Episode 10: Taxes Just Became Permanent??

They said the 2025 tax brackets were made permanent — but we’ve all seen this movie before. In this episode, Brian, Ryan, and Ed dig deep into The One Big Beautiful Bill and reveal why “permanent” tax cuts might be the most temporary promise in Washington. The conversation breaks down how the Tax Cuts and Jobs Act reshaped the system, why the brackets that were supposed to expire suddenly didn’t, and what that means for your wallet long-term.

The trio explores the math that former U.S. Comptroller General David Walker warned about when he said taxes may need to double to cover government spending. They connect the dots between record deficits, entitlement costs, and the real risk of a future tax spike — all while explaining how smart planning today can protect you tomorrow.

If taxes are truly “on sale,” this episode might just be your wake-up call before the sale ends.

----------------------------------------------------------------------

Disclosure: Information contained in this podcast is for entertainment and informational purposes only, and should not be considered as financial advice. Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“PCA”), an SEC registered investment adviser. Registration as an investment adviser does not imply a certain level of skill or training. Keystone Financial Group and PCA are separate, non- affiliated entities. PCA does not provide tax or legal advice.

Transcript

Announcer: 0:00

The financial huddle does not provide tax, legal, financial, or other professional advice. Listeners are encouraged to consult with their own advisors in these areas. Alright, everybody, huddle up.

Brian Minier: 0:08

Play calls in. This is the Financial Huddle. Ready. Well, hello, everybody. Welcome, huddlers. Welcome to the Financial Huddle. I am Brian Manier here with my compadres, Ryan Fleming and Ed B. Miller. Gentlemen, how are we today? The Huddle Nation. Here we go. Welcome, welcome. Yeah. Let's get after it. Welcome back, everybody. That's right. Let's get after it. So we are going to be talking about part two today of the One Big Beautiful Bill. Sometimes I like to call it the OB3. Part duh. That's right. And so what we want to talk about today is specifically the tax brackets, and I like to say this in air quotes that were made permanent. They had an expiration, and now they are not going to expire. Permanent until they change. Permanent until they change. That's right.

Ed Beemiller: 1:02

As with most things related to the government and policies.

Brian Minier: 1:05

That's right. Now I gotta say, thinking of things that have not changed, we are all unfortunately Cleveland Browns fans. I know where you're going with this. Born and bread. Born and bread. And as we think about our beloved brownies, we thought, you know what, losing was going to expire at some point in our adult lives.

Ryan Fleming: 1:27

This was the year it was supposed to.

Brian Minier: 1:29

This was the year. Great defense, good draft pick with our running back. And we know now, being the thick of in the season, we're still losing.

Ryan Fleming: 1:39

Well, they did get rid of Joe Flacco a few weeks ago. So at least at least they put in some fresh. Speaking of things that don't expire.

Ed Beemiller: 1:48

Things that don't, well, things that don't expire, at least, you know, living in Ohio, you know, and I've I I've listened to a lot of, you know, which I know we all do, sports talk and everything else, and I've heard comments saying, thank God we have the Ohio State Buckeye football team. Because on either side, you know, of the state of Ohio, the the pro football season has not been one of uh great uh success.

Brian Minier: 2:15

No. Saturdays are good. Sundays we usually go to bed in a bad mood.

Ed Beemiller: 2:19

So either that or I just you know it gives me time to do a lot more, you know. Whether it's yard work or go on a long bike ride or you know, it it gets to a point where I I've gotten as I've gotten older, it's just like, all right, why am I doing this? Yeah, why am I putting myself through this?

Ryan Fleming: 2:34

The question is is do you think the Browns will win a Super Bowl before we die?

Ed Beemiller: 2:38

I'm gonna say yes. Really? Wow. I I'm not holding hope personally.

Ryan Fleming: 2:44

It's kind of like buying a stock, man. Yes, you're not you never know.

