Blanchett believes that the whole 70-80% guideline may "overestimate the true cost of retirement for many people by as much as 20%."2
Your annual withdrawal rate could vary notably. Anything from healthcare expenses to a dream vacation to a new entrepreneurial venture could affect it. So could the performance of the stock or bond market.
You could retire before you anticipate. You may want to work well into your sixties or beyond - and the longer you wait to claim Social Security benefits after age 62, the greater your monthly payout. Reality, on the other hand, shows that most people don't retire at age 66, 67 or 70: according to Gallup, the average retirement age in this country is 61. The aforementioned JP Morgan Asset Management study determined that less than 2% of Americans wait until age 70 to claim Social Security benefits. So if your assumption is that you will work to full retirement age (or later), you should keep in mind that you may find yourself electing to claim Social Security earlier, if only to avert drawing down your retirement savings too quickly.1
You don't have to be a millionaire to have a happy retirement. In a 2011 Consumer Reports poll of U.S. retirees, 68% of respondents were "highly satisfied" with their lives irrespective of their financial standing. Backing that up, JP Morgan Asset Management found that retiree satisfaction increased only incrementally the more retirement spending surpassed $40,000 a year.1
The retirement you live may be slightly different than the retirement you have imagined. Fortunately, retirement planning and retirement income strategies may be revised in response.
Citations.
1 reuters.com/article/2014/03/12/us-column-stern-advice-idUSBREA2B1R020140312 [3/12/14]
2-money.cnn.com/2014/02/26/retirement/retirement-spending.moneymag/index.html [2/26/14]
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.
Monday, April 7, 2014
CAUSES FOR CONCERN
One of the best businesses to be in is predicting disaster and selling books or newsletters telling people how to overcome the next cataclysmic decline in civilization. Thousands of investors missed the greatest bull market in history because they were subscribing to the monthly predictions contained in Howard Ruff's Ruff Times newsletter--which advocated investments in Krugerrands, guns and canned food and water against an apocalypse that never came. Going back further, Thomas Malthus predicted that rising human populations would eventually overwhelm the food supply, and Karl Marx predicted that capitalism itself would grow increasingly unwieldy and unsustainable until the inevitable revolt of the proletariat. In our times, we have seen sober predictions that the world would run out of oil, and a best-selling book saying that we're on the verge of financial collapse. ("The Great Deformation," which is not recommended here.)
Of course, our civilization managed to overcome all of these predictions with remarkable resiliency. Betting against the future has never been wise or profitable. But will that always be true?
A recent article by Kenneth Rogoff, professor of economics and public policy at Harvard University, outlines some future challenges which our civilization has never seen before, and which will require unusual resiliency. Rogoff is too smart to bet against the future, but the article does say that we have not yet come up with a solution to these challenges, and time is growing short.
What challenges? First, Rogoff says that our global economic systems have not done a very good job of defining "property rights" when it comes to our environment--specifically the quality of our air and water. Right now, oil companies are able to take millions of gallons of ground water and pump it into their fracking wells in order to drive up oil and natural gas. This fresh water is lost forever to our ecosystem, which in many areas is experiencing water shortages already. What do the companies pay for this water? Nothing. It's there in the aquifers for the taking--for now, at least.
Our power companies and factories, meanwhile, are not restricted in the amount of carbon they can return to the atmosphere after burning coal and oil, which has, over the last 150 years, dramatically changed the composition of the envelope of air that nurtures our global ecosystem. There are varying reports on the impact of these changes, including a scientific consensus that global temperatures are rising. Yet these companies pay no more for the privilege of adding greenhouse gasses to the atmosphere than you or I do for the oxygen we breathe.
Rogoff says that we need to do a better job of accounting for the present and future costs of using what have traditionally been public resources, and he doesn't see a lot of progress in our political system, and less in many foreign political arenas.
A second set of challenges revolves around the core assumption of our economic system: that it is fair to all. Rogoff says that this perception can no longer be taken for granted as we see greater income inequality within and between countries. He points to near-record gaps between the wealthiest and the rest, and anyone who witnessed the bailouts of the Wall Street investment banks, at a time when those institutions were paying out multi-million-dollar bonuses to the very people who engineered the collapse that led to the bailout, might wonder if we totally have this dynamic under control. Currently, much of the money that the Federal Reserve Board is pumping into our economy is sitting in interest-bearing accounts at these same banks, and more is being pumped in every day.
The third set of challenges involves something that is truly unique to our modern world: the aging populations in developed nations. Birthrates have fallen as a result of economic prosperity, at the same time that dramatic medical advances have prolonged lifespans to almost double what they were a century ago. Credible medical professionals are now talking about virtually unlimited lifespans for younger people who are alive today. The problem, of course, is that most of the systems that were set up to care for the elderly, and provide for their retirement, relied on the idea that there would be multiple workers for every retiree. What happens to those equations when the percentages are turned around? Nobody knows, and you don't hear anybody asking about it in the halls of Congress.
