The government has expanded the money supply by over 35% since the Covid Pandemic began. The printing press was being run 24/7 and the output was dropped out of helicopters on everyone, whether they needed it or not. In addition, they forced huge sectors of the economy to shut down for months and even longer. What we have is more money chasing fewer goods and services. A recipe for inflation in any scenario.
To make things even worse, they impaired domestic energy production by cancelling the XL pipeline. This has forced us to import more oil and gas at much higher rates. And labor costs, were not spared. People were paid more to sit home than return to work, minimum wages were raised significantly, and unions were given unprecedented preferences and privileges.
It appears as I write this that any modifications to our tax laws and system will not be enacted nor take effect until 2022. Additionally, there is very little likelihood that any tax rates will be lower in 2022 than they were in 2021. While it’s usually beneficial to defer taxes when possible, it can be even more advantageous to pay taxes at the lowest rate possible. It is clear that for some taxpayers 2021 will be the lowest rate for the foreseeable future.
It’s not too late to do some year end tax planning. Based on my assumptions above, some of these actions and strategies may be beneficial for you.
If your car lease is expiring in the coming months, it MAY have a buyout purchase option. This means you have an option to buy the car at a previously set price. This price was set based upon the predicted residual value of the car at the end of the lease when you entered into the contract. Check your lease to see if yours has a buyout. If it does, you may want to consider executing the buyout for a number of reasons.
New cars are in short supply mostly due to chip shortages. As with anything in short supply, they are more expensive than usual. By buying or leasing a new car now you would be locking in a high price.
The prices of used cars are way up due to the new car shortage.
Your current leased vehicle may have lower mileage due to curtailed driving in the pandemic.
The buyout price may be well below the current market value of the vehicle.
By buying the car you avoid the damage inspection and assessments for often minor issues when a leased car gets turned in.
As a result of the Georgia Senate elections on January 5th, we have regime change. The Democratic Party now controls the White House and both chambers on Capitol Hill. They are free to enact almost any economic, regulatory or fiscal legislation they desire as long as they can agree amongst themselves and pass muster with the Supreme Court. None of what they do will be undone until the Republican Party regains control of all three legs of the stool. In the past 40 years one party has had complete control in only 14 of them, so it could be a while until that happens. Here is what I think we will see from the Federal Government in the coming year from a fiscal and economic perspective.
For the first few months, they will be tied up trying to implement their own Covid plan. We can expect more stimulus money being distributed to almost everyone, unemployment payments being expanded and extended and more aid of some sort being directed at small businesses. This plethora of money chasing fewer goods and services will lead to increased inflation, that’s Econ 101. Sustained inflation will lead to higher market interest rates – the Fed will not be able to stop this over any extended period.