I was challenged by a reader on my statement that municipal bondholders are “free-loaders”. Wealthy municipal bond owners do not pay anything for the Federal government. That's not fair. Some say it is fair, as they take a lower interest that helps the states & localities. So I will now prove that it's not fair and they are free-loaders.
One of the appropriate definitions of "fair" is "regular and even" and "impartial" and "just to all parties"
So here's a gedanken experiment - these help work out difficult concepts. Suppose the Federal government wants to raise spending on something worthwhile to all, such as a war on terrorism? And pay for it instead of borrrowing?
They could institute an income tax surcharge like LBJ in the 1960s. This would be a uniform expansion of Federal revenues without any other changes to law.
So all pay their share of what is obviously a benefit to all people.
Uh .... not all --->> municipal bond holders don't pay anything to support such an endeavor. Hence are "free-loaders".
So their not paying any taxes to support the Federal government is obviously not "fair"
Hmm. Some municipal bond holders pay something - the middle income retiree. The marginal tax rate on incremental municipal bond income for a middle income retiree with $40,000 taxable income about 22% This is due to municipal bond income causing more social security to be taxed.
So retirees would be paying for this hypothetical war on terrorism. But not multi-millionaires with $5,000,000 municipal bond income.
QED.
Obviously the current tax system exempting municipal bond income is not fair AND wealthy municipal bond holders are free-loaders.
This type of gedanken experiment and analysis of effects due to uniform perturbations in systems is how fundamental principals can be determined. Things like laws of conservation of energy, momentum, angular momentum , and ...
Unfairness of municipal bond free loaders.
PS: The free-loaders are people ALREADY wealthy, not those high income people working to BECOME wealthy. So that’s double unfair. Free-loaders. Ptui.
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Interesting. But I stick with my point.......where will muni's get monies if their bonds are federally taxed. So the US taxpayer will have to return those federal dollars back to the locals. Just a big circle jerk.
Ptui? Is that one of those $10 words?
The municipal's can go & borrow their money like a corporation. Or a person.
The current system is economically inefficient and creates massive disloations & poor decisions.
Besides letting the wealthy escape paying their fair share.
The point is that if one is trying to create more fairness in taxation, one of the most unfair aspects of Federal taxation is that it lets truly wealthy municipal bondholders escape from paying anything.
Municipalities would pay an interst rate like high quality corporations. And would be motivated to borrow & spend more efficiently.
"Ptui" is a word like "woof" or "meow" wthat represent a natural sound. I think there's a $10 word describing that class of words, but I can't think of it.
"ptui" = me spitting in disgust ;-)
By the way, when "private purpose" municipal bands became taxable under AMT in the early 1980s under Ronald Reagan, all sorts of of silly projects got scrapped and the remaining ones had to be more worthy & efficient. That's a counterexample to your point, too.
OK, a very literate reader wrote to me that the word I was trying to find is "onomatopoeia" - definitely a $10 word. Thanks for the help.
I remember learning that years ago, perhaps in high school English class, but I couldn't remember it. It's hard to find the word knowing the rough meaning - there aren't reverse dictionaries.
"ptiu" is an onomatopoeia :-)
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