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So I got up at 4:45 a.m. this morning,

woke up to three inches of snow,

and we're in a driving snowstorm here,

and we're on our way to Chicago,

driving two hours to see our next group in downtown Chicago.

David McKnight

is tirelessly crisscrossing the country,

sounding a warning cry to anyone who will listen.

This group is likely mired down

in the tax-deferred paradigm,

and we're just looking

to take the Power of Zero message to them

and open their eyes to the reality

that tax rates, in the future,

will likely be much higher than they are today.

Way back in 1913,

the U.S. passed the 16th Amendment

which gave Congress power to tax citizens directly

on their income.

In its first year, the highest tax rate was just 7%,

but in just four years

Congress raised the top tax rate to 77%.

- We're gonna start with a quiz here, see how you do.

First question on the quiz,

can anybody tell me the highest tax bracket

in the history of our country?

What's the worst it's ever been?

- 90%. - 92.

- 90%, 92, anybody wanna go higher than 92?

The last two years of World War II,

the highest marginal tax bracket was 94%,

and that was for any dollar that you made

above and beyond $200,000.

Now, $200,000 back then was a pretty big deal.

It was about $3.2 million in today's dollars.

Can you even think if anybody back then

that made that type of money?

Well, who made that type of money back then?

Well, there was an actor who later became a politician.

His name was Ronald Reagan.

If you study his biography, he talks about

how he never made more than two movies in a year.

Reason being, he made about $100,000 per movie,

and any dollar he made above and beyond $200,000,

he only kept six cents on the dollar.

Truth be told, he didn't even get to keep the six cents.

Who got the six cents?

The State of California, to pay for state tax.

So, it literally did not make sense

for Ronald Reagan to work past the month of June.

So, he took the rest of the year off.

He went to his ranch.

He rode horses.

Started making movies again January 1st the following year.

That was a long time ago.

Let's fast forward to the decade of the '70s.

The highest marginal tax bracket in that decade

was 70%, once again,

for any dollar you made above and beyond $200,000.

Now, let's fast forward to about a month ago,

January 1, 2018.

What's the worst tax rate you can pay today,

the tax rate which Bill Gates pays taxes

on most of his earned income?

- 37? - 37%.

So, here's my question for you,

how does 37 stack up

against some of these tax rates we experienced in the past?

What do you think?

Pretty good.

It's pretty good.

In fact, you could make the case that it's historically low,

and it's interesting you should say that

because I do this workshop all across the country

and I routinely ask rooms full of people,

well, bad how are taxes this year?

What do think they say?

Going up.

- They say bad, horrible, as bad as they've ever been.

What's the truth?

Tax rates literally haven't been this good in 80 years.

- You and I know that our country is in a crisis.

So, what I want to know is,

why in the world are you going all across the country

to talk about our fiscal condition of this great country?

- So, I've actually been traveling around the country

for about four years now,

taking the Power of Zero message to different groups.

It's usually two different cities in a week.

- Let's define three words we will use

debt, deficit, and GDP.

Debt refers to the total amount our country owes,

whereas deficit refers to the gap

between what our country collects in taxes

and spends in a year.

GDP, which stands for Gross Domestic Product,

is the total value of goods and services

produced by our country in a year.

What's really insightful is the relationship

between our country's debt to GDP

or deficit to GDP.

That's like comparing a person's debt to income.

We're entering unprecedented territory.

This is the highest the debt has ever been,

except for right after World War II,

and then we had just fought a world war.

World War II, 1945 to '47,

when it was 119%.

We were basically out of money.

There was serious concern

whether we could even continue the war into 1946.

- One way to think about it is the deficit to GDP,

so that's just the current deficit,

there's only one time, as far as I know, in history

when it's been higher in peacetime

and that was during the Great Recession,

when Obama was president,

when tax revenues fell off the cliff.

What's unprecedented is we are now sort of at normal growth

in a pretty good economy,

and yet we have this extraordinary deficit.

That's really pretty much unprecedented.

- We enacted the biggest tax cuts and reforms

in American history.

- With the reduction in taxes that took place in 2018,

is that gonna drive debt up?

Yeah, we've been told that we need to increase taxes,

lower spending.

What did we do?

We did just the opposite.

We decreased taxes.

We increased spending.

I find that very troublesome.

This is during peace, prosperity,

all the times when you should be getting

your fiscal situation under control,

and we are just borrowing, borrowing, borrowing,

basically 'cause we don't wanna pay the bills.

But it's also a drag on the economy,

so it has secondary effects other than direct effects

on what the government can actually spend on.

It reduces the rate of growth of the economy,

and reduces long-term revenues as well.

- When you cut taxes on current generations,

you are simultaneously raising them on future generations.

- You know, people talk about taxes and debt

as if they're polar opposites.

They're really the same thing.

It is all driven by spending.

Once we have spent a dollar,

we've already decided to tax it.

The only question is whether we tax it now

or we borrow it now and tax it in the future.

- Then if you think about it, what is debt?

All debt is is taking from the future and spending it today.

- There's $20 trillion of GDP in this country.

That is the measurement of the output of goods and services

of the greatest economy that has ever lived on planet Earth.

That's a huge issue right now.

What is the growth rate going to be, looking forward?

It is possible

that one country can grow out of its debt limits.

It's generally happened,

it's usually come after a war,

but we're talking about

significant economic growth trajectories.

To paint a picture, it would be twice the growth rate,

probably, that we have today, on a sustained basis.

One could have a huge innovation boom through AI,

or we grow at the profile of China.

Possible, but historically unprecedented,

at least on a sustained basis.

On a three or five-year basis, sure,

but not on a sustained 20, 30-year basis.

We're getting old.

Europe is old.

Japan is very, very old.

Japan sells more adult diapers than baby diapers.

Now, that's old.

China will get old before they get rich.

Well, what happens economically when you get old?

Your spending goes off a cliff.

Do you understand?

Old people don't spend any money.

If I'd ask you right now,

how much money do your grandparents spend?

Nothing, that's gonna be you in 30 years, okay,

and so we've had these 78 million baby boomers

who drove the economy.

You know, it's about me, and more, and bigger, and better,

and me, and more, and bigger, and better.

Well, guess what?

Those 78 million baby boomers are over the hill.

They're all over age 50.

You know what happens at age 50?

Your spending goes off a cliff, and every year after age 50

you're gonna continue to spend less and less and less.

- Well, we have two reasons why our growth is slow.

One is that our population is no longer growing.

It's aging, so the labor force isn't growing very fast,

so the number of people working is not growing very fast,

and then, so how much does each worker produce

as productivity?

That's also been slow.

So there's a lot of signs

that the growth rate of productivity is persistently down.

Population growth rate is persistently down.

Well, that kind of tells you,

we could have some more investment, and that'd be fine.

That'd be fine,

but nobody thinks, I don't think, that that in and of itself

can compensate for lower growth rates of productivity

and lower population growth rates.

So, the growth rate of real GDP

is gonna be lower going forward.

The estimates are that it went from something to 3%

to arguably 2.1, 2.2%.

