Let’s say your T-bills return 3.7 percent. If you stash $10,000, you’ll make $370 before taxes and inflation in the first year. Taxes are assessed on the nominal gain (before adjusting for inflation) instead of the real gain, so if you’re in the 15 percent tax bracket, you’ll then pay $56 to the government—and lose about $310 of value to inflation. In other words, you’ll eke out about a $5 real gain on a $10,000 investment (an 0.05 percent return). If you’re in higher brackets, meanwhile, you’ll actually lose about 0.5 percent of value every year.
He concludes:
So, what our current tax code is saying is, “Don’t be a sucker: Spend every dime.” And as the personal-savings figures show, that’s just what we’re doing.
Posted: April 16th, 2007 under Americas, Equities, Fixed Income, General.
Comments: 1
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