Brian Minier: 2:48

Well, speaking of things that will help us and will put us in a good mood, is we talk about the uh one big beautiful bill. And there's a lot of different aspects to it. We talked about three things during our last episode, but this one in particular, we want to talk about what the brackets look like and now that those were made permanent. And so, in order to understand that, we got to talk a little bit about the history of how we got here. So many folks are probably remember back in 2016, uh, President Trump signed the Tax Cuts and Jobs Act. And what that did, there were there were multiple things that that that particular act did, but a couple things uh specifically that were a big deal to a lot of people were it increased the standard deduction and then it also changed the tax brackets and it benefited everybody from top to bottom. A lot of people would would kind of argue with that and say it was more towards wealthier people, but if you look at the brackets and you compare what they were to what they are now, it it provided tax cuts across all the different levels of income. And so what we know, we used to talk about this when we go to classes and talk to our clients, is that was set to expire in 2025. And so we used to tell people, hey, if you're gonna make changes, make sure that you do this, you you have just a limited amount of time to make those changes because it's gonna revert back to what it was in 2016. We had that.

Ed Beemiller: 4:07

And that created, yeah, that created a lot of anxiety with the last uh election. It did. Um and I I I know a number of my clients, um, and and some in particular went as far as to saying, well, I need to see who wins the election before I make any financial decisions because of that, the impact of taxes. Don't matter conversations.

Ryan Fleming: 4:27

Don't matter. They're all they're all inheriting a math problem. Right? So it really doesn't matter in that respect.

Brian Minier: 4:33

So come July, July 4th, specifically, this act, the one big beautiful bill, was now uh came into existence, and now the the brackets that were changed back in 2016 that were set to expire in that tenure period are now permanent. Yeah, this is a until they're not.

Ryan Fleming: 4:55

Until they're not, right. This was probably one of the biggest surprises of the bill. Um a lot of people uh in our industry had thought that the sunset was gonna happen. It was almost a almost kind of like a given, but um the fact that they didn't really just uh for our our people out there, our audience that are listening or watching, um all the way back in 2008, um before the uh tax and job acts happened, um, there was a guy named David Walker, and he was the uh U.S. former comp troller general of the United States of America. Basically, he was he was the CPA for America, and he worked underneath the Bush and Clinton administration, and he was so concerned about you know the taxes uh being low and the spending being so high that there was going to be a day of reckoning. And so he actually resigned from office back in 2008 under this premise that you know we were heading into some dark times if we didn't do anything. And so what he did, he started scouring the country uh trying to raise the warning cry that you know if we don't double taxes, I mean he's on record and saying that we would we would have to double taxes to kind of shore up our fiscal estate here uh in America. And not a lot of people would listen back then. Uh he went on NPR and you know people were chiming in trying to figure out why he says taxes have to double. Um, but really what David Walker knew is he knew the math, and that's why I said that earlier. It doesn't matter if you're a Democrat or Republican. Uh this is an apolitical podcast, but both sides have kicked the can down the road, if you will, the proverbial can down the road with the uh taxes being so historically low and the spending being so high. And there's gonna be a day of reckoning, and and David Walker uh was right. You know, he went into Congress and said, you know, this you guys don't understand. You got about 78 million baby boomers that are exiting the workforce. They're gonna start to turn on these entitlement programs like Social Security, Medicare, Medicaid, they're gonna start uh selling their assets. And um, you don't have to double taxes now, but every year that you don't raise taxes or double taxes, it's gonna be uh a more uh draconian uh end, uh a more uh stiff penalty at the end. And now here we are in 2025 with the extension of these of these brackets. And I I guess got to tell you, I mean, this is a tax sale of a lifetime for many people. If they understand the rules, the regulations, they understand um and are educated, they can make better decisions.

Ed Beemiller: 7:14

And I know what one thing, and I know we all use it when you look at that tax chart of the tax brackets for the last not decade, but last century, we're in the lowest quartile. And everyone likes to complain about taxes, but you know, you just mentioned we're we're in one of the most favorable tax brackets.

Ryan Fleming: 7:31

And I'm glad you brought that up because uh another thing I learned about David Walker is that he you know he knew the math. And so what he did is he went to the uh the Congressional Budget Office and he says, Okay, you bean counters in here, I want you to crunch all the math. I I I know the shortfall on Social Security, Medicare, Medicaid. You know, Medicaid costs five times more than Social Security does. He said, Crunch the math, and he goes, based on today's brackets, what would brackets have to be projected to rise to to plug the hole, I guess? And what the Congressional Budget Office came back and said was the 12% bracket today is gonna have to rise to 25%. The 24% bracket today is gonna have to rise to 63%, and the 35-37, the top bracket that we are today, is gonna have to rise to 88%. That's just crazy.

Ed Beemiller: 8:18

Which is crazy, but how do you think that would be received by the general populace?

