Taxing Muni-Bond Interest

[pb4uski]

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

 

[freebird5825]

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?

 

[Sandhog]

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.

 

[heirloom]

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.

 

[Hiredgun]

Here is a link to the original article:

Tax Breaks on Muni Bonds Draw Scrutiny in Cliff Talks - WSJ.com

 

[Disappointed]

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

 

[Alan]

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.

 

[heirloom]

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.

 

[Texas Proud]

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

 

[Texas Proud]

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....

 

[pb4uski]

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.

No, there needs to be a change. For many "first" time home buyers and many middle income people, their some of their interest will fit under the standard deduction so the impact will be muted.

Alternatively, one proposal is to allow deductions but limit them so that would have a similar effect. But I favor eliminating the home mortgage deductions entirely (even though if that happened I would probably pay off my mortgage.

The sunny side it it would probably significant reduce the "should I pay off my mortgage" discussions on early-retirement.org.

 

[heirloom]

it only benefits the higher tax bracket taxpayers anyhow

Strongly disagree!!
My son is far from rich, is sole supporter of wife and two children.
Every tax deduction he can get helps, just like it helped us.

Just go [Mod Edit] and increase the tax of the upper 2%, limit the deductions they can withdrawl so Buffet will have to pay the same % of taxes his secretary does, increase taxes on div and gains to 20% [Mod Edit] This is a lot more fair than hitting the middle class.

 

[pb4uski]

WADR, class warfare is not good public policy.

 

[samclem]

Just go [Mod Edit] and increase the tax of the upper 2%, limit the deductions they can withdrawl so Buffet will have to pay the same % of taxes his secretary does, increase taxes on div and gains to 20% [Mod Edit] This is a lot more fair than hitting the middle class.

Yes, you make it sound very fair indeed.

 

[ERD50]

it only benefits the higher tax bracket taxpayers anyhow

Strongly disagree!!
My son is far from rich, is sole supporter of wife and two children.
Every tax deduction he can get helps, just like it helped us.

.... increase taxes on div and gains to 20% so (... investors ...) can add more to the economy..etc...etc...etc. This is a lot more fair than hitting the middle class.

I stripped and edited your comment a bit to eliminate the political edge to it and hopefully avoid a visit from the pig.

First, as has been discussed on this forum, cap gains tax 'advantages' may not be an advantage at all because inflation is not taken into account. One can have a 'real' loss, and it will be taxed as a gain.

Now, I don't know at what point this would be significant, but as investment taxes are increased, at some point it will affect the middle class. You can't have a middle class job unless someone invested in the business that hires middle class workers.

I get tired of this class warfare stuff. Only a small segment of the population have the brains, motivation, acquired knowledge and other skill sets required to start a business. That includes having the financial resources, or the skills to get others to invest in you.

The entrepreneurs need people working for them to succeed. And w/o the entrepreneurs, the workers would have no place to go. It isn't 'warfare', it's a symbiotic relationship. If we don't recognize that, and encourage the bright ones to do their thing, the future will be bleak.

-ERD50

 

[heirloom]

Now, I don't know at what point this would be significant, but as investment taxes are increased, at some point it will affect the middle class.

Not as long as the investments are in a 401K or IRA, unless they change the rules. The savings they hold outside of these savings should be taxed, [Mod Edit]

You can't have a middle class job unless someone invested in the business that hires middle class workers.

True...but as your business succeeds you shouldn't save your money in Bermuda and other offshore countries to avoid taxes. Our government probably gave these people a nice start with low interest loans, business write-offs, etc. Then they succeed and don't want to give back. Selfish.

 

[pb4uski]

You just don't get it.

Taxable savings are taxed, the point was that if taxes are increased it disturbs the risk reward relationship so investors chose to take less risk because the after-tax rewards are inadequate which reduces capital available for business expansion which creates middle class jobs.

Most small business owners money is tied up in their business, not offshore. And you are totally off-base that they don't give back - would you really claim that Bill & Melinda Gates, Warren Buffet and others "don't want to give back"? - they contribute millions/billions to charitable causes. Mitt Romney, who you probably vilify, contributes millions to charity each year.

You claim that they are selfish - I think you are greedy. Also see post #63.

 

[Alan]

This thread has taxed the Mods long enough.

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