Proposal to Limit Value of Municipal Bond Exemptions at 28% Instead Limits Future Economic Growth Essential to Addressing Nation's Fiscal Crisis

Jan 28, 2013, 10:40 ET from Municipal Bonds for America

WASHINGTON, Jan. 28, 2013 /PRNewswire-USNewswire/ -- An analysis released today by the Municipal Bonds for America (MBFA) coalition concludes that a proposal favored by the Obama Administration and some in Congress to establish a 28% limit on the value of deductions and exemptions would do little to  help solve the nation's fiscal crises while raising borrowing costs for state and local governments, limiting infrastructure development and constraining the type of economic or job growth that is essential to addressing the federal government's fiscal crisis. 

The MBFA analysis revealed that the proposal to limit the value of municipal bond exemption and falls well short of its goal to "broaden the base" to raise revenues so that the Federal Government can address its deficit. 

Instead, the MBFA analysis warns that the reality of the proposal is to fundamentally alter 100 years of precedent in the relationship between the federal government and state and local governments by essentially taxing state and local government bonds, making their access to capital markets more expensive.

"The proposed 28 percent limit on the value of deductions and exemptions is in reality a federally imposed local tax," said Municipal Bonds for America Chairman Marc Jahr.  "Smaller issuers and communities that rely on tax-exempt bonds to finance schools and maintain roads and public buildings will be disproportionately affected as their costs soar and their ability to access the capital markets is obstructed."

Despite being designed to target only wealthier investors, MBFA's analysis shows all tax exempt investors would be affected, and how state and local borrowing costs would rise with an increase in yields sought by investors of as much as 40 basis points to compensate for the tax.  Moreover, a January 18, 2013 analysis from Citi Municipal Strategists' estimated that the decrease in the value of existing municipal bonds would be at least $185 billion when additionally factoring in the market's reaction to future tax uncertainty resulting from the proposal.

MBFA's report noted that 55.5% of all tax-exempt income was reported by taxpayers with adjusted gross incomes under $250,000.  America's seniors are hit especially hard by the 28 percent limit proposal as almost 60% of the tax-exempt income is reported by earners over the of 65.

The findings in MBFA's report were the result of research developed by members of the coalition's Technical Advisory Committee, which is led by Citigroup chief municipal strategist George Friedlander and Janney Montgomery Scott Director and Municipal Credit Analyst Tom Kozlik.

A full copy of the Municipal Bonds for America analysis is available on the coalition's website at

About Municipal Bonds for America

Municipal Bonds for America is a group of municipal bond issuers, representing every segment of the market and located coast to coast, who are working with other municipal bond professionals from across America to explain the many benefits of the traditional municipal bond market, including the tax exemption which enables state and local governments to finance vital infrastructure at the lowest cost to their taxpayers while maintaining the integrity and value of the municipal bond market.   For more information, please visit

SOURCE Municipal Bonds for America