Ryan Fleming: 8:22

But the but the question was, was there ever any historical precedent that that was so? And if you go back and look in 1960 to 1963, that was the almost the exact to the percentage brackets that we had at that time. So there's historical precedent. Um taxes are on sale of a lifetime, near or at low uh values of of all time, federal income tax brackets. And uh, if we don't do something to get off the tracks, then um the tax train's coming.

Brian Minier: 8:49

Yeah, and as a planner, it's actually really exciting because you can provide assistance and help to those of us that we work with because this is a great opportunity to do tax planning to mitigate those taxes in the future. As as taxpayers, we love to hear taxes are going down. We we were probably all very excited to hear, hey, these brackets are going to be made permanent because it allowed us to keep them lower compared to what they were even a decade ago. And if you apply the standard deduction, that was set to be cut in half, and now we get to keep it where it is. So it it's a it's great, but as Ryan said, there is a day of reckoning, and I know we we got to do stats every episode. I think Ed, you got some stats for us that are specific to some of the major services that our federal government provides for us. What are some of those stats?

Ed Beemiller: 9:37

That time, it's that time. It's that's that time of uh the podcast. So, you know, we look at what is really being you know uh talked about, a lot of discussions that are taking place, you know, around Medicare, around Social Security, around the the federal deficit. What are we gonna do? What do you know? And we all speak to to people, whether on the the left or the right, you know, and and and some get a little bit carried away with, you know, they don't think anything's gonna be around. You know, there's gonna be no money left for anything, and we're gonna move to a barter system, and if you know you don't have cows and gasoline or seeds. I always use the walking dead analogy, it's just like, all right. But um, you know, it it is something. It's a it's a little scary when you actually delve into the numbers, and I and I know we all have, but you know, when we look at you know Medicare, which has really been in the news quite a bit, you know, especially with um you know the new presidency in the administration talking about you know cuts and and these types of things, there's been a lot of noise about that. But you know, we just want to look at you know projected costs going out. 2023, the Medicare program costs about eight hundred and thirty-two billion dollars, you know, and that represented about three point one percent of our GDP gross domestic product. The projections are calling for within 10 years, by 2033, the cost of Medicare will be over sixteen point eight trillion dollars. I mean, most people when you start saying billions or trillions, just can't comprehend what that means.

Ryan Fleming: 11:20

I mean it's a lot of money for our audience. Uh there are, I think, 12 zeros in a trillion. 12 zeros. A number followed by 12 zeros in a thousand. That's a lot. That's a lot.

Ed Beemiller: 11:31

And then we then we go into the Social Security program, which also has been in the news. It's a topic of discussion. When we meet with our clients, uh, you know, I would say, you know, for someone that's above 55, you know, approaching towards 60, getting towards the Social Security age, we discuss it in every meeting we have. Every financial planning meeting we have with our clients, that is a big topic of discussion. And and some are just like, oh my God, I I can't plan my retirement for that because I don't think it's going to be there, you know, and all these certain things. But when you really look at it, and it's been you know a couple years where uh effectively the cost of the Social Security benefits being paid out has exceeded the income coming in, which means we're dipping into the reserves.

Ryan Fleming: 12:18

Yeah, the trust fund.

Ed Beemiller: 12:19

The trust fund. And once again, going out ten, you know, going out to two thousand thirty-three, the projections call that Social Security, as we know it, with no changes, nothing happens, we just keep going the same, we'll be insolvent. Now, people hear insolvent and they think zero, nothing left. That's not actually accurate. And this is something that we we talk to clients all about. What that means is that your qualified benefit will be reduced. And the projections are that you'll receive about 77% of that qualified of the benefit.

Brian Minier: 12:54

There's not enough FICA taxes coming in to support the benefits that are committed to people that have taken it.

Ryan Fleming: 12:58

Right, there's like there's two taken out for everyone putting in.

Brian Minier: 13:01

Yeah, there's there's less than three people working for every person that's collecting a benefit, and so currently the trust fund is is paying the gap. We're not gonna have a trust fund in 10 years to pay for the gap. Right, right.

