Tax-Exempt en-us Thu, 25 Dec 2014 02:24:28 -0500 Thu, 25 Dec 2014 02:24:28 -0500 The latest news on Tax-Exempt from Business Insider Business Insider Meet Alex McFarland: He Makes Almost $50,000 A Year Selling Candy On The Subway Mon, 09 Jan 2012 17:07:00 -0500 Robert Neuwirth <p><img style="float:right;" src="" border="0" alt="Alex &quot;Tracks&quot; McFarland Selling Candy On The Subway" /></p><p>The idea that an itinerant New York City candy vendor pulls in $150 a day ought to have spawned one of the great feel-good financial news stories of 2011.</p> <p>Here are the details: for almost a decade and a half, Alex McFarland, known as "Tracks" to his buddies, has been an underground man, a subterranean entrepreneur, roaming through the subways catering to people's need for a sugar buzz at a dollar a pop. Alex's daily haul would put his gross yearly salary at between $40,000 and $55,000 (depending on whether he takes weekends off) &mdash; which means&nbsp;<a href="">he earns as much as an assistant store manager at Walmart or Target</a>.</p> <p><span>Alex's story, told in&nbsp;</span><a href="">a video by Bianca Consunji</a>&nbsp;(and shown below)<span>, slipped onto the web in October &mdash; and this tale of bootstrap economics inspired additional reports on the CBC (Canada's public broadcasting system) and&nbsp;</span><a href="">even on a Taiwanese news blog</a><span>. But here in the U.S. of A., though&nbsp;</span><em>New York Magazine</em><span>&nbsp;and&nbsp;</span><em>Gothamist</em><span>&nbsp;offered links to the video, most of the MSM met the story with a great wall of silence.</span></p> <p><object style="height: 390px; width: 640px;" width="640" height="360"><embed src=";feature=player_detailpage" type="application/x-shockwave-flash" allowfullscreen="true" allowscriptaccess="always" height="360" width="640" /></object></p> <p style="text-align: right;">Youtube credit:<span>&nbsp;</span><a href="" class="yt-user-name author">jlandryst7</a></p> <p style="text-align: left;">Yet this tale of one savvy sub-rosa merchant carries some serious global significance. Alex is part of what is commonly called the informal economy &mdash; a realm where businesspeople don't get licensed or registered and, because they are paid in cash, often don't pay taxes. More than half the working stiffs on the planet &mdash; 1.8 billion people &mdash; earn their money like Alex,&nbsp;<a href=",3746,en_2649_33935_42519546_1_1_1_1,00.html">selling legal products in a quasi-legal way</a>, and their efforts account for perhaps $10 trillion in economic activity. The U.S. alone generates 10% of that, or approximately $1 trillion in off-the-books economic activity.</p> <p>These kinds of business practices are all around us. Think of the construction laborers who lurk for work in the parking lots of Home Depots and Lowes and the contractors who hire them. Think of the merchants who man flea markets and swap meets in all 50 states &mdash; many of whom don't report their full income to the government. Ditto for some of the buyers and sellers on <a href="" class="hidden_link">eBay</a> and taskrabbit. And global multinationals are in the mix too, for instance when they exploit loopholes in the law to exempt their income from taxes.</p> <p>Governments routinely argue that merchants like Alex are criminals &mdash; no different from drug dealers and pimps. But that's simply untrue. When half the workers of the world aren't included in the legally defined economic system, the proper response is not to question their motives, but rather to question the system. We can start by looking at history. Here in the U.S., the underground has always been the incubator economy. It was roving salesmen like Alex &mdash; historians dubbed them Yankee peddlers &mdash; who kept the pioneers alive, going from homestead to homestead selling products from the packs on their backs. Even&nbsp;<a href="">Dick Sears</a>&nbsp;and&nbsp;<a href="">Frederick Stanley</a>, who founded two massive firms that are still with us today &mdash; <a href="" class="hidden_link">Sears</a> Roebuck and Stanley Tools &mdash; started in business as unlicensed peddlers.