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FMSbonds, Inc.'s Bond Forum™ is an exclusive opportunity for investors to submit questions and comments on the bond market or to respond to one of our articles.
To participate, just send us an e-mail. Be sure to include your name or initials and your state of residence. Posted e-mails may be edited for length and clarity. If you prefer a private response, please note that in your e-mail. Responses are provided by James A. Klotz, president and co-founder of FMSbonds, Inc., a municipal bond specialist for more than 35 years; Dr. Jay H. Abrams, chief municipal credit analyst; and other members of the firm as noted.
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What are your thoughts on rates going up and the impact on long munis?- J.C., California
With the backdrop of a sluggish economy and persistently high unemployment, we don't foresee the threat of inflation any time in the near future.
If there is no inflation problem, there should be no significant upward movement of interest rates.
Does the 3.8% surcharge for investment income, which began Jan. 1, 2013, and will be used to help pay for Obamacare, also apply to tax-free muni bond income?- T.D., Florida
It is our understanding, based on the opinions of our tax consultants, that tax-free income from municipal bonds will not be subject to the 3.8% unearned income Medicare contribution tax to which you refer.
Regarding your article, “Munis Spared from ‘Fiscal Cliff’ Deal”: You know, sometimes it pays to not gloat and leave gift horses unexamined! You are writing to the choir and the unevenly blessed and perhaps not deserving of the largesse we enjoy. Maybe if you spoke more of "put back” or “share,” the backlash won't be as harsh as it could or should be.- N.R., Texas
Your point is well taken.
It certainly was not our intention to gloat. Our goal was to inform investors that the danger of municipal bonds losing some or all of their tax-exempt status had been averted – a subject that has drawn a great deal of attention recently among community leaders responsible for funding public works projects and investors alike.
The focus of our article and, in all likelihood, a key reason why the exemption was left untouched, was the benefits munis provide to the community at large. While the tax exemption is certainly attractive to the privileged, it is important to note that more than 75% of the $3.7 trillion outstanding municipal bonds are owned either directly or indirectly (through mutual funds) by individuals, and a good portion of them are not in the "super rich" category. To these individuals, the income derived from their bonds is of vital concern either for daily living or retirement.
As a municipal bondholder yourself, we wouldn't want you to overlook your contribution to the "put back" of supporting education and other essential services.
We think if both sides of the equation were more fully understood by the public, there would be no backlash, harsh or otherwise.
This report is produced solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This report is based on information obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed.