The Office of Management and Budget revised its May deficit projections to forecast a record $1.6 trillion deficit for the fiscal year ending September 30. Worse, the White House forecast $9 trillion in additional debt over the next decade. Amazingly, borrowing alone will account for 40% of federal revenues in 2010!
A higher federal deficit would cause several hurdles as the U.S. tries to dig itself out of the recession. First, the Federal Reserve recently communicated that the U.S. must show progress on deficit reduction by next year to avoid the possibility of a rise in interest rates, which might be needed otherwise to entice global investors to keep buying U.S. government bonds. Additionally, large federal deficits could also weaken the U.S. dollar against foreign currencies.
Finally, how is the federal government going to reduce this deficit? Simply, there are two potential solutions: reduce spending, or raise revenues. We've already identified several financial obligations that are not likely to be eliminated anytime soon, so let's examine the possibility of raising revenues. What is the easiest source of new revenues? Tax dollars. In fact, budget experts are increasingly reiterating their belief that tax increases may need to hit families that the president vowed to protect --family earning below $250,000. Consequently, it is a very real possibility that tax rates will be increased across the board.
Now would be an ideal time to visit a financial advisor to prepare your portfolio for uncertain tax implications. Roth accounts and alternative investments are a couple of investment options that can provide "tax diversification"
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About Mr. Jefferies
Lon Jefferies is an independent fee-only financial planner at Net Worth Advisory Group, based in Salt Lake City, Utah. Visit Net Worth Advisory Group at http://www.networthadvice.com, and read Lon's blog at http://www.utahfinancialadvisor.blogspot.com.