</p> <p>Alex, then, is part of an honorable tradition. In the underground, he's a free man. He's his own boss. He's not forced to punch a clock or wear a uniform or obey annoying corporate work rules. He can pick his own route, do his own market research (Peanut M&amp;Ms, he says, are the key to his success), and thrive during dark economic times. What would happen if we allowed small and mid-sized start-ups like his five or ten or even 15 years before expecting them to become formal entities? What would happen if we offered them tax forgiveness if they reinvested more of their profits in their businesses? What if, instead of treating people like Alex as criminals, we saluted their resilience and ingenuity and encouraged their entrepreneurial spirit?</p> <p>Wouldn't these actions help grow the economy and save the American Dream?</p> <p><em>This <a href="">post</a> originally appeared at <a href="">Harvard Business Review</a></em></p><p><a href="">Join the conversation about this story &#187;</a></p> 7 Ways To Cut Your Taxes Before You Ring In The New Year Fri, 09 Dec 2011 09:01:00 -0500 Mandi Woodruff <p><img style="float:right;" src="" border="0" alt="jenn" /></p><p>Tax season doesn't officially kick off till after you've gotten over your NYE hangover, but if you want a shot at <a href="" target="_blank">reducing your taxes</a> before April 15, you've got to start making moves <em>now</em>.&nbsp;</p> <p>Not everyone can afford to hire their own personal CPA, so to give you a head start, we tapped financial experts from around the country for their best advice on the simplest ways to maximize your tax return before Dec. 31.&nbsp;</p> <p>Here's what they had to say:&nbsp;</p> <p><strong>Go green before it's too late.</strong> The $500 tax break President Obama offered homeowners who make environmentally-friendly improvements to their home is set to expire Dec. 31. So if you've been thinking about with getting a new hydro-efficient washer/dryer or installing energy-saving light bulbs, looks like your Christmas list just got a bit longer.&nbsp;</p> <p><strong>Max out your your 401(k).</strong>&nbsp;Any contributions you put in a 401(k) plan are made pre-tax, so <a href="" target="_blank">they'll lower your taxable income</a>, says <span id="internal-source-marker_0.5264039942994714">Scott Holsopple of&nbsp;</span><a href="">Smart401k</a>. You should also think about throwing your year-end bonus (you lucky dog, you) into your 401(k) as well. It'll put you that much closer to <a href="" target="_blank">hitting your retirement goal</a>.&nbsp;</p> <div> <p><strong>Count your investment losses.&nbsp;</strong>If <a href="" target="_blank">your investments</a> took a beating this year, keep track of exactly how much you lost so you can write it off on your taxes&ndash;up to $3,000. "Selling investments that have done poorly can reduce your tax bill on those you've made money on if you've realized the gains,"&nbsp;says Adam Koos of&nbsp;<a href="Http://" target="_blank">Libertas Wealth</a>. Just keep in mind you'll have to wait 31 days if you want to re-purchase them, says financial advisor Marcia Riner.&nbsp;</p> <p><strong>Pay your mortgage by Dec. 31.&nbsp;</strong><a href="" target="_blank">Money Talk Matters</a>&nbsp;CEO Taffy Wagner recommends&nbsp;<a href="" target="_blank">paying off your mortgage</a>&nbsp;before the New Year. You can write it off your taxes.&nbsp;</p> <p><strong>While you're at it, pay off your property taxes.</strong>&nbsp;Along with your mortgage, you can write property and real estate taxes off on your 2011 taxes, says Chris Zeches of&nbsp;<a href="" target="_blank">Zeches Financial Services</a>.&nbsp;</p> </div> <p><strong>Donate to charity. </strong>This one's a no-brainer.<strong> </strong>Any charitable givings you donate before Dec. 31 can be written off your 2011 taxes. Zeches recommends <a href="" target="_blank">making donations by credit card</a> so you'll have documentation handy and can easily track your transaction. Thinking about donating airline miles? <a href="" target="_blank">Here's how.</a></p> <p><strong>Give your college student a leg up. </strong>In about 30 or so states, contributing up to $2,000 to a <a href="" target="_blank">529 college savings plan</a> could reduce your state taxes, Koos says.