Above Article posted:
Individual investors who buy municipal bonds frequently have high incomes, and one of the debt's chief selling points is that they can exempt the interest from their federal income taxes. The long-standing practice allows states, local governments and authorities to offer lower interest rates on tax-exempt debt than they would on taxable bonds.
Investors buying a 10-year muni bond rated AA would need more than 80 basis points more in yield to get the same taxable equivalent as a 10-year AA-rated corporate bond using a top tax rate of 28 percent, said Richard Ciccarone, a managing director and chief research officer at McDonnell Investment Management.
"This could raise borrowing costs (for municipal issuers) because you have to make up for the tax equivalent cost," Ciccarone said.
By the middle of the day, the municipal bond market largely shrugged off the proposal, with many noting the budget must wend its way through a politically fractured Congress.
"I think everybody assumes it's dead on arrival," said Parker Colvin, managing director at Stone & Youngberg in San Francisco.
That is the White House's plan btw...
I liked the simplicity as stated by other commentators:
Greg (173 Thumbs up, 7 down) posted:
The reason municipalities can issue tax free bonds is so they can borrow money at lower rates...not so rich people can avoid taxes. Remove the tax incentive and rich folks invest elsewhere....bond rates go up...that new school costs more to finance... property taxes go up and housing becomes less affordable. How does that help anyone - except the president who can paint himself as sticking it to the man. (even though he IS the man)
Bill K: (125 thumbs up, 6 down) posted:
Perception: by removing tax breaks on muni bonds, rich people will lose a loophole and pay their "fair share". Reality: Funding for muni markets will dry up, and municipalities will have to go and beg the Federal government if they want anything done. It's ALL about the centralization of Power. If you don't like big corporations because they are more corrupt than smaller ones, don't go thinking it's any different with government, it's not.
One wonders if the thumbs downers were some people from this board...
Robert (Taliesihne?) - Boston, Massachusetts posted:
Don't worry about it. This thing is DOA. There is no way that any big city democrat mayor is going to go along with this. They are probably offering to teach a course in basic government financing to the White House as we speak.
Vote for Obama 2012!
bizzarro world!
