Thursday, August 26, 2010

Municipal Bond Freeloaders - A Reprise

Yesterday a commentor again challenged my statement that municipal bondholders get a free ride on the backs of the middle class and the poor. I am therefore reprising my proof from this blog of Friday, June 15, 2007

***beginning of quote***

Wealthy Municipal Bondholders are Free-loaders: A Proof.

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".


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.


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.

***end of quote***

One observation: the entire DC establishment shows its true colors on this issue - it's the green of greed. They are mostly already wealthy so love that municipal bond tax benefit. Both parties want to preserve it, naturally. The Bunkerman tax reform program would tax those people to support the national government, though, via the value added tax. And under Bunkerman's tax reform, the poor and working poor would pay only the value added tax and no income tax. Just like billionaire municipal bondholders. That's fairness.


Mrs. B has told me several times that I use the word, 'so', too much. From this old post, I see she was correct. I know I've cut back, but this old post was a good lesson for me to see how bad I was in the past.

Word of the Day

"Palpable" - adjective [$10]
Palpable means 1. one that can be touched or felt; 2. readily perceived by the senses or mind.
Sentence: The air of greed in DC is palpable to all who pay attention.


Frosty said...

you have become so anti USA USA USA...the way you have raped and pillaged the common should feel great shame sir..."starting a non-profit blog", to little to late, your still going to burn :)

Bunkerman said...

hey, eating a Plowboy is pro USA !!

Frosty said...

Sal how about one of those famous feather proud...thx in advance.

Bud said...

gedanken ?? wtf is a gedanken ............

Bud said...

well frosty........absolutely nailed IDSA

i don't have your new email address

Frosty said...

IDSA about to get the IBD boot...rev shame you into that one..."when you wax the prowler I expect a mirror like finish"

Frosty said... must think I was BORN yesterday.

Bunkerman said...

Bud, you are such a philistine.

A 'gedanken' experiment is a thought experiemnt. Einstein used them to develop his two theories of relativity. I'm trying to help all me readers develop their minds.

Bud said...

philistine ??? what's that.........don't know what it means

i do know what sodomite me use it in a sentence

' frosty is a sodomite '

Bud said...

hey ponce.............gimme ur private email address

had a great trade in ZN U0 today............i been trading both ZN and ZB even know what i'm talkin about ??????????

Bud said...

Bman what % of a double dip recession ???

also if i tweak the definition.............2 consecutive quarters of less than 1% growth........what % of that happening ??

Frosty said...

you working on your econ master's thesis at the university of karachi....nonono just brown that an oxymoron.

Spin-em said...
This comment has been removed by the author.
Frosty said...

SORRY SAL...I was way ruff on you today...put the dogs back on their pill-o-afghans.

Bunkerman said...

Bud, the correct quetion is, what is the likelihood of a great new BULL market beginning next year ?

Answer: very likely.

Get your buying shoes on.