Spin the screen, enter that weird movie DISSOLVE thing, and we're placing you in an apartment on 5th and 72nd in Manhattan. Yeah, nice address. The Park is right there. You can almost hear the muggers mugging right outside your window.
For the privilege of living there, you pay a Manhattan City Tax. You also pay State Tax. And you pay Federal Taxes. So if you're a drug dealer doing only business in cash, then it's likely you're living a triple-tax-free life.
Yes, illegal. But even legally, there are times where you've invested in a triple-tax-free muni bond. So if you're paying 39.6% Federal and 12% State and 3% city tax, i.e. meaningfully over 50% tax, and a muni bond comes along paying 4% interest, then that's the equivalent of 8% pre-tax...so you do it.
Triple-tax-free. Triply happy for investors.
Related or Semi-related Video
Finance: Who buys muni bonds?1 Views
Finance allah shmoop who buys communi bonds who buys them
rich people or rather people earning enough active income such
that their marginal tax rates are very high Munich bonds
are tax free so in practice they tend to offer
lower net yields than taxable corporate bonds Okay so what's
the math here Well if your ah high earner i'ii
europe bo tox correction surgeon or an ambulance chasing attorney
from new york Or an all star nfl linebacker with
no felony drug or spousal battery convictions Yeah a few
of those actually do exist Well then it's likely that
you pay the highest marginal tax rates They seem to
change every election cycle so will generalize here so we
don't have to redo this video every two to four
years At the highest rates you'll pay about thirty five
percent federal tax and twelve ish percent state tax and
usually an override for some other political initiative like obama
care or the wall fund or the no child left
behind fund at the zune fund Beyond those total them
up And let's say you pay fifty percent marginal tax
on your last in a few million bucks in earnings
and let's also say for illustrative purposes here assumed that
the bonds we are comparing our of equivalent risk and
duration compared with these immunities right Let's say so They're
both a rated and they come due in on a
half a dozen years Well the corporate bonds than yield
us a seven point two percent and the parallel nooni
bond yields four percent So then which bond has the
higher value to its high tax paying owner Well if
you're paying fifty percent tax on the seven point two
percent corporate bond than you the nun convicted linebacker pay
net after tax fifty percent of seven point two percent
interest or three point six percent The munich carries no
tax so it's gross is net meaning the four percent
yield of them unibond produces point four percent a year
Better yield after taxes then does the corporate bond So
what if you were a sir school teacher not rich
paying this a twenty percent marginal tax instead of fifty
Well then you'd go for the corporate bond It yields
gross seven point two percent But after your twenty percent
tax the yield after tax on that corporate to you
mrs whitehead homeroom number fourteen teacher of health and sex
ed to simply horny teams Yes your yield then is
point eight times seven point two or five point seven
six percent way higher than the muniz yield of four
percent The differences here in yield from a corporate versus
immune e maybe don't seem like a lot but over
time they really add up So once you make your
first one hundred million or so don't forget teo you
know come back and watch this video It'll be here 00:02:41.48 --> [endTime] for you
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