&nbsp;</p> <h2>Now that you're ready for tax season, <a href="">see 9 ways to get your finances back on track &gt;</a></h2><p><a href="">Join the conversation about this story &#187;</a></p> Meet The 'Vulture Funds' That Are Exploiting UK Law To Take Millions From War-Torn Countries Wed, 16 Nov 2011 10:00:55 -0500 Adam Taylor <p><img style="float:right;" src="" border="0" alt="Congo" /></p><p>The UK is being urged to shut down so-called <strong>'vulture funds'</strong> that exploit a loophole in British law to pull huge amounts of money out of developing and war-torn countries, according to a new joint report <a href="">between BBC Newsnight</a> and <a href="">the Guardian</a>.</p> <p>Here's how the funds work:</p> <ul> <li>The funds legally buy up debt from countries that are facing some sort of disaster, be it natural or a war, and the country is defaulting. These debts may be decades old in some cases and are, at the time of purchase, worthless.</li> <li>When the countries begin to stabilize, the funds use their deeds to cash in on the debts, tacking on huge amounts of interest.</li> <li>Most countries won't accept these court cases, and vulture funds have been illegal in the UK since 2010. However, the island of Jersey's status as a tax-haven with separate financial laws means that cases are being brought before the countries courts by these vulture funds. The exact number and size of the transactions is unknown, due to secrecy laws in Jersey.</li> </ul> <p>One case that has come to light through investigations regards the sale of Democratic Republic of Congo debt, originally a between loan from Yugoslavia to Zaire 30 years ago.</p> <p>The loan was then sold, allegedly illegally, to a fund run by American Peter Grossman, FG Hemisphere. Grossman claims that loan is now worth $100 million, though it was only bought for $3.3 million. The debt is said to increase by&nbsp;$27,500 every day it is not paid. The DRC is currently the second poorest country in the world.</p> <p><a href="">A number of</a> <a href="">charities are pushing</a> for a reform to the laws in Jersey, while one member of Jersey's Parliament called the practice "obscene". <a href="">The Committee for the Abolition of Third World Debt</a> arguing that at least a dozen African countries have been dragged into ove 50 court cases, with Argentina another notable target.</p> <p><a href=""><strong>The Guardian has a list of the key players in the vulture funds industry here &gt;</strong></a></p><p><a href="">Join the conversation about this story &#187;</a></p> Want A Tax Deduction? Go Get A Sex Change Thu, 10 Nov 2011 14:35:00 -0500 Madeleine Scinto <p><img style="float:right;" src="" border="0" alt="he she transvestite" /></p><p>Now the federal government will let you <a href="" target="_blank">deduct</a> the cost of transgender surgery from your <a href="" target="_blank">taxes</a> as a medical expense, <a href="" target="_blank">reports Jonathan Berr in Time's Moneyland</a>.</p> <p>The<a href=""> change comes</a> after the courts ruled in favor of Rhiannon O'Donnabhain, born a man and the father of three, who fought the <a href="" target="_blank">Internal Revenue Service</a> for ten years to deduct the $5,000 he incurred from his surgery.</p> <p>When the case was first filed the <a href="" target="_blank">IRS</a> considered the procedure cosmetic, but officials formally notified the Tax Court earlier this month that it would abide by its 2010 decision to consider the surgery a medical procedure.</p> <p>The O'Donnabhain case represents just one of 1,000 cases per year. The procedure costs more than tens of thousands dollars and isn't usually covered by insurance, according to the Gay and Lesbian Medical Association.</p> <p>Some in the tax court disagree with the decision, however, as judge Mark V. Holmes wrote that considering transgender surgery a medical expense puts "our court into culture wars in which tax lawyers have heretofore claimed non combatant status."</p> <p>Still, the disgruntled can take comfort in the fact O'Donnabhain couldn't deduct his boob job from his <a href="" target="_blank">taxes</a>, which the <a href="" target="_blank">tax code</a> still recognizes as a cosmetic procedure.