“Municipal bonds enable state and local governments to build essential infrastructure projects, such as schools, hospitals and roads,” The National Association of Counties helpfully reminds readers in a recent pitch to preserve the tax-exempt status of municipal bonds.
Congress and the administration are currently debating federal tax reform, including a cap or a repeal of the tax-exempt status of municipal bond interest. The group’s analysis of the municipal bond market and of the estimated impact of a 28% cap and a repeal of their tax-exempt status on the 3,069 county governments reveals that:
The tax exemption of municipal bond interest from federal income tax represents one of the best examples of the federal-state-local partnership, they argue.
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“Because of the federal tax exemption, investors are willing to buy municipal bonds that pay less interest relative to other securities.”
With a cap or a complete elimination of the exemption, the group says, investors will want to receive greater interest payments, which would be borne by the counties, states, localities and state/local authorities. Finally, all Americans, as taxpayers securing the payment of municipal bonds, will incur the cost.
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Check out 5 Reasons Muni Bonds Will Outperform in 2013 on AdvisorOne.
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