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The Unknown Professor

This is one reason why most zero's are held in tax-qualified plas (i.e. pension funds, IRAs, etc...).

Since earnigs of these plans are shielded from federal taxation until removes, then"hantom tax" is largely irrelevent.

But I second your thoughts on the IRS. When I talk about taxes, I discuss some of the many "weirdities" of our tax system. I tell the class, "I'd like to see a picture of the guy who devised our tax system. I bet he looks funny."

Dave Tufte

Sorry this took so long to reply to.

As an economist (primarily), I'd turn this point around and say that it is far from irrelevant - we now have a basis for saying that tax-qualified plans have flourished because of tax "weirdities". Is this a business the IRS should be in?

P.S. I like your joke.

P.P.S. My equivalent is that when I talk about people who are innovators, I note that I don't think they take enough showers.

The Unknown Professor

I'd buy that idea that tax-qualified plans flourishe in part because of "tax weirdities".

A lot of financial innovations come about because of what I call "regulatory arbitrage" (exploiting the seams in regulations). For example, there's a recent posting in Bill Burnham's blog on 3/13 on "Dividend Recaps" at

Much (maybe most)of the phenomenon is due to hedge fund managers' inentives (i.e. their compensation structure), but the tax angle probably also plays a big part.

As for the joke, any time I can get a laugh in class, I go for it. Unfortunately, I have a shortage of good material. At some point (post tenure, of course), I'll probably write an article compiling the jokes finance profs use to illustrate common financial concepts (kind of a "best finance humor practices").

If nothing else, I'd get better material.

This will be a true test to see just how smart the voters of Illinois are. If you let your elected officials raise taxes to make up for their wasteful and excessive spending habits, then you deserve everything that you have coming to you. It amazes me that people still believe that the government knows how to spend their money better than they do. Do you ever see a politician losing their home or not being able to go on vacation? Yeah, me neither-- and that bothers me that our elected officials are so...

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