</p> <h2>Don't qualify for the deduction? <a href="">See all the things you can buy with a buck &gt;</a></h2><p><a href="">Join the conversation about this story &#187;</a></p> Cain's Tax Plan Means Higher Rates For Over 80 Percent Of Americans Fri, 21 Oct 2011 09:33:00 -0400 Madeleine Scinto <p><img style="float:right;" src="" border="0" alt="herman cain" /></p><p>Republican presidential contender Herman Cain's tax plan would raise about the same amount of money as under our current system but significantly shift the burden from the wealthiest Americans to the poorest, according to a study released Tuesday by the <a href="">Tax Policy Center</a>.</p> <p>The research center found a whopping 84 percent of American households would pay more in taxes, and those groups making under $30,000 annually would see a 16-20 percent income drop after taxes. Those making over $200,00 a year, however, would enjoy a nice 5-20 percent income surge.</p> <p>Herman Cain's now <a href="">famous 9-9-9 plan</a> calls to make a federal 9 percent income tax, 9 percent sales tax, and 9 percent corporate tax across the board, while eliminating essentially everything else. He prides himself on the simplicity.</p> <p>One of the reasons for the huge burden shift is Cain's strategy eliminates capital gains, and slashes the wealthiest income tax bracket from 35 percent to 9 percent. Up to 95 percent of those households making over $1 million annually would save an average of $500,000 a year.&nbsp;</p> <p>At the same time, the system ends federal exemptions provided to the poorest Americans that are not made up for by the fact payroll taxes end, especially because most do not pay federal income taxes at all.</p> <p>Cain has suggested he would consider a rebate for the poorest Americans, but so far has not made adjustments to his strategy. If he did decide to exempt those in the lowest income bracket, the 9-9-9 plan would no longer raise as much revenue has the government currently collects.</p> <p>Supporters of the 9-9-9 plan believe giving a break to the wealthiest households will be a good thing for the economy, especially because they invest the most into the economy and the stock market. It could help flood the economy with investment.</p> <h2><a href="">Check out how Herman Cain's tax plan might also hurt consumers &gt;</a></h2><p><a href="">Join the conversation about this story &#187;</a></p> The Easiest Way To Double Your Savings Tue, 18 Oct 2011 17:10:20 -0400 Jill Krasny <p><img style="float:right;" src="" border="0" alt="pennies penny" /></p><p>A recent <a href="" target="_blank">FINRA survey</a> finds a whopping 43% of young adult 401(k) participants ages 20-29 aren't taking advantage of their employer's company match. Overall, 29.4% of 401(k) participants aren't using the match<strong>, which i</strong><strong>s a shame since that's a huge waste of free money.</strong></p> <p><strong>Your employer match is the easiest way <a href="" target="_blank">to build up your savings for retirement</a></strong>, enabling you to "match," or put away, up to 3% of your salary, dollar-for-dollar, says FINRA. The investing site gives the example of saving $84,000 for retirement as opposed to a mere $42,000 to demonstrate this a no-cost way to boost your nest egg.&nbsp;</p> <p>There are tax benefits as well. <a href="" target="_blank">Traditional 401(k)s</a> are funded with pre-tax dollars, meaning the money goes into the piggy bank before taxes, and since contributions made by an employer are tax-deferred, they will only be taxed when you break the bank to start funding your retirement.</p> <p>With these pre-tax contributions, you're essentially building up your income without increasing your <em>taxable income</em>, says FINRA. It's almost like being rewarded for saving. For example, "the $1,200 you contribute to a traditional 401(k) lowers your federal income tax bill for the year because you owe taxes on only $38,800 rather than $40,000." In fact, it will hardly hurt your paycheck at all.