Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Retirement Compounders®
  • Free Email Signup

Are Munis a Shelter from the Storm? Not so Fast

August 7, 2019 By E.J. Smith

By Sergey Nivens @ Shutterstock.com

The Wall Street Journal reports that Americans in high tax states like New York and California are jumping into municipal bonds to shelter their investments from taxation. Maybe these are residents who can flee from the high tax states they call home, as so many others have. Now that the federal government has stopped subsidizing these states’ high taxation, residents are feeling the full burden of their states’ big-spending ways.

The Journal reports:

Investors in high-tax states like New York and California are piling into municipal bonds this year, fueled in part by the 2017 tax overhaul that raised tax burdens for some high-income households.

The purchases are driven by taxpayers’ desire to generate tax-free income, and this year’s buying surge started right as taxpayers were seeing the full impact of the new law.

Mutual and exchange-traded funds containing California, New York and New Jersey munis have received a combined total of $6.5 billion in inflows this year through the end of July. The inflows marked the most of any seven-month period since at least 2014, according to Lipper. People started completing the first tax returns under the new law in late January and February.

The purchases add to the already-high demand for municipal bonds, pushing up bond prices further and diminishing the benefit taxpayers are seeking. But they also make it easier and cheaper for governments to borrow.

“High-income taxpayers oftentimes were a little bit taken aback by the fact that their tax bills either stayed pretty flat or maybe their aggregate tax bill increased. And that always raises a question of: What can I do about this?” said Suzanne Shier, chief tax strategist for wealth management at Northern Trust Corp.

The vast majority of taxpayers got federal tax cuts under the law, but 12% of those with incomes over $1 million got tax increases.

Tax-free income sounds great, but there are some issues with muni bonds that should be remembered.

First, expected returns on municipal pension funds are too high, leaving pensions underfunded.

Second, with plans underfunded, municipalities will most likely be spending more than expected out of their general budgets to finance future pension payments.

Third, there’s only so much money available to states and cities. Dangerously underfunded pensions could end up competing with munis for the scarce tax revenue, especially if cities go bankrupt. That’s a great added risk for investors.

Remember to fully recognize the risks of any investment before you lay down your hard-earned money.

Originally posted on Your Survival Guy. 

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • Munis Stuck between a Rock and a Hard Place?
  • Banks are Fleeing Munis. What are They Leaving Behind?
  • Bonds Break Through 3%
  • Author
  • Recent Posts
E.J. Smith
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris.

Please get in touch with E.J. at ejsmith@youngresearch.com

Click here to sign up for my free monthly Survive & Thrive letter.
Latest posts by E.J. Smith (see all)
  • CATO: Global Freedom Is in Sharp Decline - January 27, 2023
  • Biden Administration Destroying Retiree Fiduciary Protections - January 27, 2023
  • 4 Life Changing Words for Your Survival Guy: “You Should Try This” - January 26, 2023

Search Young Research

Most Popular

  • Don't Let Your Lazy Cash Eat all Your Food
  • Markets Are Calling the Fed's Bluff
  • Welcome to Hotel California, Where You Can Never Leave
  • Anti-Carbon Crusaders in Davos Talk ESG and OPM
  • America's Super States and Stocks that Respect YOU
  • Is Passive Investing Already Passé?
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?
  • Can Banks Compete with Apple Pay and PayPal?
  • Your Survival Guy’s Guide to Your Lazy Cash
  • What You’re Telling Me Matters

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Could this Be the Vanguard GNMA Winning Edge?

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

RSS The Latest at Richardcyoung.com

  • Don’t Believe ’em. They’re Coming for Your Gas Stove
  • NH Republicans Favor DeSantis Over Trump By a Big Margin
  • CATO: Global Freedom Is in Sharp Decline
  • The Telling Depth of Media Propaganda and Censorship
  • MEDIA BLACKOUT: No One Will Cover Pharma Exec’s Virus Confession
  • TIME FOR A GONDOLA? Little Cottonwood Canyon Jammed with Traffic
  • Biden Administration Destroying Retiree Fiduciary Protections
  • Will Western Tanks Be a Game Changer in Ukraine?
  • The Power of Words
  • 4 Life Changing Words for Your Survival Guy: “You Should Try This”

RSS The Latest at Yoursurvivalguy.com

  • CATO: Global Freedom Is in Sharp Decline
  • TIME FOR A GONDOLA? Little Cottonwood Canyon Jammed with Traffic
  • Biden Administration Destroying Retiree Fiduciary Protections
  • 4 Life Changing Words for Your Survival Guy: “You Should Try This”
  • Anti-Carbon Crusaders in Davos Talk ESG and OPM
  • Welcome to Hotel California, Where You Can Never Leave
  • What You’re Telling Me Matters
  • The Rich Seek More from Bank Accounts
  • California’s Wealth Tax Will Drive Out Remaining Rich Residents
  • Political Establishment Irate over Conservative Challenges to ESG

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2023 | Terms & Conditions

 

Loading Comments...
 

    loading Cancel
    Post was not sent - check your email addresses!
    Email check failed, please try again
    Sorry, your blog cannot share posts by email.