So, going back to where I started,

debt to GDP, which is growing,

we know that GDP is not growing as quickly as it used to

and that has to constrain our capacity to accumulate debt.

That's a big deal.

That's a really big deal.

The analogy with a rich person is,

you never look at the level of debt of Bill Gates.

That would be a silly thing to do.

You'd say, first of all,

how big is his debt compared to his income?

And even that wouldn't scare you too much

if you knew his income was really growing

relative to his debt.

- So the U.S. actually looks relatively bad

compared to many other countries.

- The fastest-growing expense in the federal budget

is interest on the federal debt,

and what do you get for interest on the federal debt?

Nothing.

Doesn't it frighten you

when you see that $20 trillion number?

I mean, do you?

I get nervous.

There's not a lot of things I get nervous about,

but that's one thing that I do.

20 trillion is a number that we can't even comprehend.

People ought to Google that up and, say,

- figure out how much - Oh.

- just one trillion is, and then what's 20 trillion?

I mean, it's just an incomprehensible number.

So, let me put it this way.

If $1 equals one second, got that?

$1 equals one second.

A million dollars equals 11 1/2 days.

A billion dollars equals 32 years.

A trillion dollars equals 32,000 years.

Think about that.

32,000 years at $1 equals one second,

and we are 20 trillion in the hole

with 125 trillion of unfunded obligations.

This is a very, very serious situation.

At the end of World War II,

President Truman cut taxes and spending.

In fiscal '46,

he took the federal spending from $85 billion

down to $30 billion in a single year,

so cut federal spending by almost 2/3,

fired 10 million federal employees.

It was called war demobilization.

The Keynesians at the time

predicted 25% unemployment and a second Great Depression.

Instead, we got the postwar economic boom.

So, a combination of tax reductions to stimulate the economy

and then, serious spending restraint

is what brought us back

from the last time we had this much debt.

Congress has done the first part.

We now have in place a tax reduction

that is having an enormous positive impact on the economy,

but at the same time, having cut taxes,

we have to restrain spending,

and that is where we are failing.

- Well, I think one of the saddest parts about the problem

is that these days it's self-imposed.

In many ways, the huge national debt

reflects the brokenness of our government.

- That was the third

most popular songs by--

- Managing and getting the debt under control

is not as complicated as politicians want you to believe.

This is a knowable problem.

There are many organizations in Washington, DC.

I'll name just a couple of them.

The Congressional Budget Office,

that's a nonpartisan organization

that gives massive reams of data to Congress

about various federal programs.

The Office of Management and Budget,

that advises the White House.

The Trustees for Social Security and Medicare,

and on and on.

They're all saying the same thing.

We have a fundamental problem in this country,

and it needs to be dealt with.

- Instead of paying for all the new initiatives,

whether they're tax cuts, spending increases,

all sorts of things that we like,

the government's just putting it all

on the national credit card,

and as a result our national debt

is just going up and up and up,

and it's growing faster than the economy,

and that's when you know you have a real problem.

On the President's tax reform plan,

he says that big tax cuts will be paid for

by economic growth.

What's your take on that?

Well, I don't think

any serious nonpartisan analyst of tax cuts

would suggest it's gonna pay for itself.

It may help a bit on the growth side,

but in order to actually create enough revenue

to pay for itself

would require a much bigger growth expansion

than really seems realistic.

What the Trump people are betting,

President Trump's people are betting,

is that somehow this, and I won't call it a tax reform.

They call it a tax reform; I call it a tax cut.

They're betting that somehow

this is going to jump-start

various initiatives on the parts of firms,

including investment,

and that magic productivity number that I talked about

is gonna work, and if it did?

You know, you give me a 1% increase in productivity,

that takes care of a lot of problems.

So, the question is, is that gonna work?

I don't see any evidence that it is,

other than sort of religious faith,

and we're taking a hell of a bet because

we have to start reforming entitlements

or we will, in my view, we will have to raise taxes.

Now, precisely how high it's gonna be,

there's a lot of room to debate,

but people will have to pay more taxes, and that's painful,

but you can't get away with stuff forever for nothing.

- The argument that they pay for themselves,

that they're gonna raise economic growth so much

just hasn't been borne out.

There is no empirical evidence for that.

- The bad news is, it was debt-financed.

Even when you consider the likely impact on economic growth

by nonpartisan independent parties,

it's expected to add debt to GDP.

Time for that has passed.

That made sense in the 1980s,

when the top rate on income was 70%.

It's not the Reagan years anymore.

There isn't a 70% marginal tax rate on the wealthy.

- Few economists would have argued with reducing taxes

at that point.

It's another example

of Washington wanting to have their dessert

before they end up eating their spinach,

and eventually we have to end up eating our spinach

if we wanna get healthy in the future.

I think the challenges,

there are such, not only a lack of appetite,

there is an aversion to having a serious conversation

in this country.

The president himself has said

we are not gonna touch Social Security and Medicare.

That lulls people into a false sense of security,

and a sense of security that, ah, you know,

the federal government will just bail this out.

There's gonna come a time when that just can't happen.

We've become ostriches.

We've just, we've got our head in the sand.

- But something's gonna happen to this tax rate

January 1st, 2026.

What's gonna happen?

Is it gonna go up or down?

Go up.

What's it gonna go up to?

It's gonna go back up to what it was in 2017, which is 39.6.

The real question I have for you, however, is this.

What is likely to happen to tax rates after 2026,

as we move forward in time to 2030, 2035, and beyond?

What does your gut tell you?

How do you see this playing out?

I know this is a tough question,

but how do you see it playing out?

Yeah, in my heart,

I would love to say that there's some sort of realization

that we're all going to come to,

but the reality is, most likely,

that we will hit the crisis point

sometime in the next decade,

and when that happens, I'm not entirely sure

that the public will see it

as anything other than an invitation to raise taxes,

and not to address spending,

and until and when we address spending,

there is not going to be a resolution to this crisis.

If you wanna know how we got here,

25, 35, and 49.

26% is the combined increase

of inflation and population

during the past 10 years.

We've had 35% increase in revenues,

so obviously it is not a revenue problem.

Our revenues have grown much faster

than inflation and population.

That third number is what's killing us, 49%.

That's the increase in spending in the same period.

Any family knows

that you cannot turn in numbers like that very long

before you're in serious trouble.

You have to understand the math.

After a nine-year fake bull market,

90% of America doesn't have $140,000.

90%.

50% of America arrives at death or retirement with nothing.

75% of America arrives at death or retirement

with less than 28,000 in assets.

It's also true

that probably 70% of the American population

has less than a thousand dollars.

Can you imagine?

A thousand dollars of accessible cash.

That's pretty sad.

- So here's what I say to all my prospects and clients,

all the people that I ask to give consideration

to what's about to happen.

the government,

are they gonna need more revenue in the future, yes or no?

Everybody says yes.

Is it possible they could need a lot more revenue?

Of course it is.

They're going to transfer wealth

from those that have to those that don't,

and the 90% of the people in America

who don't have any money

have the votes to make sure that that transfer will happen,

so it's very, very important that people do planning now

while they can stay in control.

- What will we be spending money on as a country

that could literally force tax rates to go up?

What are the big-ticket items?

- They're gonna need money for Social Security,

for Medicare, for Medicaid, the Unaffordable Care Act.

- When Social Security started off in 1935,

you had 42 workers putting money into the program

for every one person that took money out,

and back then you had to be 65

before you could draw on Social Security.

The average life expectancy was only 62.

They didn't even anticipate that the average person

would live long enough to ever draw on Social Security.

If you were lucky enough to make it to 65,

you only drew on Social Security for two years,

and then you died.

Fast forward to today.

We got 2.7 workers putting money into Social Security

for every one person that takes money out,

and today you can take Social Security as early as age 62,

and if you start at 62

you'll continue to draw all the way to age 85.

You see, Social Security started off

as insurance against living too long,

and it slowly morphed into a pension program

that covers us for nearly a quarter of our lives.

- So, everybody believes that 10,000 baby boomers a day

are retiring.

That's an average.

It's not the truth.

Here's the truth.

The number-one birth year

in the history of the United States of America was 1957,

followed closely by '58, '59, '60,

'61, '2, '3, and '4.

That means that 70% of the baby boomers

will retire between 2022 and 2029,

and we don't have the money now

for all the people receiving Social Security.

Where are we gonna get the money for those people?

And same thing will apply with Medicare.

Where will we get the money

when 70% of the baby boomers retire

and start taking health care benefits?

- And when you get around public health people

and ask them what is the spend?

Do you know the current spend on diabetes?

And where they know it, the next question is, what happens

when the number of diabetics quadruple in, say, 30 years,

and nobody has an answer for that,

and it's nothing other than

national, urban.

It's an impending tsunami coming right at us,

and I see

no official, effective, sincere response.

Nobody wants to have that conversation

with the American public.

Nobody wants to talk to them about entitlements.

They don't wanna talk to them

about the mandatory cuts that are necessary.

They don't wanna talk to them

about the fact that we already are over 100% of GDP

when it come to the amount of debt that we have

in this country.

Nobody wants to have that hard conversation,

and so again, entropically,

we are getting to the crisis point because it's easier.

Here's the reality.

All Congress has to do

for this whole situation to come to a head is nothing,

because every year that they do nothing

makes the problem even more unsolvable.

So, why is this being swept under the rug?

Why is nobody talking about this?

Probably because it's not popular.

- The last time that we had Social Security reform was 1983,

and that was a real accomplishment,

but the truth is a lot of people don't understand

that the reason that we had Social Security reform in 1983

is because the so-called trust funds

were gonna go dry within a matter of months,

and if the trust fund goes dry,

that means the federal government couldn't pay benefits

in a timely manner,

and I can assure you

that if tens of millions of Americans

don't get their Social Security payments on time

there would be a significant political uproar

associated with that.

But we know from the trustees

that Social Security hits a wall in the early 2030s,

and Medicare hits a wall in the late 2020s.

These are fiscal realities

that are gonna force us to make some very hard decisions

in the next decade.

- So, to make up for the liabilities that we're incurring

with all the promises we've made

in social insurance programs,

we're gonna have to increase, substantially, the tax rate,

and perhaps even double it.

- According to recent calculations I've done with Bill Gale,

we'd have to raise somewhere between five and 10% of GDP,

depending on what one assumes

about the future growth of health care costs,

and demographics, and so forth.

- Congress loves to kick the can down the road.

They love to procrastinate

because making tough decisions gets you voted out of office.

What's gonna happen with our country

if we just continue to procrastinate?

What are the options?

Well, let's say we hit insolvency.

Then we have some triggers that come into effect,

which will force benefits to be reduced

for a lot of people who can't afford that,

and the reality of that is going to hit extremely hard,

to the point where

I don't think anybody's gonna actually allow that to happen,

but the emergency measures that will have to be taken

in order to prevent something like that

are dramatic tax increases.

- One train to South Ferry, two minutes away.

- It's very important that we do a better job

of conveying to the American people

that this horrendous catastrophe is coming.

Talked about David Walker,

former Comptroller General of the federal government.

Well, he appeared on 60 Minutes back in 2008,

and he said, "Hey, I got some bad news.

"Tax rates have to double

"or our country's going to go broke,"

and the radio show host just didn't believe him,

and he says, "It's funny we're on a radio show

"talking about this right now,"

and the radio show host said, "Oh, I don't believe you.

"That doesn't even make sense to me,"

and he goes, "I can give you one four-letter word

"that explains why tax rates have to double."

- You know there's a new four-letter word in fiscal policy.

It's called math,

and unfortunately there's not that many people in politics

that are very proficient at that.

- So, in the next 75 years Medicare spending alone

is projected to take up the entire federal budget.

But the gap between projected spending

and projected revenues is just too great.

You cannot grow your way out of this problem.

That means we have one of two choices.

We either cut spending or we raise taxes,

and there's consequences to both these choices,

so higher tax rates, we know,

create distortions in the economy.

They likely reduce the rate of growth of the economy,

at least at the levels

that we're gonna have to increase tax rates

in order to fulfill all the promises we've made.

Where we are headed?

I think we are headed towards a period of uncertainty.

We are on an unsustainable path

because that tax cut made things so much worse.

We are heading for changes in the future,

but we don't know what they'll be,

so there's absolutely no confidence

of what the future tax or spending laws will be.

- You look at our current trend on spending.

Within the next two years

we're gonna reach trillion-dollar budget deficit.

When we run a trillion-dollar budget deficit,

that's the same as adding about $8,000

to the credit card debt of every family in America,

and this is not a theoretical exercise.

That money is owed by your family

just as surely as if it appeared on your credit card.

In fact, you're required

to pay back the government loan first,

through your taxes.

The IRS is there to insist that you do,

before you can even start to pay down your credit card bill.

That's what a trillion-dollar deficit is.

Far more dangerous.

I asked this question a few years ago of a panel of experts

that we had before the

when can we expect a sovereign debt crisis?

A sovereign debt crisis

is when a government simply runs out of credit

and nobody will loan it money.

When I asked the experts,

well, how long do we have before sovereign debt crisis?

And the answer was, well, there's no way to predict that.

It could be triggered by any number of developments

that are unforeseeable, but, he said,

"Once you hit trillion-dollar annual deficits,

"you will have set the stage for a sovereign debt crisis.

"Things will become unstable very quickly after that,"

and that's two years from now.

Four years after that

our interest costs will exceed what we're currently spending

on our entire defense budget.

Just the interest,

just renting the money that we've already spent

will exceed what we're currently spending

to defend our country

through all of our military operations.

About three years after that Medicare collapses,

and about six years after that Social Security collapses,

and the closer we get to those tipping points,

the more draconian are the choices

that we're gonna have to try to save them,

and as we approach a sovereign debt crisis

we will see markets begin to look at the federal government

and say, you know, we're not entirely sure you can pay back

the now more than $20 trillion that you owe.

- First of all, no one knows exactly when bond markets

are gonna decide this is not sustainable.

The bond markets will tell us

when those yields start going up a lot,

sovereign debt yields, interest rates.

There is feedback.

What you don't wanna do

is wait until the bond markets blow the whistle,

so I think what we have to say is,

do we think the debt-to-GDP is sustainable?

By which I mean that if we do our projections outward,

that that ratio is not exploding,

that it's somewhere near our historical levels.

I have a lot of concern, because as I look at the number,

and I don't think I'm alone,

Congressional Budget Office, other objective people

see that debt-to-GDP ratios are really climbing

to levels that are unprecedented,

with the exception of World War II,

which was obviously a different sort of story,

and it's not cyclical.

We're not paying our bills on Medicare, Medicaid.

- Whatever the current people in Washington think

is not relevant to what I'm talking about,

because there's a reality coming at you,

and the reality is going to cause them to say,

wait a minute, where do we get the money

to spend it on infrastructure, on military, and so on?

The squeeze from the rising debt burden,

combined with other things,

is going to squeeze out the things they want,

so they're gonna have to pay attention to it.

In 1912

Congress controlled 97% of the Federal budget

each year.

The only thing that it didn't control

was interest on the debt,

and that was before the Federal Reserve,

so we didn't have the ability to manipulate interest rates.

We had to pay real market rates of interest.

Today, rather than controlling 97% of the budget,

Congress controls about 30% of the budget, and declining.

Discretionary items

are getting less and less important over time,

and more and more of the budget

is going to non-discretionary items,

which are very hard to cut back.

Taking Medicare away from a poor person,

from your grandmother, those are hard reforms.

That's not like taking away a subsidy to an artist,

or foreign aid, all of which are tiny items anyways.

Here you're talking about core,

critical things that Americans depend on,

and we don't seem to be willing to pay the taxes

to fulfill the promises that we've made to each other,

and especially to older people and sick people.

- The importance of the debt has been obscured

by the fact that interest rates have been kept very low,

practically zero, but now they're rising.

So, we have a huge deficit,

and the burden of the debt

is now contributing significantly to the deficit,

and we have a process that's under way, that's relentless.

This is a reality,

that the high deficit adds to the debt,

so the debt is bigger, interest rates are rising,

so the burden of the debt is rising,

and as it combines with entitlement overspending,

everything is gonna be squeezed out of the budget.

There won't be anything left.

So, we have a crisis on our hands.

- Every percentage point that the interest rates rise,

we end up paying

another $200 billion a year

just in interest costs.

Now, every billion dollars we throw around in Washington,

that's about $8 from every family in the country.

When you hear about

a $200 billion increase

in our interest costs,

that means that out of your taxes

you'll be paying another $1,600

to do absolutely nothing more productive

than the rent money we've already spent,

and then you reach a sovereign debt crisis

where markets simply say,

we don't think you're gonna be able to pay us back.

We would rather lend to somebody a little more creditworthy,

and that's when you hit the wall.

That's when you become a Venezuela.

That's when you become

and go through the problems we're having

right now in Puerto Rico, and it's not far off.

About four years ago

I wrote a book called The Power of Zero.

I self-published it.

I threw it out on Amazon.

I crossed my fingers.

I hoped people would buy it,

and to my utter disbelief people actually bought it,

and that was the beginning of a movement and a revolution.

The book is the book version of the presentation,

so I give the, it's literally a whiteboard presentation

where I get up on stage

and I draw the presentation up there.

In February 2018

David McKnight met with book agent Howard Yoon

to explore how a major book publisher

could help expand the audience for his message.

Having your book vetted, approved,

and published by a mainstream publisher

- versus doing your own-- - Oh yeah,

it takes you into the mainstream, for sure.

So, here we are in New York City with Penguin Random House

to sign the final contract

to have them publish the 2018 version of The Power of Zero.

The road we are on is a perilous one

that ultimately leads to the bankrupting of our country,

and history is shouting this warning at us

that countries that bankrupt themselves

aren't around very long.

There's a reason why Admiral Mike Mullen,

the Chairman of the Joint Chiefs of Staff,

said that in his professional military judgment,

our greatest national security threat was the national debt,

because before you can provide for the common defense

you have to be able to pay for it,

and the debt is beginning to threaten our country's

ability to do so.

Yeah, that's absolutely right.

We've had a number of our national security leaders

regularly report to the members of Congress

that the single biggest threat to our national security

is the national debt, and that is unimaginable,

that when we do all the things we do

to build up a strong Defense Department,

increase security around the world

at a time when there's so many

new and ever-growing global risks,

we would undermine our ability to protect ourselves

by being economically so weak.

- All right, 10-minute drive.

Let's do it.

these bonds that a lot of foreign countries buy into,

when they buy in and invest in their bonds, guess what?

There was a time where we owned America.

Now they get to own a piece of America.

America is slowly and gradually

mortgaging itself away

to foreign entities who don't care,

who have the same interests,

have the same care for this nation that we have.

When you think about China

and how they have so much of our debt right now,

it's a scary notion that at any point in time

they could call the note on that.

And speaking more broadly,

just look at what's going on in Venezuela right now.

Look at what's happening in Puerto Rico right now.

That's because of a sovereign debt crisis,

debt that got beyond the control of the government,

and the result is a collapsing infrastructure,

a collapsing economy,

and a wholesale population exodus fleeing those conditions.

We have a lot of the Puerto Rico citizens

are coming to the mainland

because they're American citizens.

We bankrupt our country, where are all of us going to go?

- When we have a debt of trillions of dollars,

I can tell you implicitly

that it does harm to every major industry

within our democracy.

I think not-for-profit entities

such as a Sutter and Intermountain Health,

are facing some financial challenges

that we've never seen before in the history of health care.

What's happening in our community is

we have 18% commercial patients,

and 82% that either are Medicare, Medicaid,

or have no insurance,

and there's a huge payment disparity

between what we're paid by a governmental payer

such as Medicare or Medicaid versus a commercial.

- When Brian's hospital bills a dollar,

it needs 22 cents to break even.

It receives 50 to 60 cents

from commercial insurance or private payers,

but only 18 cents from Medicare,

and just 12 cents from Medicaid.

Medicare does not pay our costs.

Neither does Medicaid,

and that trend continues to get worse,

and this is what we have to do is try to shift these costs

onto the private payers.

It's really a hidden tax

on the people that are paying for insurance,

whether it's an employer or an individual.

For example,

this year they are planning a 1% increase for hospitals.

Our pharmacy costs increased about 8% last year,

and we're estimating about an 8% increase this year.

Labor expenses, supply expenses,

are all going up two to 4%.

If you look at it from a hospital industry overall,

need about a 11% increase in Medicare payments

just to break even.

It's the same issue with Medicaid at the state level.

In fact, right now in Arizona

we were getting paid literally 10% less

than we were 10 years ago for the same services.

But simply put,

when my fellow colleagues back in Washington

can just raise the debt ceiling

and cut taxes irresponsibly

without looking at the totality of the picture,

I think that, again, is a death spiral.

- Non-profits are faced with - what do we do?

At our particular institution

we offer services that we lose significant money on.

For example, we have a hospice home

that cares for those that are terminally ill.

It loses significant amounts of money,

but it's an important service to our community.

