Alarm bells are ringing across muniland because the discussion about capping the municipal bond tax exemption at 28 percent has surfaced again. Bloomberg reports:
“If and when there is a serious attempt to make substantial reforms to the tax code, I think that there’s a risk that the [municipal bond] tax exemption could be curtailed or eliminated,” said Decker, the co-head of SIFMA’s municipal securities activities.
The possibility of municipal-bond income losing its exemption from tax is as great as any time since 1986, when major tax reform was ushered into law during the Reagan administration, said George Friedlander, Citigroup Inc. senior municipal strategist.
Municipal bonds losing their tax favored treatment “is a very real threat,” said Mike Nicholas, chief executive officer of the Bond Dealers of America.
These industry leaders are echoing concerns that have been bouncing around muniland for a year and half. But the only specific proposal made by a government official came in President Obama’s 2013 budget proposal. Reuters reported in February, 2012: