Bond Funds Municipal
California tax free municipal bonds have always been attractive to investors in California due to its high state taxes. When an investor combines the state's individual tax rate of 9.3% with the maximum federal income tax rate of 35%, the combined savings from federal and state taxes of 44.3% is very enticing.
California Muni Bonds Credit Risks
California is a state that periodically gets into fiscal trouble. The state thought it had closed up a $24 billion budget shortfall at the beginning of fiscal year 2009. In November 2009, the governor's office announced another estimated $20 billion budget shortfall. In the meantime, tax revenues are falling which adds even more pressure to the state government.
Can a major state or municipality go bankrupt? Yes. In 1975 the city of New York defaulted on their muni bonds. The California city of Vallejo declared bankruptcy in 2008. Many investors are scared that the New York City muni bond default will happen again.
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