How To Fight Back Against The Government’s Imminent Tax Hikes
Wednesday, July 8, 2009
Guest Editorial by Alexander Green, Advisory Panelist, Investment U
Editor’s Note: With the federal government growing - and continuing to spend vast amounts on a variety of programs - the likely end result will be a big increase in Americans’ taxes. Rather than sit by and watch this happen, Alexander Green of Investment U is back to highlight a great, tax-free investment that you can make today to combat this scenario.
Martin Denholm, Managing Editor, Smart Profits Report
Buy Bonds Now
Buy tax-free bonds - now.
If you’re a mutual fund investor, buy them through Vanguard (the average fund company charges expenses six times higher than Vanguard’s).
If you are a closed-end investor, try a tax-free fund like Nuveen Insured Municipal Opportunity Fund (NYSE: NIO), trading at a 10% discount to its net asset value and yielding over 6% paid monthly.
Or, to avoid annual expenses and have the certainty of a final value on a particular date, buy individual tax-free bonds.
But whatever you do, buy them now. Let me count the reasons why you should…
Three Reasons Why Municipal Bonds Make A Good Investment Now
- Ten-year municipal bonds, while down from the historic premium they reached a few months ago, are yielding as much as 10-year Treasuries. But while Treasuries are taxable, munis are not.
- Most municipal bonds are safe. Yes, a few areas - particularly in California and Alabama - are troubled. But the historical default rate on municipal bonds is just 0.3%.
- Taxes will soon be going higher. A lot higher.
Yes, I know that when President Obama was Candidate Obama, he promised a tax cut for 95% of Americans. But that was then.
The Fallout From The Government’s Massive Spending Spree
Since that time, we’ve seen the federal government…
- Ride to the rescue of General Motors and Chrysler.
- Pass a massive $787 billion economic stimulus.
- Spend hundreds of billions more to recapitalize banks, bail out insurance companies and “fix” the mortgage market.
Now, the Obama administration is proposing the biggest changes to the healthcare system since the advent of Medicare in 1966. It’s planning to spend billions more to lighten our dependence on foreign oil and reduce carbon emissions. And it’s urging policy makers to rewrite the rules governing the entire U.S. financial system, spending who knows how many billions more.
As for candidate Obama’s promised tax cut, I’m reminded of the remark former Clinton aide George Stephanopolous once made to Larry King, “The President kept all the promises he intended to keep.”
The consequences of all this new federal spending and encroachment into the private sector won’t be fully apparent for years to come.
But the wild fiscal imbalance is already crystal clear. Washington politicians will soon demand that you sacrifice even more of your paycheck so that they won’t have to sacrifice the near erotic charge - and high incumbency rate - they get from spending it.
This is ironic when you consider that to a large extent it was government that landed us where we are today…
The Buck Stops With The Federal Government
Sure, the mortgage boom and housing market bust was due in part to shameless lenders, greedy borrowers, and unscrupulous Wall Street types. But who set the stage for them?
Who took short-term interest rates to the cellar, creating a massive incentive for consumers and investors to borrow? The federal government.
Who gave real estate investors a $500,000 tax exemption on their profits from flipping houses every two years? The federal government.
Who passed laws criminalizing banks’ failure to lend to subprime borrowers? The federal government.
Who set up quasi-government institutions Fannie and Freddie - or, as I prefer, Phoney and Fraudy - to warehouse those bad mortgages, leaving taxpayers to pick up the tab? The federal government.
And what will we get as a result of this supposed “failure” of the free market system? More federal government.
I’m not sure whether to laugh or cry. But I am sure our Founding Fathers must be spinning in their graves.
How To Combat The Growth Of Government… And Taxes
Thomas Jefferson said, “That government is best which governs least.”
George Washington said, “Government is not reason, it is not eloquence, it is force.”
No wonder polls show that more than 60% of Americans are skeptical of increased government intervention in the economy.
They suddenly recognize that we’re in for a lot more government, a lot more “market failure”… and a lot more taxes.
Sadly, there isn’t much you can do about it… except buy munis now.
Good investing,
Alexander Green
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3 Responses to “How To Fight Back Against The Government’s Imminent Tax Hikes”
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Finally someone has the guts to identify the real source of this financial catastrophe; the Federal Govt..Now the thieves are going to drive us further in to depression by spending more money. I guess will have to wait until the food supply is cut off to see a real revolution buy the average comrade.
Alex,
Right on, your commentary on the bandits running our government is very well put. Thank you.
Engin U.
Chairman’ Circle Member
Do you believe the government will not change the deductible status of munis? Washington despises wealth (unless it is in a brown paper bag left on their desk). Munis are not an investment vehicle for the 45 million that don’t have health insurance that will be paid for by those of us with income or some level of savings. GM bondholders didn’t fare too well at the hand of government. Much talk about doing away with mortgage interest deductions and taxing health insurance premiums. I could go on but you get my point …. Washington is desperate for tax revenue.to pay for their redistribution initiative. If munis lose their tax deductible status the value of a bond fund will crater. Even with individual issues I would be left with taxable interest until maturity, in what I believe will be a rising interest rate period, seriously diminishing my purchasing power Is my thinking incorrect? Otherwise, great editorial.