U.S. tax code spells potential advantage for municipal income

Legislation in the past several years has led to significant tax code changes, including more brackets at higher income levels and higher rates. Senior portfolio manager Greg Gizzi discusses how these changes are magnifying the appeal of municipal bonds.

×
the current tax code raised rates and in essence makes me and he's more attractive by increasing or taxable-equivalent yield is a function of two pieces of legislation in 2010 the health care and Reconciliation Act created a 3.8% Medicare tax which is used to fund the Affordable Care Act and during the fiscal cliff negotiations at the end of 2012 we had the American taxpayer Relief act not only increase the number of brackets at the high-end but also increase the rates at our maximum rate of 35% became 39.6 and to understand the impact you have to understand the concept of taxable-equivalent yield or what does an investor need to gain from a taxable investment to equal the return from a tax-exempt Investments and essentially what high rates of done is added excess yield in the form of tax will quipment healed to investors if you look at the national level just the impact from federal tax rates the impact is between 6 and 7% depending on which tax bracket you're talking about but we all know in addition to the Federal in Impact from higher taxes many state and local municipalities took their own initiatives in past tax hikes over the last 2 years and if you add in the impact of state taxes this taxable put the guilt is even greater in fact we did a study looking at the seven states where we have offerings and if you look at the combined effect on taxable put a kneeled the average excess yield is roughly 16% Wednesday in particular California which has a high 51 + percent marginal tax rate the impact is over 20% in an INXS taxable-equivalent yield certainly taxes have played a role here in the marketplace and despite the fact that these taxes went into effect early in 2013 we believe it wasn't until people started visiting their accountants early and 14 to pay for the 13 tax shield that the reality of heart attacks has really hit home so when we talk about which driven the market here in 14 which is certainly the Resurgence of the supply-demand technical higher taxes that figured into the demand component as individuals have resurfaced and are looking for tax-exempt income

Video Insights

2:48

Info

Negative interest rates: Staying power for the ...

Jun-10-2016
2:15

Info

1Q 2016 wrap-up: Municipal bonds

Apr-19-2016
3:00

Info

Looking ahead at Fed policy: The perils of a st...

Mar-02-2016
2:11

Info

The aftermath of unorthodox monetary policy

Mar-02-2016
1:54

Info

Constructive conditions for healthcare stocks

Jan-28-2016
1:50

Info

A positive outlook for credit conditions

Jun-09-2015
2:43

Info

China's real estate market

May-25-2015
1:18

Info

Earnings point to continued modest growth

May-15-2015