As predicted here, people are beginning to buy up dividend paying stocks in order to maximize their after-tax income. The dividend tax, as of yesterday's signing by President Bush, is now only 15% (half of its 2002 level), and will be completely repealed in 2004.This new trend towards tax-free income is going to absolutely CRUSH the "tax free" muni bond market, especially since so many cities are defaulting (and a couple of states may even default).
Of course, flights to the safety of U.S. Treasuries won't really see this as a big negative, but those municipalities who need to issue more bonds are going to feel the pain!
Why risk all of your investment in a tax free muni bond that might default, when all that you can get is a 5% return...especially since you can now buy dividend paying stocks that give you tax free returns of more than 10%?!
So is it any wonder that Socialists in urban areas are gloomy, while the rest of America cheers on the new buying binge on the Stock Markets?!