</p> <p>Of course, a company match isn't the only ticket to a surefire retirement, but it's certainly one way to help you get there. Consider this the next time you gloss over that HR paperwork and feel too "lazy" to take on free money. <br /><br /></p> <p>&nbsp;</p><p><a href="">Join the conversation about this story &#187;</a></p> 75 Items You May Be Able To Deduct From Your Taxes Thu, 14 Apr 2011 16:02:00 -0400 Mark J. Kohler <p><img style="float:right;" src="" border="0" alt="home office" /></p><p>Life is expensive, from business expenses to personal expenses to paying Uncle Sam on April 15. Wherever you go, it may seem like your wallet is open. One way to save money each year is to find legitimate tax write-offs that intersect both personal and business expenses.</p> <p>As a certified public accountant, everywhere I go, even when I'm at dinner with friends, I constantly am asked the question: "So, what can I write off my taxes?"</p> <p>Surprisingly, there isn't some master list included in the Internal Revenue Code or provided by th<a href="" class="kLink"><span style="color: green ! important; font-family: inherit ! important; font-weight: inherit ! important; font-size: inherit ! important; position: static;"><span class="kLink" style="color: green ! important; font-family: inherit ! important; font-weight: inherit ! important; font-size: inherit ! important; position: relative; border-bottom: 1px solid green; background-color: transparent;"></span></span></a><span class="kLink" style="text-decoration: underline ! important; position: static; font-family: inherit ! important; font-weight: inherit ! important; font-size: inherit ! important;"><span style="color: green ! important; font-family: inherit ! important; font-weight: inherit ! important; font-size: inherit ! important; position: static;"><span class="kLink" style="color: green ! important; font-family: inherit ! important; font-weight: inherit ! important; font-size: inherit ! important; position: relative; border-bottom: 1px solid green; background-color: transparent;"></span></span></span>e Internal Revenue Service. There is simply the tax principle set forth in Code Section 62 that states a valid write-off is any expense incurred in the production of income. Each deduction then has its own rules.</p> <p>A good CPA should be teaching their clients to think above the line -- that is, your Adjusted Gross Income line. Your AGI is the number in the bottom right-hand corner on the front page of your tax return. Any tax return. And what I mean by thinking above this line is constantly trying to think of any and all personal expenses that may have a business purpose. With a small-business venture in your life and on your tax return, you may be able to convert some personal expenses to business expenses, as long as you have the proper business purpose for that expense.</p> <p>Seasoned business owners become proficient over the years at keeping good records and realizing when expenses have a legitimate business purpose. For some, this thought process becomes so ingrained that it becomes almost impossible to buy something without first considering a tax purpose for that item or service.</p> <p>Consult this list of 75 possible tax deductions for business owners. It's just a start and not every one of these items is always a legitimate deduction. For example, you may be able to <a href="">deduct entertainment expenses</a>, but only when entertaining a client, customer or employee, while also meeting particular <a href="" target="_blank">IRS rules</a>. Some deductions may only cover a percentage of your expenses, like the aforementioned dinner with clients (usually 50 percent) or the home-office deduction, which is based on the square footage of your <a href=",,id=108138,00.html" target="_blank">office</a>. When documenting, go beyond collecting receipts. If you hire your teenager as an employee, document his or her duties and hours. On parking and toll receipts, write your destination and business reason for the road trip.</p> <p>You should track every business expense and comb over them with your CPA at the end of the year to ensure you only take <a href="" target="_blank">legitimate deductions</a>, both to minimize your risk of audit and to have the documentation in place in case the IRS ever comes knocking.