Monday, December 06, 2010

Extended tax cuts for wealthy not necessarily good for seniors' bond portfolios

I heard from a financial planner today that the GOP’s insistence in keeping the tax cuts for the “rich” (and the apparent "deal" today between President Obama and the GOP in Congress) is not necessarily the best thing even for relatively well-off retirees, at least those with a lot of tax-free bond funds (especially municipal bond funds), which many retirees have because they are considered “conservative.” The problem is that the demand for the bonds comes down if there is less of a need for a tax break among enough upper-income taxpayers. That’s not necessarily good for a lot of retirees, who might be better off with more valuable assets even if the tax rates could be higher – because the retirees’ actual reported income is generally less.

So the “Democrats” may not have been able to “protect” seniors from the “wrath” of the GOP since its November gains.

Removing uncertainty about the tax cut extensions, however, could help asset prices in the long run.

On the other hand, the government seems to be getting even deeper into debt, and that isn't good.

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