I should have explained the MUNI BOND yield to tax relationship as they are directly linked.
Depending on what tax bracket someone is in - you can calculate what TAX FREE return you need to EQUAL a taxable return.
So as taxes go UP on dividends or LTCG's -- then the return required to equal that NET goes down.
So in Washington state -- we have no income tax -- and if I can buy a TAX FREE BOND paying 5% --- I'd have to get a TAXABLE return @ 35% income tax rate of 7.69%
Right now -- with dividends taxed at only 15% that taxable dividend only needs to be 5.56%
Since it's "riskier" and harder to make that 7.69% income in the stock market -- why would a person bother -- when they could just buy 5% tax free munis -- be guaranteed to get 100% of their capital back at "X" date...
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