Turmoil
This is not a political blog. People going through divorce have enough on their plates and one of the largest challenges lawyers encounter, is getting clients to face forward and move past the debris that is produced when couples separate.
The problem today, which is to say 6 weeks into the new administration, is that the financial future seems so murky. Last night President Trump laid out his accomplishments since his return to office and his plan to either establish or resume America’s “golden age.” But as I drove to a meeting yesterday with a financial planner (before the speech) to discuss my own “plan”, I was forced to realize that planning right now is well-nigh impossible.
The bedrock of any person’s financial plan in America is the monthly payment of social security. Like most of our bills, it comes monthly and, hopefully that payment covers a significant portion of the bills. Yesterday America’s 17th Administrator of the Social Security System (under Biden) warned that the cuts advanced by the Trump administration could affect benefit payments in as little as 60 days. The Social Security staff is supposed to be cut by 12%. Meanwhile Congress just passed a bill expanding benefits to certain former government related employees by $200 billion over the next decade. That law was enacted on a bi-partisan basis in January just as the new administration was coming in. Meanwhile, with $36,000,000,000,000 (trillion) in accumulated debt we are told that social security benefits will no longer be taxable; that income taxes may be largely or entirely replaced by tariffs and that tip and overtime income will become non-taxable in a world where the budget is going to be balanced for the first time since 2001.
The Republicans control Congress and executive branch but today’s government is only funded for another 9 days unless a fresh resolution to fund is passed.
The tangle of “reforms” under consideration is dizzying. Last night President Trump indicated he wanted to eliminate taxes on overtime and gratuity pay (tips).
Set aside the divorce entanglements for a moment. Let’s assume I am a starting associate at the law firm I practiced with for three decades. That start salary today is about $150,000 a year. To get it, you better bank on the fact that you work 10 hour days in order to meet the firms billing requirements. If I take the $150,000 offer I have $150,000 in taxable income less any money I put into a 401K or health spending account. But suppose I said to my former firm: “Look give me a salary of $50,000 and guarantee me $100,000 of overtime.” On straight salary my federal tax is about $19,000. On the overtime system, my tax on the same income is more like $6,000 because only $50,000 is taxable and the rest is overtime.
Suppose I want to buy a home. Will my interest payment be deductible? Not if I have no income tax thanks to the beautiful tariff system being implemented. Inside American mortgage lending companies, people are asking whether they need to create mortgage lending models based on no income tax. Meanwhile, now that I am a young lawyer with a solid job at what rate should I be saving if my social security and Medicare contributions are coming into the system only to be paid right back out to my loving parents and grandparents. Expenses for social security alone have exceeded revenues for more than a decade and that’s before we added social security “fairness” in 2025 with the bill increasing benefits.
No matter which side of the political spectrum you inhabit, we all need to be concerned. Everyone seems to be hearing the alarms of possible insolvency, but no one appears to be responding to them. Social Security found itself in actuarial trouble during the Reagan administration and a bi-partisan group applied a bandage that has lasted 40 years. Sadly, our longevity and our reticence to go forth and multiply with lots of children has put us back in the penalty box again; this time with $1.1 trillion dollars in annual interest payments on our debt plus $1.146 trillion in social security payments. Those social security payments are ten times (10x) greater than they were in Reagan’s days at the helm and 23% of federal spending.
As we noted, it doesn’t just affect our anxieties. It affects how and where we invest. Many Americans bought homes because it was a tax advantaged investment. But if we don’t pay income tax anymore, who cares? And what does that do to demand for more housing or the mortgage lending industry that finances it.
The first six weeks have certainly brought lightening action. But, we don’t see a plan. That’s why it’s called “financial planning” and unless you have a sense for what is over the horizon, there can be no way to plot a course financially.