</p> <p><strong>Possible Tax Deductions for Business Owners</strong>:<br /> <a href="" target="_blank">Accounting fees</a><br /> <a href="" target="_blank">Advertising</a><br /> <a href="" target="_blank">Amortization</a><br /> <a href="" target="_blank">Auto expenses</a><br /> <a href="" target="_blank">Bad debts that you cannot collect</a><br /> <a href="" target="_blank">Banking fees</a><br /> <a href="">Board meetings</a><br /> <a href="" target="_blank">Building repairs and maintenance</a><br /> <a href="" target="_blank">Business association membership dues</a><br /> <a href="" target="_blank">Business travel</a><br /> <a href="http://link%20http//" target="_blank">Cafeteria health-insurance plan</a> (requires plan)&nbsp;<br /> <a href="" target="_blank">Charitable deductions made for a business purpose</a><br /> Cleaning/janitorial services<br /> Collection Expenses<br /> Commissions to outside parties<br /> Computers and tech supplies<br /> Consulting fees<br /> Continuing education for yourself to maintain licensing and improve skills<a href="" target="_blank">l</a><br /> <a href="" target="_blank">Conventions and trade shows</a><br /> <a href="" target="_blank">Costs of goods sold</a><br /> <a href="" target="_blank">Credit card convenience fees</a><br /> <a href="" target="_blank">Depreciation</a><br /> <a href="" target="_blank">Dining during business travel</a><br /> <a href="" target="_blank">Discounts to customers</a><br /> <a href="" target="_blank">Education and training for employees</a> (new)<br /> <a href="" target="_blank">Employee wages</a><br /> <a href="" target="_blank">Entertainment for customers and clients</a><br /> <a href="" target="_blank">Equipment</a><br /> <a href="" target="_blank">Equipment repairs</a><br /> Exhibits for publicity<br /> <a href="" target="_blank">Family members' wages</a><br /> <a href="" target="_blank">Franchise fees</a> (new)&nbsp;<br /> Freight or shipping costs<br /> Furniture or fixtures<br /> <a href="" target="_blank">Gifts for customers</a> ($25 deduction limit for each)<br /> <a href="" target="_blank">Group insurance</a> (if qualifying)<br /> <a href="" target="_blank">Health insurance</a><br /> <a href="" target="_blank">Home office</a><br /> <a href="" target="_blank">Interest</a><br /> Internet hosting and services<br /> Investment advice and fees<br /> <a href="" target="_blank">Legal fees</a><br /> <a href="" target="_blank">License fees</a><br /> <a href="" target="_blank">Losses due to theft</a><br /> Management fees<br /> <a href="" target="_blank">Materials</a><br /> Maintenance<br /> <a href="" target="_blank">Medical expenses</a> (with plan)<br /> <a href="" target="_blank">Mortgage interest on business property</a><br /> <a href="" target="_blank">Moving</a><br /> Newspapers and magazines<br /> <a href="" target="_blank">Office supplies and expenses</a><br /> Outside services<br /> <a href="" target="_blank">Payroll taxes for employees, including Social Security, Medicare taxes and unemployment taxes</a><br /> <a href="" target="_blank">Parking and tolls</a><br /> <a href="" target="_blank">Pension plans</a><br /> Postage<br /> Publicity<br /> <a href="" target="_blank">Prizes for contests</a><br /> <a href="" target="_blank">Real estate-related expenses</a><br /> Rebates on sales<br /> <a href="" target="_blank">Rent</a><br /> <a href="" target="_blank">Research and development</a><br /> <a href="" target="_blank">Retirement plans</a><br /> Royalties<br /> Safe-deposit box<br /> Safe<br /> Software and online services<br /> Storage rental<br /> Subcontractors<br /> <a href="" target="_blank">Taxes</a><br /> Telephone<br /> <a href="" target="_blank">Utilities</a><br /> Website design<br /> <a href="" target="_blank">Workers' compensation insurance</a></p> <p><em>This <a href="">post</a> originally appeared at <a href=""></a>.</em></p><p><a href="">Join the conversation about this story &#187;</a></p> Look Out Meredith Whitney, The Muni Market Is Crawling Back Wed, 30 Mar 2011 21:30:00 -0400 John Mousseau <p><img style="float:right;" src="" border="0" alt="meredithwhitneytbi.jpg" /></p><p>The tax-exempt municipal bond market has started its recovery from the great downdraft that hit the market from November 2010 though early February 2011.