Ultimately we are gonna

can we continue to do that as a non-profit institution?

Those are the decisions we're gonna have to face

if this current payment policy continues.

how would you pay for 100 million diabetics

in the United States?

The answer is, we won't pay for them.

It's that simple.

They're just gonna be people dying.

Dying in the streets.

It's not possible

to deal with the acute medicine

that's gonna come out of that many diabetics.

Emergency rooms are already overflowing with this problem.

They won't tolerate,

neither by budget, or space, or number of physicians.

It's just not gonna happen.

It'll be easier to pretend like there isn't a problem,

to jimmy with the statistics

and sweep the dead people under the rug,

than it would be to continue on the current path,

so it's a little bleak.

It's a little bleak.

Not for CrossFitters, though.

We are in a down, deathward spiral

that if we don't take control of immediately,

our country will be in a position

that it's never been before,

with a debt that could really paralyze

every single aspect of our great nation.

- One solution to our entitlement crisis is

we can just print more money.

The problem is money is valuable because it's scarce,

and the more you print of it the less scarce it becomes.

I subscribe to a coin magazine.

In the back of that coin magazine

you can buy a $100 trillion bill from Zimbabwe,

and it only costs $4,

and that includes shipping and handling from Zimbabwe.

- Unfortunately, most of our fiscal problem

is in some sense a future problem, not a past problem.

It's not servicing the debt that we've already accumulated.

It's the debts that we have yet to accumulate,

and these benefits are, by their nature,

indexed to the price level.

Social Security benefits are indexed

to the consumer price index,

and when that price index goes up, benefits go up,

and so if we ran at a high rate of inflation,

Social Security benefits would keep up,

and we really wouldn't make any ground there.

Likewise, Medicare benefits are basically benefits in kind.

That is, it entitles you the right to go to the doctor,

to go to the hospital.

To the extent that prices in general rise

because of monetary policy,

that's gonna cause the prices of doctors to rise,

the prices of hospitals to rise,

and that will mean the cost of the Medicare program

will rise.

- There's one thing I do in my role at Vanguard

as an economist.

One of my jobs is to forecast the future.

There's one forecast

that I'm the most confident in in my entire career,

and that will be that our longterm,

50, 60, 70-year trajectory of the U.S. debt,

that that forecast will not be realized,

in many ways because something will happen before then

to prevent that from actually occurring.

It's just unsustainable.

- What I worry about is the debt stay so high,

we make tiny little fixes,

but never enough to really get it under control,

and as a result our economy just muddles along.

It's sluggish.

It doesn't grow in a sustained way.

Resources become constrained.

That actually leads to bigger political tensions.

The continued kind of tension we're feeling in this country,

and the unraveling of people

believing in the economic dream,

and it's just a slow, slow spiral.

Sometimes people refer to it

as the frog in the boiling water,

where they don't even notice

that it's constantly going up and up and up,

and then they're in big trouble and you can't reverse it.

The Soviet Union,

all the time I was growing up and was a young man,

was our major nemesis.

It was the most powerful military force on the planet

next to ours.

The Soviet Union doesn't exist today,

and it wasn't because they were defeated militarily.

They defeated themselves by bankrupting themselves,

and that's the path that our country is now on.

The politicians have been really adept,

for the last six decades, really starting with Eisenhower,

of borrowing money, promising to pay it back,

but keeping those obligations off the books.

What's an example of a debt that's been kept off the books?

Well, think about a young worker, Joe,

who Uncle Sam comes to and takes some money from Joe,

and promises to give him back money in the future.

Let's suppose that Uncle Sam

calls the money he takes from Joe Social Security taxes,

and the money he's going to pay back to Joe in the future

he calls transfer payments.

So, he's in effect borrowed this money now,

promised to pay it back,

but hasn't used the words borrowing

and repayment of principal plus interest,

so as a consequence, that doesn't get put onto the books.

So, it doesn't add to the deficit.

It's an off-the-books liability.

if you add together all the debts that are off the books

to all the debts that are on the books,

you get a number that's much, much bigger,

and we economists call this the fiscal gap,

so it's the present value of all the outlays

minus the present value of all the receipts.

The fiscal gap in the U.S. is not $20 trillion,

which is the size of the gross official debt

that is outstanding right now.

No, it's actually $200 trillion.

It's 10 times as big.

Our official debt-to-GDP ratio is 100%.

Our fiscal-gap-to-GDP ratio is 1,000%.

- I was on the Fiscal Wake-Up Tour for a number of years

with Comptroller General, at the time, David Walker,

along with folks from the Brooking Institution.

I was at the Heritage Foundation,

and then from the non-partisan

or, I guess, bipartisan Concord Coalition.

People were absolutely shocked

at the financial condition of the country

and the unsustainability of these programs.

They were angry,

and they also were largely concerned

not only about their own future,

but they were really concerned about their grandkids.

- I've looked at this for many years now, almost 30 years.

What we really need

is to come to grips with what we're facing,

and that requires some adults down in Washington.

Unfortunately we don't have too many of those.

The $200 trillion fiscal gap that we owe

is not a bill that's gonna come due

in 50 years or 100 years.

It's a bill that's due today.

It's the U.S. government's credit card bill,

and if you don't pay that balance off,

it's going to grow with interest,

so the fiscal gap is growing at about six trillion a year.

That's our true deficit.

You might say, well, this economist must be crazy.

We can't have a fiscal gap that's that big.

Let me tell you some other people

who have endorsed fiscal-gap accounting.

If you go to a website called theinformact.org,

and the Inform Act is a bill

to force our government agencies,

including the Congressional Budget Office,

to do fiscal-gap accounting,

as many other countries around the world

actually are now doing.

It never got passed.

Most politicians don't wanna tell us what's going on.

theinformact.org will show you endorsements

by thousands of economists.

Every college and university, really, around the country,

almost all of them is represented

because you have several thousand economists

who have endorsed this,

but in addition you have 20 Nobel Prize winners,

American Nobel Prize winners, and there are not many more

American Nobel laureates in economics than 20,

so we have almost the entire set

of American Nobel Prize winners in economics

saying do the accounting this way.

I have unbelievable news for you today,

because I have David McKnight in studio.

- And as these folks move out of the workforce

and onto the rolls of Social Security and Medicare,

they stop putting money into these programs,

they start taking money out,

and as they do take these dollars out

we start to approach this day of reckoning for our country.

- What do you see nine years from now?

Will that discussion resurface then, and finally then?

Or is it gonna creep up a lot sooner?

We've got about nine or 10 years

to get our fiscal house in order.

If we don't dramatically increase revenue,

dramatically reduce the promises that we've made

to all of these baby boomers,

or some combination of the two, we face fiscal insolvency.

We have to start making some tough decisions,

and it's a question of morality,

because what we're doing is,

any money that we borrow in the short term

is a increased tax on the back end.

Our fiscal situation is probably worse

than any developed country in the world.

We're worse than Japan.

We're probably far worse than Greece at this point

in terms of our fiscal gap as a share of GDP.

We're worse than Russia.

I think much worse than China.

