Muni Bonds’ Tax-Exempt Status Threatened in Fiscal Cliff Talks

'Near term efforts to address the fiscal cliff could include a cap on the municipal bond tax-exemption,' says Nicholas of Bond Dealers of America

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Members of the newly formed Municipal Bonds for America descended on Capitol Hill on Tuesday to protect the tax-exempt status of municipal bonds, as lawmakers have signaled muni bonds’ tax-exempt status may be threatened in fiscal cliff and tax reform negotiations.  

“This is a very real possibility that near-term efforts to address the fiscal cliff could include a cap on the municipal bond tax-exemption, leading to higher borrowing costs for state and local governments nationwide,” Mike Nicholas, CEO of Bond Dealers of America and an organizer of the new Municipal Bonds for America coalition, told AdvisorOne in an email message. “This is not just a tax on wealthy investors, it’s a tax on everyone.”

A coalition of municipal market professionals representing dealers, issuers and local leaders launched Municipal Bonds for America on Oct. 10. The group is a national coalition committed to protect the tax-exempt status of municipal bonds.

“Tax exempt municipal bonds are well understood by investors and issuers and have been a successful financing tool throughout the century,” said Municipal Bonds for America Co-chairman Ken Williams, when the group launched. “Policy makers should not try to fix what isn’t broken; a tax on tax-exempt bonds ultimately shifts more burdens to local governments.”

Nicholas, who previously spent 10 years as managing director at the Securities Industry and Financial Markets Association and as a vice president at The Bond Market Association, added that “Taxpayers in every state and at all income levels benefit from public infrastructure–schools, roads, bridges, sewers–financed by tax-exempt bonds.”

The group announced that MuniBondsforAmerica.org will serve as an online resource for Municipal Bonds for America members, members of Congress, congressional staff, and the media to access data on municipal bonds, issue papers, case studies on the effectiveness of municipal finance, and other information.

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