Rich people

The end of 2012 is coming to a close and the possibility of an "across the board" reset of everyone's taxes during the Clinton administration is drawing nigh.  President Obama stated today during a speech that he'd like to work with both parties to ensure that the government finds the revenue that it needs from a certain class of people (rich people making $250K+) and keeping the Bush tax cuts in place for a majority of other people (middle class and poor).  

Financial advisors and investment managers are prepping their clients in the top 10% for potential tax increases no matter what happens.  If Obama gets his way - rich people will have higher taxes.  If the Republicans refuse to yield, rich people will have higher taxes and everyone else.  So what is the plan?!  Where will rich people invest now in preparation for next year's increased taxes?

The answer lies within muni bonds.  That's right.  Tax-free debt that allows people of higher income brackets to loan money to state and local governments, who in return pay interest on the loan, that is generally tax free.  For instance, 20yr bonds now are seeing yields just a little shy of 3.6% - so if you're investing $100K for 20yrs you'd make about $3600 each year for the next 20yrs tax free.  Imagine if you're in that top 1% and can afford to invest $10 million?!

Given the current tax code (and assuming that "tax reform" won't close this benefit), this is how rich people will find a place of refuge from increased taxes.  This might be bad for the federal government - but it will be manner from heaven for depressed state budgets that are desperately starving for additional revenue.  I suppose it's a win-win situation from the rich person's perspective...run away from increased taxes and simultaneously provide additional revenue for my state and local government.

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