While Laurence J. Peter is best known for “The Peter Principle” (“In a hierarchy every employee tends to rise to his level of incompetence.”), one of his less popular sayings may resonate with Americans who are busy organizing their W-2s, 1099s and/or statements from the charitable organizations to which they made contributions in 2016: “America is a land of taxation that was founded to avoid taxation.”
We all know the quote about not being able to avoid taxes or death, but did you know that taxpayers in the highest federal income tax bracket – currently, the top marginal rate is 43.4% – won’t pocket any money until at least June 8, 2017.
June 8! It’s what we call Tax Amnesty Day.1
Of course, it’s only Tax Amnesty Day for high-income Americans who happen to live in Alaska, Florida, Nebraska, South Dakota, Texas, Washington or Wyoming, none of which levies a state income tax.
With one exception, high-income residents of the rest of the States won’t get to observe Tax Amnesty Day until the second half of June and the first half of July. Californians in the top tax bracket will be paying Uncle Sam until July 29.
Must taxpayers abide by the wisdom of famed sociologist Ervin Goffman (“Man is not like other animals in the ways that are really significant: Animals have instincts, we have taxes.”)?
The ability to avoid taxes entirely is beyond the reach of most U.S. taxpayers, but many can ensure that their Tax Amnesty Day comes sooner if their 2017 earnings include income derived from investments in municipal bond funds. That’s because the net investment income generated by municipal bonds and municipal bond funds is exempt from federal income taxes and, where applicable, from state and local income taxes, too.
What you do with this information, of course, is your business. We’ll stick to our business, which is managing a variety of muni funds designed to generate competitive levels of tax-free income and attractive yield-driven returns.
Follow @RochesterFunds for more news and commentary.
1 Taxpayers in lower federal income tax brackets can celebrate Tax Amnesty Day earlier in the calendar year.↩
Fixed income investing entails credit and interest rate risks. Interest rate risk is the risk that rising interest rates, or an expectation of rising interest rates in the near future, will cause the values of a Fund’s investments to decline. Risks associated with rising interest rates are heightened given that rates in the U.S. are at, or near, historic lows. When interest rates rise, bond prices fall and a fund’s share price can fall. Municipal bonds are subject to default on income and principal payments. Further, a portion of some funds’ distributions may be taxable and may increase alternative minimum tax (AMT) for investors subject to that tax; distributions from net realized capital gains are taxable as capital gains.
The funds invest in below-investment-grade debt securities, which may entail greater credit risks, as described in each fund’s prospectus. These securities (sometimes called “junk bonds”) may be subject to greater price fluctuations and risks of loss of income and principal than investment-grade municipal securities. The funds may invest substantially in municipal securities within a single state or related to similar type projects, which can increase volatility and exposure to regional issues. The funds may also invest substantially in Puerto Rico and other U.S. territories, commonwealths and possessions, and could be exposed to their local political and economic conditions. Deterioration of the Puerto Rican economy could have an adverse impact on Puerto Rican bonds and the performance of the Rochester municipal funds that hold them.
Mutual funds are subject to market risk and volatility. Shares may gain or lose value.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.