so trying to stay on topic specific to Ibonds and in reference to that....exodusNH wrote: ↑Wed May 11, 2022 3:26 pmRegarding tax-deferral, that just allows wealthy people more opportunity to avoid/delay paying taxes. Forcing them to hold TIPS in taxable forces them to recognize the adjustments in each tax year, reducing the burden on the rest of the tax payers.Mel Lindauer wrote: ↑Wed May 11, 2022 3:06 pmexodusNH wrote: ↑Wed May 11, 2022 2:38 pmI'm on mobile so it's difficult to quote nicely.Mel Lindauer wrote: ↑Wed May 11, 2022 2:27 pmexodusNH wrote: ↑Wed May 11, 2022 2:09 pm
I feel like a celebrity getting quoted by you! With that out of the way...
I think that's a compliment. Thank you for that. (Now here comes the bad part where you shoot me down!)
Unless they're able to hold TIPS in a tax-advantaged account, at least they're paying regular income tax on the inflation adjustments.
I think most tax-savvy investors know about that and put TIPS in their tax-deferred accounts. However, that has nothing to do with why folks are allowed to buy more TIPS than I Bonds.
Since I Bonds aren't subject to market forces, the normal balance between nominal Treasuries and TIPS don't apply. As has been discussed, over longer periods, the TIPS and nominals return about the same real.
Don't know what that has to do with purchase limits. IMO, absolutely nothing.
Since TIPS can't be redeemed for face value until maturity, that adds an element of risk that you don't have with I Bonds.
Again, that has nothing to do with purchase limits.
TIPS also force you to compete with foreign dollars, potentially reducing the cost to the US taxpayers.
Not sure what you mean by this.
Tax-deferred space is at a premium. Even though TIPS are unlimited, the amount of space you have to hold them efficiently is. Plowing into them now would make sense, but as inflation is tamed, their value will go down. Switching your entire tax-advantaged portfolio to them would seem like an overreaction.
All the more reason to let investors buy more tax-deferred I Bonds instead of TIPS for their inflation protection. Problem solved.
Regarding market forces, I Bonds remove a lot of risk. Forcing those with means into TIPS means they're competing with everyone else (keeping prices lower) and taking risks regarding rates and liquidity. (We've seen TIPS temporarily collapse.) The "American way" is to allow those who want to take risk, to do so essentially without restraint.
Many investors prefer to take their risk on the equity side and would like more safety and predictability, such as that offered by I Bonds, in their bond and cash-like holdings.
TIPS lock your money up until maturity. I Bonds let you redeem at will, after the 12 months without subjecting yourself to market forces. The unpredictability of redemptions could cause the US Government excess funding expenses if substantial amounts of money were moved into the non-marketable bonds.
True, but increasing the I Bond purchase limit could also help offset any redemptions. And many I Bond holders I talk to are in it for the long haul (up to 30 years).
Regarding risk, I agree -- take it in your equities. However, again, allowing the wealthy to have safe investments kind of goes against the spirit of things. Inflation doesn't really hurt those people. Giving them a safety bonus certainly doesn't seem fair.
Maybe increasing the limits would reduce the effect of the unpredictable redemptions. But I think, on balance, you'd get a lot of opportunistic selling. Buffet could drop $1B in for 12 months and dump them once inflation was tamed.
If you upped the limit with the caveats that anything over $X requires yearly recognition of income and upped the redemption timeframe to 5 years, you'd avoid the opportunistic people without harming the long-term holders.
For the record, I'm not one of the "eat the rich" people. I'm in the 24% bracket. I live in NH partially to avoid income tax. I generally lean fiscally conservative and laissez faire. But I do think the tax code is unnecessarily complicated and unfairly advantages the wealthy at the expense of people like me.
you are in the 24% bracket , which means if married you make $170K-$300K in a state that has a household income of 76K.. it sounds like you are one of those wealthy people. (BTW, I live in NH so we don't need to go down the New England cost of living debate).
I don't see how I bonds are tilted to the 5% when I continually hear people on this forum with wealth say "$10K won't move the needle for me".
You can purchase as low as a $25 for an I bond which sounds like it's there for the little guy. Also I have not done the math but I would imagine tax shielding and growth potential impact of 10K of a smaller portfolio (say $100K) would be greater on a percentage basis - compared to someone with $3 - 5Million plus...
I am the first to agree on implications of tax code,,,, I am having trouble understanding how this one conflates to that