</p> <p><a href="">We have written</a> about the Meredith Whitney-led wave of municipal bond fund redemptions, amidst her swirling predictions of massive municipal defaults &ndash; most recently, last weekend.</p> <p>The AAA Bloomberg 30-year scales fell from 5.12% on January 14<sup>th</sup> (peak for the quarter) to 4.76% at close of business March 28<sup>th</sup>. This represents roughly a third of the rise seen from the end of the first quarter, when that index stood at 4.11.</p> <p>What has caused the recovery?<strong></strong></p> <p><strong>Supply &ndash; Down</strong></p> <p>Supply was pushed up into 2010 as issuers flooded the market in the wake of the non-extension of the Build America Bonds (BABs) program in November and December. This took supply away from the first quarter of 2011, which is looking to be the lowest-issuance first quarter in over 10 years. In many states it is tough to find high-quality bonds at market-appropriate levels.</p> <p>&nbsp;<strong>Demand &ndash; Up</strong></p> <p>Market demand was from two sources. Traditionally taxable buyers (pension funds, charitable foundations, IRAs, Keogh plans, foreign buyers) started to buy the TAX-EXEMPT version of the very same credits they had been buying in BABs form.&nbsp;</p> <p>January saw the phenomenon of yields on BABs FALLING while yields in the tax-exempt form (on the very same credits) were RISING, as tax-exempt funds were being liquidated. Clearly, this indicates two different views on credit from separate sets of buyers. In addition, there is evidence that INDIVIDUAL investors were buying tax-free bonds at the much cheaper prices as fund investors were fleeing.</p> <p><strong>Credit &ndash; Better</strong></p> <p>Municipalities in total printed their fourth quarter in a row of rising tax receipts, at the end of the fourth quarter of 2010. Both California and New York have had tax revenues higher than forecast. Muni defaults &ndash; which have been mostly segregated in the non-rated category (think land deals, nursing home bonds, etc.) &ndash; were running 50% LESS than 2010 through the first quarter of 2011.&nbsp;</p> <p>Also, the spreads on municipal credit default swaps &ndash; private money guaranteeing municipal credit &ndash; fell during the first quarter. For example, the two whipping boys of the press, Illinois and California, saw their credit default swaps (10-year) fall from 349 to a current 240 in the case of Illinois and 298 to 208 for California. Other states show a similar pattern as this measure of risk drops.&nbsp;</p> <p>In addition, though LONG-TERM tax-free yields rose severely from November to mid-January, short-term yields rose only a fraction of that. In our view, if there had been true credit problems, those concerns would have reflected across the ENTIRE yield curve spectrum. The damage in the long end (and resulting opportunity) was a result of the TYPES of bonds that tax-free bond funds were selling: intermediate and long-term bonds.</p> <p><strong>Where from Here?</strong></p> <p>We expect the current low supply should pick up somewhat as the year progresses. Clearly, issuers who have flexibility are holding off until a lower rate environment returns. U.S. Treasury rates may rise as the economy improves, but it is important to remember that unemployment is still at almost 9% and that, at 4.55%, the long US Treasury yield is still 87 basis points higher than it was at the end of the third quarter of 2010. Thus some additional inflation has ALREADY been priced into the bond market.&nbsp;</p> <p>We think the likely scenario is that we are in a period of correction from the upside-down world we have been in since the end of 2007, when high-grade tax-exempt bonds started to yield more than comparable Treasuries &ndash; all of this occurring during the financial calamities of 2008, which reached their peak with period following the demise of Lehman Brothers. At some point &ndash; and it may be well more than a year away &ndash; high-grade tax-free bonds&rsquo; yields &nbsp;should come under Treasury yields.</p> <p>Thus the defensiveness of munis is built into the current pricing structure. Tax-free bonds are still a bargain, as municipalities are just starting to right themselves.</p><p><a href="">Join the conversation about this story &#187;</a></p>