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We discussed the differential tax rates among areas and taxpayers with respect to the implicit and explicit tax rates. You are requested to select a
We discussed the differential tax rates among areas and taxpayers with respect to the implicit and explicit tax rates. You are requested to select a taxable bond fund and compare it to two or three municipal bond funds that are state specific. Hence, there are three or four funds in total that are analyzed by you one corporate bond fund, two municipal bond funds The objective here is to see if a person can arbitrage a profit by selectively investing in another states municipal fund. One muni fund may be your state of residence Pennsylvania and the other might be a state with a zeroincome tax rate. You might include a fourth state with a state income tax rate that is significantly higher than your state of residences state income tax rate.
For a given point in time, you are expected to determine if and if so to what extent, a wealth advantage exists for our base taxpayer. This is not an easy task since you need to consider several variables. For example, there are different
Federal income tax brackets you might select the highest rate and your own marginal tax rate
State income tax brackets dependent on the states chosen by you note you can only choose one state with no state income tax ie a zerotax rate
Risk of bond fund should be nearly equal or adjusted to approximate equality
Standard deduction although itemization would be a reasonable assumption for a small population of our country, you can ignore this issue unless you want to analyze it and simply assume you elect the standard deduction
Please consider and elaborate on the above variables. Please be sure to document your sources used for this assignment, it is a requirement. Thank you!
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