The Tax Payer As Gilligan

Let’s all sing a​ new version to​ the​ tune of​ the​ 60’s sitcom “Gilligan’s Island” …

“Just sit right back and you'll hear a​ tale,​ a​ tale of​ mishandled use; that started with our nation’s past to​ form a​ fiscal noose. the​ tax was a​ mighty hurtin’ vice,​ our wallets paid the​ price; working hard to​ pay our share,​ it’s not always fair,​ it’s not always fair. the​ economy started heating up,​ so the​ Fed put on​ the​ breaks; if​ not for the​ courage of​ the​ consumer’s purse,​ things could’ve been ‘lot worse. the​ yields hit bottom as​ we turned our focus to​ the​ source of​ political fate; with deficits,​ the​ Speaker too,​ the​ President and his wife,​ those movie stars,​ the​ terrorists and Al Greenspan; here and in​ every state.”

(The opening credits fade and the​ scene is​ one we have all experienced) …

The relationship between the​ tax payer and our government is​ a​ source of​ constant and sometimes entertaining debate. Like Gilligan,​ the​ tax payer may feel “slapped around” and unappreciated by a​ larger,​ yet necessary,​ entity. in​ this analogy,​ the​ Skipper represents our government. the​ decisions made by our elected officials and others of​ higher political rank may contradict our own opinions. What is​ the​ consequence of​ slapstick government spending and how does it​ affect you?

When it​ comes to​ the​ nation’s monetary policy,​ the​ Federal Reserve Bank (a.k.a. the​ Fed) manipulates the​ supply of​ money. it​ adopts a​ tight monetary policy when the​ goal is​ to​ restrict the​ supply of​ money and an​ easy monetary policy when the​ goal is​ to​ circulate more money. a​ tight policy may occur during times of​ inflationary concerns whereas an​ easy policy may occur to​ encourage business expansion.

Here’s where the​ laughter dies and we conclude there is​ no escape from the​ island.

The government has several methods to​ increase money supply and many reasons to​ do so. Keep in​ mind,​ the​ reasons are generally non-partisan and no one political party is​ to​ blame. One such reason,​ however,​ is​ to​ patch problems caused by government overspending.

When the​ government is​ unwilling to​ act prudently with its expenditures,​ their bills must still be paid. And when raising taxes is​ an​ unpopular alternative (as if​ anyone is​ ever happy to​ accept higher tax rates),​ printing money may become the​ default action. Now,​ if​ you,​ a​ simple citizen of​ the​ United States,​ cannot pay your bills,​ printing money is​ not an​ option. Such acts will land you​ on​ a​ metal bed in​ a​ shared cage we all call incarceration. Polite conversations with your spouse and friends will be substituted with arguments from your cellmate named “T-Bone” regarding the​ use of​ one shared toilet. But,​ the​ government will print money to​ compensate for its overspending. it​ then spends the​ new money and supply increases.

The joke is​ now on​ the​ hard working citizens of​ the​ United States and its set-up is​ familiar: “The government and a​ U.S. citizen walk into a​ tavern. the​ government points to​ the​ citizen and proclaims to​ all the​ patrons ‘the drinks are on​ this guy!’ Afterwards,​ the​ government finds a​ new citizen or​ tax payer and continues the​ trend.”

In reality,​ the​ joke is​ on​ us all in​ the​ form of​ inflation. Simply described,​ with a​ greater supply of​ money,​ the​ dollar will be worth less than before. Once the​ purchasing power of​ the​ dollar declines,​ fewer goods and services can be purchased. Inevitably,​ consumers experience higher prices. the​ economy seemingly has more dollars but loses its purchasing power. a​ new character named “Inflation” finds its way onto our island. And when this occurs,​ we hope it​ will only be around for a​ couple of​ episodes.

It is​ important to​ note,​ not all prices and wages correlate with periods of​ inflation. Inflation may result in​ higher or​ lower levels of​ output and employment depending on​ the​ sector and type of​ goods or​ services. Some may benefit from higher inflation. the​ effects of​ inflation often include redistribution of​ wealth and income,​ changes in​ relative prices,​ and some saving restrictions for important goals such as​ retirement.

The inflation rate is​ measured by the​ Bureau of​ Labor Statistics (BLS) using the​ Consumer Price Index (CPI). Today,​ the​ inflation rate is​ about 3.5%. So how long should we expect to​ live on​ this low inflation island? This is​ a​ difficult question to​ answer considering it​ is​ impossible to​ calculate inflation going out several years from today. During the​ past decade,​ however,​ we have experienced low to​ moderate inflation. Still,​ according to​ the​ BLS inflation calculator,​ $1000 in​ 1995 has the​ same buying power as​ $1258.53 in​ 2018. Remember early 1979 through late 1981 when inflation rates hovered around 10 percent to​ almost 15 percent. According to​ the​ same BLS inflation calculator,​ $1000 in​ 1979 now has the​ same buying power as​ $2641.87 in​ 2018.

It is​ arguably the​ uncertainty of​ inflation that causes the​ most damage. Preparing for increases in​ the​ cost of​ living is​ an​ important aspect to​ financial planning. Your financial planner can assist you​ in​ reviewing inflation trends,​ introducing inflation adjusted estimates for future income needs,​ managing tax efficient portfolios,​ and keeping an​ eye on​ government actions. While you​ cannot control the​ weather of​ our economy,​ preparing your S.S. Minnow for potential rough sailing is​ important.

(As this episode ends and the​ closing credits roll,​ we rejoin the​ final verse of​ our amended Gilligan’s Island tune) …

“So this is​ the​ tale of​ our inflation rates,​ they're here for a​ long,​ long time. You’ll have to​ make the​ best of​ things,​ it's an​ uphill climb. Our law makers and bureaucrats will try their very best,​ to​ make the​ nation comfortable,​ with a​ fiscal mess. No rights,​ no wrongs,​ no benefits,​ not a​ single guaranty,​ like generations before yours now,​ it's challenging as​ can be. So join us here each year my friend,​ you're sure to​ pay your share; with every worker and our government,​ we make a​ solid pair.”
The Tax Payer As Gilligan The Tax Payer As Gilligan Reviewed by Henda Yesti on July 04, 2018 Rating: 5

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