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Thomas Kenny

The Continued Threat to Munis' Tax-Exempt Status

By November 5, 2012

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Two weeks ago, we highlighted a research report from Citicorp that detailed the threat to municipal bonds' tax-free status. With government debt so high, policymakers are looking at new ways to close the gap between its revenues and outlays. One solution is to begin taxing the interest on municipal bonds.

Two recent articles examine this issue. First, Investorplace took a more in-depth look at the Citi report and assessed the likeihood of whether munis could in fact lose their tax exempt status. See the article here. CBS Marketwatch also looked at munis' tax status, but the website took a broader look at the outlook for the asset class and what the impact of the election would be. Their take? A Romney victory would likely lead to tax cuts, which would dampen municipal bonds' attractiveness. Alternatively, an Obama victory could result in higher tax rates, which in turn would boost the demand for munis. The CBS Marketwatch analysis is available here. Both articles are worth a look for those invested in municipal bonds.

Learn more:

What are the risks and benefits of municipal bonds?

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