Korea, which is aging rapidly,

I think we're in worse shape than they are.

This is not something we're gonna be able to get around

by printing money

and just expecting the rest of the world to pay our bills.

It's not gonna happen.

It's gonna affect our ability to grow,

because if we have to have sky-high taxes

people's incentives to work are gonna be much lower.

They're gonna peel off and start going to other countries.

So in the long run,

we're gonna have to either cut spending,

that is to provide less services,

or we're gonna have to increase tax rates,

and the tax increases are significant.

What the generational accounts do is

they give us projections about what these tax rates,

how much these tax rates need to be increased,

and that informs the debate.

You've got over 2,000 top economists

around the country,

20 Nobel Prize winners, people like George Shultz,

he had four cabinet positions.

So, I've struggled with these issues,

and I think the situation right now

is really dire.

But then you have the government

actively trying to hide the information,

and actively censoring the studies that come out.

We've had a number of different government agencies

I've been involved with or known about

have tried to do fiscal-gap accounting,

and it all gets censored at the last minute.

It doesn't show up in the president's budget,

and that was censored once by Clinton and once by G.W.

I think most economists would agree

that actually solving the debt trajectory is not hard.

Economically it's not hard.

It means some very important

and sensitive political choices,

which are not easy to solve,

but economically it is not a hard solution.

Well, the areas that you have to look at

are very difficult politically,

but I think, from the strictly analytical standpoint,

it's clear enough what to do about Social Security

and the health care spending.

It's the health care spending that's the big gusher.

It's ideology,

and that's one reason why we're not solving our problems.

- Gridlock, of course, is a major problem in DC,

but it always was,

from the time I moved there in 1979 to present,

there's always been gridlock.

I think now, though, that it's probably worse than I recall,

and really neither political party

has the monopoly on that.

I have been involved in both parties

at some point in time,

but I found that they were dominated by extremists.

If I was willing to flatten the tax code

and take deductions away from the wealthy to pay down debt,

would you reform entitlements by extending the age

based on the fact we're all living like Strom Thurmond?

Absolutely not.

- Not at a time when we have - 'Kay, well,

- so much income--

- that was a moment of bipartisanship that quickly passed.

We don't seem to have the ability

to get along and find common ground.

we're so polarized, and we have people on both sides that,

if you're not, if you don't see it exactly my way

you're not pure, you're not part of the team.

They come into office with that ideology

because they are the puppets

of particular groups

that dominate

the party bases of both parties,

so when they get into office

they have to respond to those party bases

or else they're going to be challenged in primaries

and lose their seats.

- Politicians have no incentive to think about the future

unless they personally have a deep commitment to it,

which not very many of them do, unfortunately,

or unless voters discipline them to do it,

and very few voters

are thinking about such long-range considerations,

even if they have children and grandchildren,

and should care about things like that.

There was a study done

by Princeton and Northwestern University.

The study found

that a wealthy individual or corporation

had a 60% chance to drive a bill through

and a 100% chance to stop one,

compared to the general public,

which only had a 30% success rate for or against.

I think what we've found,

and what people sensed already,

is, does their vote matter?

Does it count?

Not as much as we would like,

and certainly not as much as the founding fathers intended.

I ran for president

because I see these problems as an economist,

and I realized they're not being addressed.

They're not even being discussed.

You have a fiscal gap of $200 trillion.

You have a Social Security system

that's underfunded by $34 trillion,

that you have a Medicare system

that's running out of money through time.

Medicaid is same story.

I love America.

America tells you to be fiscally responsible,

financially responsible,

responsible in your choices,

but the government is not an example

of fiscal responsibility.

The truth is the federal government

has lost control of the budget.

If our fiscal gap is 200 trillion

and our GDP is 20 trillion,

that's a 10 to one ratio,

that means we'd have to work for 10 years,

consume nothing out of the GDP

out of all the output that we make for 10 years,

starve for 10 years,

in order to have enough money

to pay all the bills that are coming due,

bills to the federal government, to Uncle Sam,

for which Uncle Sam will not have the tax revenue to pay.

- The government is an example of the worst kind,

the worst kind of management of money.

Why?

'Cause it's not their hard-earned money.

They don't work, as the Bible tell you,

by the sweat of their brow.

They don't know what it's like to work in the beating sun,

and the dead cold of winter.

No, all they get to do is,

from your hard-earned work,

your work ethic, your discipline, your sacrifice,

money that you could have more for your household,

for your kids to go to school, more choices for yourself,

they take that money and they waste it.

It is amazing what we're paying for.

In 1912, the federal government

was only 2% of the economy.

Now it's 21% of the economy.

Stated differently, the federal government

is 10 1/2 times bigger than it was in 1912.

- If you need something, go to the government.

If you want something, go to the government.

If you don't have enough, go to the government.

you are the government.

It is your money.

In various states, what we see now

is that people are standing up and saying, we want services.

Someone has to then raise the point

that if you want services you're gonna have to pay for them.

- I'm a student, so I like how you want free education,

but what is your plan to possibly achieve this?

- So, the three core demands of the National Day of Action

are free public college, a cancellation of student debt,

and a $15-an-hour minimum wage

for people who work on the campus.

And how's that gonna be paid?

- Um, great question, uh, I mean, you know, so--

But there sure is an honest discussion

that needs to be had,

and we haven't been having it at all,

with all sorts of promises on all different sides

about how we can have everything and the cost is nothing,

which just, I think if people think about it,

would understand really can't be true.

I heard Senator Kirsten Gillibrand,

who wants to be president,

saying if she were to win the White House,

if she were president

she'd want the government to guarantee everybody a job.

Everybody a job.

It is absolutely insane.

It is crazy to believe

that we have such loony tune thinking in America.

- How many of you guys have ever seen the Road Runner?

I know most of you guys

were weaned on the Road Runner, right?

Who is always trying to kill the Road Runner?

- Coyote. - Coyote, what's his name?

- Wile E. - Wile E, 'kay,

so a couple of years ago I was with my kids,

we were watching the Road Runner,

and in this particular episode

the Coyote was trying to kill the Road Runner,

and he was building a bomb with which to do so,

and what company makes his bombs?

- Acme. - Acme, now we're cooking.

Okay, so he's building a bomb made by Acme

inside a shed that was also made by?

- Acme. - Acme,

and he was so focused and intent on finishing this bomb

that he didn't realize

that the Road Runner had pushed his shed onto a train track.

Maybe you've seen the episode,

and he was so focused and intent on finishing this bomb

that he also didn't realize until the last possible moment

that there was a huge freight train bearing down on him.

Gonna ask you a very important question,

most important question

if you found yourselves on a train track

with a huge freight train bearing down on you,

what would you do?

You'd step off.

You'd get out of the way.

Coyote sees this huge freight train bearing down on him,

and instead of jumping out of the way, what does he do?

He simply pulls down the window shade,

thinking that the act of doing so

would make the problem go away.

Did the problem go away?

No, there's a huge explosion,

and does the Coyote ever really die?

No, it's frustrating, right?

But as the smoke and fire cleared away

you could see him sort of dragging himself off screen,

very much the worse for wear.