Ed Beemiller: 13:12

And then and then the big the big boy in the room, the big elephant in the room is the the federal deficit. You know, and um I mean I I see some people on their computer just have their screen up just showing the the federal deficit. And it just keeps going up and up and up like minute by minute. You know, the debt clock. The debt clock clock. And and we would look at that, we're we're at, as a country, you know, we're about $38 trillion currently is is the federal deficit. And for just this this year that we're in, 2025, the projections are almost two million, one point nine trillion will be added onto the deficit. And then what have we been talking about? The big beautiful bill, right? Well, uh most projections and monet most analysts say that's gonna add another three to five trillion dollars to the deficit with you know all all the different N Now we're starting to understand the math that David Walker understood. Right. And you you gotta go back and and look at when we when we're talking about tax brackets, talking about tax rates, there's there's there's two ways to cure a federal deficit. We reduce spending or increase income.

Ryan Fleming: 14:19

Or some combination of both.

Ed Beemiller: 14:20

Yeah. Or a combination of both. Increase income means taxes if you're the government increasing those taxes. So then a little more uh a little more stat analysis here. Right right now, we spend a dollar and two cents for every dollar that we bring in in in income. Like 102% of every dollar. And that money is spent on let's call four four major things. One of them is Medicare, the other one is Social Security, then we throw in Medicaid, last but not least, interest on the national debt. Everything else the government spends, we borrow. So what does that do? That just increases the deficit. And guess what? You know, if you look at those factors, all the costs for healthcare, all those things are increasing, right? We have the largest demographic baby boomers that are you know basically taking, qualifying, and taking Social Security. All those numbers are going up. Well then even more so, interest on the federal deficit. You know, 10 years, you know, three, four years ago, we were in an extended decade of extremely low interest rates. Well, what's happened in the last couple of years? Oh, yeah, recently. No, no, we're seeing a little bit back, but what pressure does that put on just covering the interest expense? And once again, we've heard a lot about that. Yeah. But you know, you can only kick the can down the road so far. So a lot of what we've been talking about is gosh, it's great that this favorable tax environment has been extended.

Ryan Fleming: 15:55

But let's see the big picture.

Ed Beemiller: 15:56

The bigger picture. Yeah, the bigger picture. So what has to happen?

Brian Minier: 15:59

I mean, I you and I, we all three of us, we ask our clients, are taxes going up or down?

Ryan Fleming: 16:03

Yeah.

Brian Minier: 16:04

Yeah, I have not.

Ed Beemiller: 16:05

I haven't spoken to anyone, or even when I asked that question to the client, I haven't had anyone that said, Oh, taxes are going to go down.

Brian Minier: 16:12

Yeah, when I teach when I teach my classes, I always ask them in every class where are taxes. Anybody think taxes are going down? You never see a hand raised. Yeah. So the have to I was surprised that this bill arranged our brackets in a way that for you know, whatever permanent means, that it did extend it. So Ryan?

Ryan Fleming: 16:33

Yeah.

Brian Minier: 16:33

What do you feel? Are they going up or down?

Ryan Fleming: 16:35

Well, in a rising tax environment, it's simple. Out of if you just cut through the minutiae and you look at all the various places people could put their money, their savings and investment dollars, it can really just be boiled down to there's three different types of buckets anybody can put their money into. They can put into a taxable bucket, a tax-deferred bucket, or a tax-free bucket. Now, there's certain uh planning percentages that we feel are appropriate to keep in each one of those buckets. And if that's something you want to know, you know, come in and see us with that. But the point about that is that the taxable bucket is the least tax efficient bucket to carry a lot of dollars. So we don't want too, too much in that bucket. Some people have pensions, some people don't have pensions. Um, so the amount to keep in that tax-deferred bucket is an individual look. But if in a rising tax environment you have all of your money in a tax-deferred bucket, you're in a pretty big business uh partnership with Uncle Sam, and every year that goes by, they get to vote on how much more of your hard-earned money they get to keep.

Ed Beemiller: 17:32

So that's not their ownership percentage is going down. That's not a great bucket. It's not a great business. You're losing equity.

Ryan Fleming: 17:39

So, therefore, kind of by definition, is we need to figure out every way possible to reposition money to that tax-free bucket and understand that there's a price of admission to get into that bucket, you've got to be willing to pay the tax before you're required to do that. But by doing so and strategizing, it could put you way, way ahead. Because if David Wright, uh David Walker is correct and taxes do double in the future, and you've you've got everything or as much as you possibly can in scenarios where you could be at or near a zero percent tax bracket. If tack is uh tax is double, two times zero is still zero. And so that's what we mean by an unprecedented sale of a lifetime when it comes to taxes. And and not everybody's situation obviously is the same, but if you're not uh addressing this or you're not working with people that are having this kind of a conversation with you, uh you're missing the boat. Yeah. All right. And there's more to it than just allocating your money towards stocks and bonds and getting 5% versus 6%. There's way more.