Dr. Rogoff points out that there are some workable short-term fixes for the aging population problem--like immigration reform, where we allow the best and brightest younger people into the country more freely than we have since 9/11, and encouraging people over 65 to stay in the workforce. But the longer-term fix will require us to rethink how we support aging populations through the economy--especially if some of our citizens are destined to retire at, say, age 55 and never die.
The conclusion is that our capitalist economies have been spectacularly efficient at overcoming challenges in the long-term. But the challenges are coming at us faster and with more complexity than ever before, and our political systems seem to be slowing down and becoming less adept at handling complexity--hardly an ideal combination. Dr. Rogoff is not predicting calamity or suggesting that you buy a shotgun and hide out in a cabin in the hills. His concern is more prosaic, and worth pondering: Will each future generation continue to enjoy a better quality of life than its predecessor? Or are we about to see humanity break our civilization's long winning streak?
Source:
http://www.project-syndicate.org/commentary/kenneth-rogoff-identifies-several-obstacles-to-keeping-living-standards-on-an-upward-trajectory
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022
PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.
Of course, our civilization managed to overcome all of these predictions with remarkable resiliency. Betting against the future has never been wise or profitable. But will that always be true?
A recent article by Kenneth Rogoff, professor of economics and public policy at Harvard University, outlines some future challenges which our civilization has never seen before, and which will require unusual resiliency. Rogoff is too smart to bet against the future, but the article does say that we have not yet come up with a solution to these challenges, and time is growing short.
What challenges? First, Rogoff says that our global economic systems have not done a very good job of defining "property rights" when it comes to our environment--specifically the quality of our air and water. Right now, oil companies are able to take millions of gallons of ground water and pump it into their fracking wells in order to drive up oil and natural gas. This fresh water is lost forever to our ecosystem, which in many areas is experiencing water shortages already. What do the companies pay for this water? Nothing. It's there in the aquifers for the taking--for now, at least.
Our power companies and factories, meanwhile, are not restricted in the amount of carbon they can return to the atmosphere after burning coal and oil, which has, over the last 150 years, dramatically changed the composition of the envelope of air that nurtures our global ecosystem. There are varying reports on the impact of these changes, including a scientific consensus that global temperatures are rising. Yet these companies pay no more for the privilege of adding greenhouse gasses to the atmosphere than you or I do for the oxygen we breathe.
Rogoff says that we need to do a better job of accounting for the present and future costs of using what have traditionally been public resources, and he doesn't see a lot of progress in our political system, and less in many foreign political arenas.
A second set of challenges revolves around the core assumption of our economic system: that it is fair to all. Rogoff says that this perception can no longer be taken for granted as we see greater income inequality within and between countries. He points to near-record gaps between the wealthiest and the rest, and anyone who witnessed the bailouts of the Wall Street investment banks, at a time when those institutions were paying out multi-million-dollar bonuses to the very people who engineered the collapse that led to the bailout, might wonder if we totally have this dynamic under control. Currently, much of the money that the Federal Reserve Board is pumping into our economy is sitting in interest-bearing accounts at these same banks, and more is being pumped in every day.
The third set of challenges involves something that is truly unique to our modern world: the aging populations in developed nations. Birthrates have fallen as a result of economic prosperity, at the same time that dramatic medical advances have prolonged lifespans to almost double what they were a century ago. Credible medical professionals are now talking about virtually unlimited lifespans for younger people who are alive today. The problem, of course, is that most of the systems that were set up to care for the elderly, and provide for their retirement, relied on the idea that there would be multiple workers for every retiree. What happens to those equations when the percentages are turned around? Nobody knows, and you don't hear anybody asking about it in the halls of Congress.
Dr. Rogoff points out that there are some workable short-term fixes for the aging population problem--like immigration reform, where we allow the best and brightest younger people into the country more freely than we have since 9/11, and encouraging people over 65 to stay in the workforce. But the longer-term fix will require us to rethink how we support aging populations through the economy--especially if some of our citizens are destined to retire at, say, age 55 and never die.
The conclusion is that our capitalist economies have been spectacularly efficient at overcoming challenges in the long-term. But the challenges are coming at us faster and with more complexity than ever before, and our political systems seem to be slowing down and becoming less adept at handling complexity--hardly an ideal combination. Dr. Rogoff is not predicting calamity or suggesting that you buy a shotgun and hide out in a cabin in the hills. His concern is more prosaic, and worth pondering: Will each future generation continue to enjoy a better quality of life than its predecessor? Or are we about to see humanity break our civilization's long winning streak?
Source:
http://www.project-syndicate.org/commentary/kenneth-rogoff-identifies-several-obstacles-to-keeping-living-standards-on-an-upward-trajectory
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
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