Why did we gather here today in Charlotte

to talk about the Road Runner?

Well, as Americans,

who do most of our saving for retirement

in what we call tax-deferred - vehicles like 401 - Ks and IRAs,

we have a very real freight train that's bearing down on us,

and it's bearing down on us in the form of higher taxes.

Higher taxes driven by debt.

I'm trying to get this message out.

I don't sell any financial products.

I don't work for any one company.

I'm driven by trying to help as many people as I can

avoid this disaster that's gonna come up in retirement.

When taxes go up and the market goes down,

what are these people gonna do

if they haven't planned ahead of time?

- Well, the reason I like to take my message

directly to financial advisors

is because financial advisors are the ones

that can take the message directly to their clients,

so if I speak to 50 financial advisors

in any given speaking engagement,

their sphere of influence might number

in the five to 10,000,

so it's just an efficient and effective way

to deliver my message to the 75 million baby boomers

who badly need it.

There's a couple of things we can do about it.

We can pretend like the problem doesn't really exist.

We could pretend like the math to which David Walker refers

doesn't really add up,

but isn't that a little bit

like pulling down the window shade?

Or we can implement some strategies

with our clients,

starting this year,

that can help remove them from the train tracks,

thereby insulating and buffering them

from the impact of higher taxes.

You are simply doing what you'd always been told to do.

- Of course. - You were told

- to plow your money into 401 - Ks and IRAs,

get the deduction today

'cause tax rates would likely be lower in your retirement

than they were today.

Mathematically that makes sense,

and that may have even made sense back in the '70s and '80s,

but guess what?

That's all different now.

We're $21 trillion in debt.

We gotta raise revenue.

Tax rates are gonna be higher in the future

than they are today,

which means we've gotta completely change

how we think about saving for retirement.

Now, there's all sorts of different investments out there,

but I'm here to tell you

that all of those different investments

basically fit into only three types of accounts,

and today we're gonna talk about these accounts

in terms of buckets of money.

- The first bucket is the taxable bucket,

meaning every year as your money grows you pay a tax.

- So, we're talking stocks, bonds, mutual funds,

CDs, money markets, you name it.

You can have too much money in this bucket

from a tax efficiency perspective,

but you can have not enough

from an emergency fund perspective,

so what we're looking for in this bucket

is just the right amount,

and just the right amount is about six months worth

of basic living expenses.

- The second bucket is the tax-deferred bucket,

meaning you pay taxes at the time of withdrawal.

- We're talking 401 - Ks and IRAs,

457s, SEPs, SIMPLEs.

- Well, qualified plans

they defer the tax and the tax calculation.

Now, let that run past your brain real slow.

The part you're interested in as the customer

is deferring the tax.

I don't wanna pay the tax today.

Well, who does?

But the real question you need to be asking yourself is,

what tax rate will I be in when I take the money?

The government said defer.

I've got a different word it's postpone.

Why didn't they come up with tax postponement plans?

Everybody in America would understand what that means.

- Is the government trying to trick you right now,

and the answer is very simply yes.

Historically, taxes are as low as they've ever been

in our country, historically.

Second, they tell you to take a small amount of money

and get a small tax deduction on it,

and then they tell you to build up

this huge pile of tax-deferred money

out into the future

where they can come and tax the bejeezers out of it

so they can get the revenue they're gonna need

to pay for all of these things

that they haven't set aside money for.

People's retirement savings

are at risk of future higher taxes.

It's the deficits.

I mean, it doesn't take a genius to realize

at some point tax rates are gonna go through the roof,

and you don't wanna have your money in taxable vehicles

when that happens.

- So, some people look at 401 - Ks

merely as a way

to save money in taxes.

They're not even thinking about retirement.

But the real purpose of a retirement account

is to maximize cash flow

at a period in your life

when you can least afford to pay taxes,

and that's during retirement.

You call me one day,

say, "Don, I'd like to borrow 10 grand."

I hand you the check.

You're gonna ask two questions.

The first one is gonna be,

what rate of interest am I gonna charge you?

And the second's gonna be,

when do you have to have it paid back?

What if I said to you,

you know, I'm doing pretty well right now.

I don't need any money.

But there's gonna come a day when I'm gonna need the money,

and when I know how much I need,

then I can calculate how much interest to charge you

to get how much I need.

Would you cash that check?

Not in a million years,

but you're standing in line

to do that with the federal government,

who at this date is $21 trillion in debt.

- So, you could have a million dollars in your IRA,

but unless you can accurately predict

what tax rates are gonna be,

and the year you take that money out

you don't really know how much money you have,

and it's hard to plan for retirement

if you don't know how much money you have.

You gotta remember

that the IRS wants to tax you on this money so badly

that at a certain point in time

they will force you to take the money out.

What age is that?

70 1/2.

They call it a required minimum distribution,

and what happens if you don't take the money out?

Say you're supposed to take out $10,000.

You chose not to or forgot to.

You will get a bill in the mail for $5,000,

so that includes state and federal income tax.

No, throw another 30% on the margin.

You just lost 80% of what you were supposed to take out

but did not.

Is the IRS serious about getting their money?

What happens if you take out too much money

- from your IRAs and 401 - Ks?

The IRS keeps track of something called provisional income.

Provisional income is the income that the IRS keeps track of

to determine if they're going to tax your Social Security.

What counts as provisional income?

Well, any 1099s out of your taxable bucket

count as provisional income.

Any distributions at all from your tax-deferred bucket

count as provisional income,

and 1/2 of your Social Security

counts as provisional income,

and if, as a single person,

that adds up to greater than 34,000,

or if, as a married couple,

it adds up to greater than 44,000,

then up to 85% of your Social Security

becomes taxable to you at your highest marginal tax bracket.

Why do I even bring this stuff up?

I bring it up because I've done the math a hundred times

in a hundred different ways on a hundred different clients,

I have concluded that when your Social Security gets taxed

you run out of money five to seven years faster

than people who do not have their Social Security taxable,

because the act of compensating for Social Security taxation

by drawing money out - of your IRAs and 401 - Ks

forces you to spend down all your other assets

that much faster.

I don't think anybody believes

that taxes are gonna get lower the more years you live,

so by the time I'm 65, or when I'm ready to retire,

I'm gonna be paying more taxes at that time

than I ever will.

- The third bucket is the tax-free bucket.

- Now, there's all sorts of different investments out there

that masquerade as tax-free,

but I'm here to tell you, to be truly tax-free

it's gotta qualify in two different ways.

First, it's gotta be really tax-free,

and when I say tax-free, I'm talking free from federal tax,

free from state tax,

and free from capital gains tax.

The second thing I'm looking for

in a true tax-free investment is no Social Security tax.

In other words,

when you take distributions from a true tax-free investment,

it should not count as provisional income.

It should not count against the thresholds

which cause Social Security taxation.

So, people ask me,

how do we handle this rising tax rate environment

that we're likely to see?

And I say, yes, these are likely the lowest tax rates

you're ever gonna see for the rest of your life,

so what I would encourage people to do is, number one,

convert as many things as they can to a Roth IRA.

- If you can get money out of your 401 - K,

convert that to a Roth, your IRA to a Roth,

because you'll be able to take that money out tax-free

in the future.

Yes, you're gonna have to pay some taxes now,

but you'll get that money out tax-free in the future.

- And when you take money out of your Roth IRA

it does not count as provisional income.

It does not count against the thresholds

which cause Social Security taxation.

Roth IRAs are truly tax-free.

And to me, the two most obvious,

biggest benefits in the tax code

are those Roth IRAs and the tax exemption,

the income-tax exemption for permanent life insurance.

So, when we talk about life insurance,

there's the minimum one can pay for life insurance coverage,

and there's the maximum premium one can pay.

Well, who determines the minimum amount of coverage?

Well, the companies, the actuaries.

They have calculators, and what they calculate

is how much can they make and still sell this product?

And that is the low end.

What's the lowest premium

for the maximum amount of coverage?

Well, at the other end

there's the maximum amount of contribution

that one can put in a life insurance policy,

and who determines that besides you, the customer?

Well, it's the federal government.

The fact that the federal government of the United States

is even remotely concerned about how much money

someone would put in a life insurance policy says what?

it must be good.

Why?

Because you can take that money out in retirement tax-free.

It's one of the few tax-free ways

of taking money out in the future.

I'm a tax advisor.

I don't sell stocks, bonds, funds, insurance, annuities,

none of that.

But as a tax advisor I have to tell you

the single biggest benefit in the tax code,

and the most unused, is the tax exemption,

the income-tax exemption for life insurance,

and people are not taking advantage of it.

The only way to truly insulate yourself

from the impact of rising taxes

is to get to the 0% tax bracket.

Why?

Because if you're in the 0% tax bracket,

and tax rates double, two times zero is still zero.

- And moving money to tax-free territory is the way to go.

I mean, you can't beat a 0% tax rate,

no matter what Congress does.

This is why it's so important

that we, as individuals,

take charge of our finances,

take charge of our future,

and find a way to create a tax-free income for ourselves.

- People hear this message for the first time,

the first thing that comes to mind is that,

hey, I've been doing this wrong my whole life,

and there's no way to undo it,

but the reality is, this is actually the perfect time

in the history of our country

to start repositioning dollars

from tax-deferred to tax-free.

- Many times, when I do seminars around the country,

people come up to me and said,

Ed, I saw you on TV on your public television special,

I've had a financial advisor for years,

and I wasn't getting this kind of information

from my current financial advisor.

- CEOs are taking advantage of tax-free accounts,

and have been for quite some time.

- So, I think the biggest lesson here is uncertainty.

If you don't put things on a sustainable path,

we're not certain about what the future is.

That makes it harder to plan, in terms of retirement.

We also know that our Social Security system isn't sound,

so that makes it harder to figure out how much we need.

That leaves a lot of people very confused, concerned,

and uncertain about what the future holds, financially.

The goal is to, hopefully,

get that level of knowledge and behavior

filtering and trickling down to the public,

but I think it's absolutely crucial.

- Right now we've got 75 million baby boomers

who are on the clock,

and every year that goes by

where they fail to take advantage

of these historically low tax rates

is potentially a year on the back end

where they may have to pay taxes

at the highest tax rates they've seen in their lifetime.

So, here is the essence of the Power of Zero paradigm.

In a rising-tax-rate environment,

there is a mathematically perfect amount of money

to have in your taxable and tax-deferred buckets.

Taxable bucket you wanna have about six months worth

of basic living expenses.

Tax-deferred bucket,

you want your balance - in your IRAs and 401 - Ks

to be low enough that when the IRS starts forcing you

to take money out at age 70 1/2,

those required minimum distributions

are equal to or less than your standard deduction.

Anything else above and beyond those ideal balances

should be systematically repositioned to tax-free,

little by little,

stretching the tax liability out over a lot of years,

and hopefully getting all the heavy lifting done

before January 1st, 2026.

- I think people of this baby boom generation

and the tail end of it

have new tax strategies that we've never seen before.

When tax rates are low, like right now,

it means they're on sale.

Remember, these taxes have to be paid.

It's not if, but when,

so if you have to actually buy something like these taxes

to get to your money,

why not get them while they're on sale?

can you be in the 0% tax bracket and be a good person?

And look, we're not suggesting that people not pay taxes.

In fact, the price of getting into the 0% tax bracket is

you gotta be willing to pay a tax.

We're simply suggesting that when given the choice

between paying taxes at today's historically low tax rates,

or postponing the payment of those taxes

till some point much further down the road,

that you're probably better off paying them today.

One thing we do know

is that during this time of relative economic prosperity,

the economy's doing well,

we're the only nation

where our debt is continuing to grow

relative to the economy.

Other countries

are all getting their fiscal houses in order,

which is what you'd wanna do when the economy is strong.

The problem here is

you don't know where the kind of invisible fence is,

when you hit a tipping point

and potentially some kind of a fiscal crisis,

and yet the political leaders seem intent on finding out

by continuing to bring our debt

into basically unprecedented territory.

- But you know, everyone has their pork project.

They have their community center.

They have people they wanna curry favor with

to make sure they get votes.

It's all about votes.

It's all about numbers.

It's not about you.

And listen, you think you're paying

astronomical taxes now.

We're not gonna get this under control

no matter how you cut it.

Your taxes may double,

triple, quadruple.

- What's too high for the top personal rate?

It's not about a number.

That's what negotiations are all about.

It's that--

Is 50% obviously too high?

- Look, there was a time, in a very prosperous America,

where the top marginal rate was well above 50%.

Was 90%.

That's exactly right.

Why wouldn't America take a look at this

if they knew that they were gonna have to pay a lot more

in taxes in the future?

Why wouldn't every American wanna be in control

of their tax rates?

And that's the kind of information

that needs to be provided to the American people

so that they know that they can stay in control

of their financial and their retirement futures.

All you need to do,

all you need to do is go to these socialist countries,

'cause this is what we're becoming,

and just ask what they pay in taxes.

In some places 50 to 60% of their money is paid in taxes.

I know that's almost unheard of in the United States,

it's coming to a place in America soon.

You know what that place is?

Your wallet, your pocketbook, your hard-earned money,

they're coming from you,

and unless we

awaken a sleeping giant,

which is the American people,

and we lead these scoundrels in Congress,

Republicans and Democrats, independents,

whatever they call themselves,

unless we tell them, respect our money,

because I can't spend more than I can earn.

I can't live off credit.

I can't live off debt.

I can't live of that interest rate.

It will destroy me.

It will destroy my way of life,

and my children, my grandchildren,

and generations to come will have no future.

It will be destroyed in my lifetime.

We're not having it.

We're not gonna stand for it.

You've gotta become fiscally responsible.

You've gotta lower the debt.

You gotta stop paying for programs you cannot afford,

and we've gotta wean ourself off this.

The time is now.

We must start this movement today.

While these other marches are going on

throughout the United States,

what you need to be marching for

is the security of your future

for your children and generations to come.

Stop this overspending where we don't have the money.

Stop this nonsense and stop it now.