The following article was originally published by Rick Newman of Yahoo! Finance in April 2020, during the early months of the COVID-19 pandemic. At Heritage Financial, we share this content to help Gainesville-area retirees and pre-retirees understand the long-term fiscal questions that shape tax policy. While the specific numbers and projections from 2020 have changed, the underlying debate about how Washington will address federal debt remains highly relevant to retirement planning today.
As of mid-2026, the tax landscape has evolved significantly. The Tax Cuts and Jobs Act (TCJA) individual tax cuts, originally passed in 2017, are set to expire after 2025 unless Congress acts. This creates considerable uncertainty for retirees relying on projected after-tax income. The TCJA extension debate, along with ongoing discussions about Social Security and Medicare solvency, means that understanding potential tax changes remains essential for anyone planning retirement in North-Central Florida.
During the last two months, Congress has passed $3.6 trillion in stimulus spending, with more probably on the way. Washington’s annual deficit was likely to be around $1 trillion before the COVID-19 pandemic induced a recession. The deficit will now hit at least $3.7 trillion this year and $2.1 trillion next year, according to the Congressional Budget Office. As a percentage of the economy, federal debt this year will be the highest since World War II, and possibly higher if there’s more stimulus spending.
Budget hawks have typically called for a combination of tax hikes and spending cuts to lower Washington’s mushrooming debt load. But the federal deficit is now getting too big for conventional therapy, which could require a whole new form of taxation in the future. “When we look back at the changes COVID-19 made to society and the economy, we may think about this as the time when the U.S. began to look to sources of tax revenue that once seemed unthinkable,” Howard Gleckman of the Tax Policy Institute wrote recently.
The United States has been able to run up more debt than economists once thought possible without forcing interest rates or inflation higher. But tough choices were always inevitable, and they’re now likely to arrive within the next 5 years. It doesn’t make sense to raise taxes in a severe recession, but it may be necessary when the economy is back on track in a year or two or three.
The broader fiscal pressures that drove the 2020 stimulus debate have not disappeared. While the most dire pandemic-era projections did not materialize on the original timelines, Medicare and Social Security trust fund solvency remains a concern. According to the latest Social Security and Medicare Trustees reports, the Medicare Hospital Insurance trust fund is now projected to be depleted in the early 2030s, and the combined Social Security trust funds are projected to be depleted by the mid-2030s. Recent economic growth and employment levels have improved the outlook compared to early-pandemic estimates, but the long-term demographic challenges of an aging population remain.
The TCJA debate introduces another layer of uncertainty. The individual tax cuts, which lowered rates across most brackets and nearly doubled the standard deduction, are scheduled to sunset after 2025. If Congress allows them to expire, tax rates would revert to pre-2017 levels, effectively raising taxes on most households. The outcome of this debate will directly affect retirement income planning for Gainesville-area retirees.
Congress could shore up both programs by hiking the payroll taxes that finance them. But bigger changes may be brewing as policymakers contemplate additional stimulus that could be needed in coming years to keep consumers and businesses afloat, and the eventual need to repay at least some of the new debt Uncle Sam is taking on. Here are some options:
Repeal the 2017 Tax Cuts and Jobs Act. This was a landmark tax cut for Republicans who ran Congress at the time, and it would probably take Democratic majorities in both houses, along with a Democratic president, to repeal the whole law or even part of it. If the corporate rate went back to 35% from the current 21%, and tax rates rose for most Americans who got a tax cut under the law, it would only raise about $1.5 trillion, which is $1 trillion less than the increase in U.S. debt in the last two months alone.
A value-added tax. This may be the most efficient way to raise a lot of money quickly. Most advanced nations have a VAT, which is like a national sales tax imposed at various points in the production of goods and services. A 10% VAT would raise around $1 trillion per year, and Congress could design it with protections for lower-income Americans, small businesses and other vulnerable groups. Former Democratic presidential candidate Andrew Yang proposed a 10% VAT as a way to pay for $1,200 monthly “freedom dividends” to every adult American.
A wealth tax. Bernie Sanders and Elizabeth Warren have both proposed annual taxes on the wealth of rich people who earn most of their money from investments taxed at a lower rate than ordinary labor. Both dropped out of the Democratic presidential race as the more moderate Joe Biden became the front-runner, suggesting these tax-the-rich plans didn’t have wide appeal. But that could change. “What was considered a fringe idea of the far political left now may attract more attention from mainstream policymakers,” writes Gleckman.
Higher inheritance taxes. The average federal tax on estates big enough to face taxation is just 2.1%, and loopholes provide many ways to lower that. The Brookings Institution’s Hamilton Project proposes taxing inherited wealth at the same rate as labor income, with an exemption threshold of $1 million or more that would exclude most families. With the top income tax rate at 37%, an inheritance tax at that level would raise around $92 billion per year.
Joe Biden’s tax plan. Biden’s major proposals include higher tax rates on corporate income, wealthy taxpayers, capital gains and other changes that would raise around $400 billion per year. Before the coronavirus recession, Biden wanted to use that money to open Medicare to more people, help some students pay down debt and cover the cost of college, and aggressively address global warming. But suddenly $400 billion a year doesn’t seem like all that much money. So expect some updates and some bigger numbers.
What This Means for Gainesville Retirees
For retirees in Gainesville, Alachua, Ocala, and Newberry, the evolving federal tax landscape has practical implications. Your retirement income strategy should account for the possibility of higher tax rates if the TCJA cuts expire. This might include:
- Roth conversion timing: Converting traditional IRA funds to a Roth IRA at today’s lower rates could lock in tax savings before potential rate increases.
- Tax-efficient withdrawal sequencing: Drawing from taxable accounts, tax-deferred accounts, and Roth accounts in a strategic order can reduce your lifetime tax burden.
- Social Security claiming strategy: Understanding how future policy changes could affect benefit taxation helps you make more informed claiming decisions.
Heritage Financial helps clients in the Gainesville area navigate these complex tax and retirement decisions. Whether you are concerned about TCJA expiration, Social Security planning, or simply want a clearer picture of your retirement tax situation, our team can help. Learn more about tax planning in retirement and holistic retirement planning.
This content is provided for educational and informational purposes only and does not constitute direct legal or tax advice. Tax projections and policy discussions are based on information available as of mid-2026 and are subject to change. Consult a qualified tax professional regarding your specific situation.
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