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Old 12-13-2012, 11:02 PM   #41
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From reading your posts, it sounds like you have to be ultra rich to benefit from muni investing.
Well, it's fairly cheap and easy to get into muni investing (especially through mutual funds). But they really don't make sense for investors in the lower tax brackets. People in the 10% or 15% brackets are generally better off foregoing munis, getting the higher returns, and paying the taxes.

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Don't you think it would be nice to have some tax free income later in life, especially if inflation goes up?
Unless they change the laws (and they could), the tax brackets are indexed for inflation. That means that if munis don't make tax-sense for an investor today, they won't make sense tomorrow, either (unless the investor's portfolio gains inflation-adjusted value)
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Old 12-13-2012, 11:12 PM   #42
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Thanks a lot Samclem....Very useful information and your answers were very clear.

Soo, I guess I'll wait until the cliff falls and purchase either stock or stock funds. Letting the money sit in the bank making nothing just doesn't make sense.
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Old 12-14-2012, 01:15 AM   #43
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Here's a good article explaining how limiting the tax exemption status of Muni-bonds will affect everyone, not just the wealthy. I would posit that the wealthy will do just fine, but those in the 98% will actually bear the brunt of such a change (unintended consequences):

Even Muni Bonds May Be Targeted in 'Fiscal Cliff' Talks
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Old 12-14-2012, 01:17 AM   #44
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Here is a video explaining how the loss of tax exemption from muni-bonds would affect California, explained by Arnold Schwarzenegger's economic adviser when he was governor:

Tax Muni-Bond Interest? | Fox Business Video
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Old 12-14-2012, 06:53 AM   #45
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My thoughts are this thread will run off the rails into the quagmire of partisan politics and be closed - in less than 10 20 posts.
Surprise!!! (me too)
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Old 12-14-2012, 08:30 AM   #46
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You can say, however, the higher your tax bracket is, the more the tax free muni bonds yield .
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Old 12-14-2012, 09:31 AM   #47
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These tax free investments benefit those who have wealth more than the little guy, who really cannot afford to invest in them.

That is true, but how much taxes will the government get out of taxing the munis? Will it help the deficit that much?

Why not go after the mortgage deduction? The little guy that rent instead of own never see the benefit of mortgage deduction?
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Old 12-14-2012, 09:37 AM   #48
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These tax free investments benefit those who have wealth more than the little guy, who really cannot afford to invest in them.

That is true, but how much taxes will the government get out of taxing the munis? Will it help the deficit that much?

Why not go after the mortgage deduction? The little guy that rent instead of own never see the benefit of mortgage deduction?
I believe that is on the table too, and it would cut a big chunk of the deficit.
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The home mortgage interest deduction is one of the most cherished in the U.S. tax code. It's also one of the most expensive, estimated to cost the federal government $100 billion this fiscal year.
Long-treasured mortgage interest deduction may face changes - Los Angeles Times
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Old 12-14-2012, 10:58 AM   #49
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Why not go after the mortgage deduction? The little guy that rent instead of own never see the benefit of mortgage deduction?

They can go after it f they want. But I don't think it's true that the renter doesn't see any benefit from mortgage deductions - the landlord deducts mortgage interest as a business expense, and that figures into the going rate for rents.

I think the mortgage deduction just sort of levels that field a bit, allowing homeowners to write off interest the same as landlords do. But it should be on the table, I'm not sure that the leveling is a good/bad thing overall.

-ERD50
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Old 12-16-2012, 10:05 AM   #50
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Discussing how this would affect us personally:

We've had a stake in LT tax-free for our state. It is about 4% of our total portfolio. We invested in this 20-25 years ago when in a higher bracket. It seems to grow back like weeds. The NAV is way up, and I'm taking the dividends. In past years we simply re-invested.

We could find ourselves in a 28% tax bracket if income lines are drawn differently in a new tax plan. If this LT fund was no longer tax exempt for us, I would withdrawal most of the balance and invest in something with more upside as we enter retirement in about 5 years.
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Old 12-16-2012, 11:59 AM   #51
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The proposals that I have read about would make new issues of bonds tax exempt and/or limit the benefit of exemption of income on bonds currently issued to 28% (so someone in the 39% bracket would pay 11%, not 39%).

YMMV
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Old 12-16-2012, 09:09 PM   #52
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I am a card carrying owner of lots of shares of VWALX.

For my own personal situation, I had 8 years from FIRE age to the age to be eligible for my own deferred MRA+10 FERS pension. I wanted a way to easily pay my outrageous property taxes without depleting my modest FIRE income and without taking on too much risk in the market.
So far that plan has paid off nicely. 2 years to go until I hit the magical MRA...

I do not plan to change anything with regards to my stake in VWALX until I see taxing muni bonds has become part of the IRS tax code. TurboTax tells me my effective tax rate is 11%, so if that does happen, I'm guessing that the effect will be minimal.

Is there a link available to the original article?
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Old 12-16-2012, 10:42 PM   #53
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Why not go after the mortgage deduction? The little guy that rent instead of own never see the benefit of mortgage deduction?
I'm not sure how that would play out since current housing market in recovery with low interest rate. Folks buy house knowing it's cheaper to own than rent due to mortgage deduction. Without mortgage deduction, some folks wouldn't be able to own a home. Much like any changes, it will always benefit one and harm the other much like intended changes to Muni. I do own some NY Munis since I pay City, State, and Federal taxes and with NY Muni, I pay zero taxes on interest. It's not a lot but better than what banks pay including Barclays 1% on savings.

It's like cleaning land pollution only to create air pollution. Then cleaning air pollution to create water pollution. Then cleaning water pollution back to land pollution. It's to complicated for me since I'm having difficult time figuring out how to FIRE at age where I can live more and no work.
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Old 12-17-2012, 12:08 AM   #54
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The home mortgage interest deduction is one of the most cherished in the U.S. tax code. It's also one of the most expensive, estimated to cost the federal government $100 billion this fiscal year.

We all benefited from home mortgage deductions and I don't think it would be fair to eliminate it from todays "first" time home buyers.

Companies are already eliminating pensions, changing the 401k's to an annuity operated by insurance companies(which I know a lot of you don't like), government is making insurance more expensive for the younger ones.

Come on...lets give them a break...they deserve the mortgage write off just like we did.
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Old 12-17-2012, 12:47 AM   #55
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Here is a link to the original article:

Tax Breaks on Muni Bonds Draw Scrutiny in Cliff Talks - WSJ.com
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Old 12-17-2012, 12:45 PM   #56
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We all benefited from home mortgage deductions and I don't think it would be fair to eliminate it from todays "first" time home buyers.

Just like we all beneifit, directly or indirectly, from Munis, the word Fair has never been associated with Taxes, its all about perceived fairness. What is fair to one is not fair to the others. If we are serious about reducing the deficits then we need to look at everything.

Lots of countries out there do no allow any mortgage deduction, if I am not mistaken, Cananda, is one.

mP
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Old 12-17-2012, 01:13 PM   #57
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We all benefited from home mortgage deductions and I don't think it would be fair to eliminate it from todays "first" time home buyers.

Just like we all beneifit, directly or indirectly, from Munis, the word Fair has never been associated with Taxes, its all about perceived fairness. What is fair to one is not fair to the others. If we are serious about reducing the deficits then we need to look at everything.

Lots of countries out there do no allow any mortgage deduction, if I am not mistaken, Cananda, is one.

mP
The UK also does not have tax deductions on mortgage interest, but IF the USA does make a move in this direction I expect they would go about it in a similar manner to the UK, and phase it out over many decades, putting a cap on new loans and not adjusting it for inflation.
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Old 12-18-2012, 12:51 AM   #58
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phase it out over many decades
That sounds fair.

Plus I love the idea of a cap on the loans. When we purchased our home 37 yrs. ago, we had to have a down pmt. of 20% to qualify. Since they dropped that rule, I like the idea of a cap so people don't lose their homes again by paying more than they can afford.
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Old 12-18-2012, 10:37 AM   #59
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Here is a video explaining how the loss of tax exemption from muni-bonds would affect California, explained by Arnold Schwarzenegger's economic adviser when he was governor:

Tax Muni-Bond Interest? | Fox Business Video

What he said is correct to a point.... IOW, he said that the borrowing cost would go up and other services would go down.... hurting the poor...

But, why not just borrow less Isn't that an option
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Old 12-18-2012, 10:40 AM   #60
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I do not think that they should phase these changes over many decades... just get rid of the deduction... it only benefits the higher tax bracket taxpayers anyhow... I think someone who is paying tens of thousands of INTEREST should be able to afford to pay for their place without taxpayer assistance....
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