— Cate Long (@cate_long) November 8, 2012
At the Bloomberg Link conference on Thursday, Matt Posner, of Municipal Market Advisors, said that discussion of the municipal bond tax exemption would likely be rolled over to the next session of congress, which begins January 3. Yes, the long awaited muniland battle is upon us. Strap on your armor.
Ever since President Obama created the National Commission on Fiscal Responsibility and Reform (Simpson Bowles) in 2010, the subject of reducing or eliminating the federal tax exemption for muni bonds has been kicked around. The administration proposed, in 2011, to “reduce the value of itemized deductions and other tax preferences to 28% for families with incomes over $250,000.” Muniland’s tax exemption has a big fat target on its back.
Many in Congress believe that the muni tax exemption benefits the wealthiest households in the U.S. In fact, IRS (2009) data shows that 151,098 households with annual incomes over $1 million get almost $16 billion of non-taxed interest from municipal bonds:
Another approach would be to make munis taxable and attract other classes of investors, especially 401(k) and IRA account holders, as I wrote in September of 2011: