Tax Status of Municipal Bonds
(Thanks to Patti Clapper for bringing this issue to our Council.) Kiplingers: Municipalities who fund 75% of their infrastructure through bonds, and the Investors who purchase “Muni” bonds would be adversely impacted by federal proposal to extend the 2017 Tax Cuts and Jobs Act (“Trump Tax Cuts”) by removing the tax break for interest. The administration estimates that this could generate $250 billion over 10 years. The muni bond market is a $4 trillion market in which private citizens directly or through retirement funds (72%) and other investors make a conservative investment which allows much of our infrastructure to be built. On its website, industry coalition group Municipal Bonds for America (MBFA) states, “Today, roughly 75% of the infrastructure in the country is financed by municipal bonds, accounting for 4 million miles of roads, 16,000 airports, and 900,00 miles of water pipelines.” If eliminated, bond advocates argue the consequences could be far-reaching, including:
Higher Borrowing Costs
Removing the tax exemption would likely increase borrowing costs for state and local governments by as much as 35% to 40%, according to some estimates.
Market Disruption
A potential sell-off could further increase yields and borrowing costs and strain state and local government finances.
Infrastructure Impact
Increased borrowing costs could hurt funding for critical infrastructure projects.