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According to the federal General Accounting Office (GAO), 60 percent of U.S. companies did not pay corporate taxes between 1996 and 2000. Wasn’t that during a boom, you ask? Was that not the time during which government coffers should have swelled with the fruits of that juicy 33 percent corporate tax rate? It certainly should have been. Unfortunately, economics has once again shown that the incentives and rewards in the private sector are taking all the talented loophole-leapers away from the public sector, leaving public funding high and dry. Sen. John F. Kerry, D-Mass., said...
What is it about California? Somehow the land of movie-star Governors has managed to get people excited about municipal bonds--those investment workhorses that pay for new schools and sewers and earn you tax-free income all at the same time. The big show in the muni market this year is the Golden State's $15 billion offering, the largest in the nation's history and the presumptive first step in curing California's severe fiscal woes...
While that spread has narrowed since last year, the average 10year general-obligation AAA-rated muni still yields 88% of what the 10-year Treasury note does. Since investors generally don't pay federal tax on interest from munis (or state or local tax when they live in the issuing state or municipality), that muni's recent 3.69% yield feels like 5.13% to a taxpayer in the 28% bracket, compared with the taxable Tnote's 4.20%. And that's before taking into account any exemption from state and local tax. "Yields are still cheap compared to Treasuries'," says Zane Brown...
Research, though, can be a slog. InvestingInBonds.com has prices as well as a calculator to compare taxable and tax-free yields. But there are about 1.4 million muni issues trading, so it's hard to keep everything straight. Another downside: you have to pony up about 2% of the bond's value when you execute the trade, according to a recent study by the Securities and Exchange Commission's chief economist...
...alternative is muni mutual funds. You pay an average 1.09% in management and other fees each year, but you receive a diversified portfolio in return. Many muni funds buy nationally, though a fair number specialize in munis from specific states, particularly high-tax states such as California and New York, which are generally best for folks living there...