Posted on by Californiacontrarian

Good American

Because I feel that it is the duty of all Good Americans to pay the least amount in taxes as is legally possible, for over 30 years I have been an investor in Municipal bonds because of their big tax advantages. For those of you who are not aware Municipal bonds are tax free in the state in which the bond holder resides as well as being free of any Federal Income Tax burden. (A piece of trivia for those of you who might be interested – Municipal bonds from U.S. territories [e.g. Guam, U.S. Virgin Islands, etc.] are free from both federal as well as all state taxes.)
Since I consider myself a Good American who happens to live in California, over the years I acquired a trove of California Municipal Bonds, as they were one of the few vehicles that escaped the onerous California taxman. However, about 10 years ago I became concerned that my investments were too heavily weighted with California Municipal Bonds, and that it would be a good idea to diversify my stable of Municipal bonds. I told my broker that he should look at the Municipal bonds from other states as they would still be free from Federal taxation, although not free of California state taxes . . . with one caveat, “Do not buy Municipal bonds from those those states that have Democratic governors.” While it is true that individual states have never gone belly-up . . . i.e. bankrupt, why would any Good American purposely bet his money on losing horses? My concern was that in states with Democratic governors and high state taxes, many high income earners, and thus high state tax payers, would choose to leave that state, and thus hurt that particular state’s financial stability. Was this a wise decision?
In 2012, under B.O. the IRS decided to stop publishing data on interstate migration. (Now why do you think that was?) However because public pressure, probably from concerned Good Americans, they recanted, and the following data is IRS interstate migration data. Let’s look at some examples:

New York State has the highest state and local burden in the U.S. Since Democrat Andrew Cuomo has been governor 577,286 Good Americans have left New York State for greener pastures – taking $27 billion in potentially taxable income with them.
Oops, Andrew!
In Connecticut since 2011, under Democrat Daniel Malloy, 73,676 Good Americans have left – taking $8.5 billion in potentially taxable income with them.
Oops, Daniel!
Since 2011, under Democratic governor, Jerry Brown, 243,099 Good Americans have fled California – taking $7,794 billion in potentially taxable income with them.
Oops, Jerry!
Look for continued out-migration of Good Americans in the states with high taxes and Democratic governors. In fact these numbers will probably increase in the years to come with the recently passed law that negates the deductibility of these high state taxes on federal returns.
Did this Good American make a wise decision when he decided not to buy Municipal bonds from states with Democratic governors? Yes, I believe that he did.

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