Brian Minier: 18:39

And what are some of those, what are some of those strategies, Ryan, that you would want your dollars to end up in? Especially if you're looking for growth. Yeah.

Ryan Fleming: 18:46

So in a rising tax environment, if you're going to try to figure out how to get into that tax-free bucket, um, there's about six or seven. Um Roth IRAs, Roth 401ks, Roth conversions is a huge opportunity for many people. Um, certain types of cash value life insurance, um, life insurance retirement plans that we've talked about before, if they're structured properly, are fantastic. They're just treated a little bit different underneath the IRS tax code than anything else, uh, which is uh potentially really awesome. Um required minimum distributions, equal to or below your standard deduction. So it's okay to have some money in a tax-deferred vehicle, but just equal to or below your standard deduction.

Brian Minier: 19:24

You never pay tax on that one, right?

Ryan Fleming: 19:26

Because it's offset by that standard deduction. And people need to know is their social security gonna be taxed or not taxed, and how does the government determine if that social security is gonna be taxed? Because if your social security is taxed, you're gonna run out of money sooner.

Ed Beemiller: 19:40

And at what percentage?

Ryan Fleming: 19:41

It yeah, if it's gonna be if if it's gonna be taxed at 50%, 85%. So and then the caveat, the little uh seven bonus number seven, is uh an HSA account, a health savings account. Triple tax bonus, triple tax benefit, man. So some of those are all of those. We want our clients to have multiple different tax-free streams of income to like what Ed's talking about, so we can get off the tracks right before the train comes. Kind of like uh Wiley Coyote. You remember that episode when he was uh uh the roadrunner pushed him onto the track and he was inside of a shed that was made by Acme and he was building a bomb made by ACME and he looked out the back and the train was coming. And you guys remember what he did? He just he pulled down the shade, you know, thinking that that act alone I can't see it.

Ed Beemiller: 20:26

Yeah, it's not gonna happen. Right.

Ryan Fleming: 20:28

And so the train crashed. I mean, he's burned, he never dies, and everything. But we got to get off the tracks. We can't be pulling the shade down like Wiley Coyote did, yeah.

Ed Beemiller: 20:36

And and I really think what you know, in talking to our clients and the listeners out there, financial planning isn't about just picking the right stock or the chasing rates of return and everything else. It is really holistic planning is really involved. And if you're not getting tax planning, because every move you make has an impact on future taxes, your availability and access to those assets in the future. So that type of planning is really I and you guys would all agree when we sit down and have discussions with our client, current clients, and prospective clients, tax planning is really part of it. No, we're not CPAs, but we're we're we're smart enough to help mitigate those future taxes.

Brian Minier: 21:19

I I I when I talk to my glasses, I always ask, what's the number one expense you're gonna have in retirement? People are like, it's medical. It's not, it's taxes. I mean you think about it, just think about the percentage of what you pay in taxes, it's by far the number one expense that you're gonna have. And so, Ryan, to your point, I mean, you talked about those strategies that we want to get into, but what makes it even more difficult is yes, how do you do that? How do you get into those? What is the the cost, as you would say, to get into those, but then you gotta look at things like well, what does that mean for Irma? Can it impact the cost of your Medicare Part B premiums? What does it mean for RMDs, required minimum distributions? What does it mean with the different brackets and being at the at the top of those brackets? Does it impact a 3.8% net investment surplus cost? Those are just a few of many things that you have to consider when you're looking at tax management and looking at those strategies. And and so if you're listening, if you're watching, it's it's complicated and it's overwhelming, and and we're here to help with that. So so please reach out to us. We we want it, we enjoy talking about these things. And to your point, Ed, it's not just about rate of return and which funds are you picking. It that's part of it, but then there's also the planning component and the tax management is a big part of that. So with that, um get off the track, Suddless. Get off the track, one big beautiful bill. It is permanent, and uh and with that, we're so glad that you turned in. Everybody have a great day, and we will talk to you. Thanks, everybody. We'll see you next time. Take care.