Oct 10 The national trade group representing
U.S. bond dealers announced on Wednesday the formation of a
coalition to defend the tax-exempt status of municipal bonds, a
key trait of the $3.7 trillion market.
Tax exemption for munis is under threat as Congress
considers narrowing the U.S. budget deficit with spending cuts
and new sources of revenue for the federal government.
Ending or limiting tax exemptions for munis could cause
investors to pull out of the market and raise borrowing costs
for states, cities and other issuers, according to Municipal
Bonds for America, the new group.
"Policy makers should not try to fix what isn't broken,"
said the group's co-chair Ken Williams, municipal bonds manager
at Stifel Nicolaus, in a statement. "A tax on tax-exempt bonds
ultimately shifts more burdens to local governments."
Organized by the Bond Dealers of America, the coalition
comprises about 25 muni bond dealers from middle-market
securities firms. It also includes a local Tennessee official,
the executive director of the National Association of Local
Housing Finance Agencies and others.
The group will conduct research and lobby Congress. It
expects to add issuers, academics, local elected officials,
analysts and investors to its ranks in the coming weeks.
The Revenue Act of 1913 first codified that muni bond
earnings were exempt from federal income taxes. Tax reform in
1986 restricted the exemption to public purpose bonds and made
many bonds issued for private activities subject to the
alternative minimum tax.
U.S. President Barack Obama included tax-exempt municipal
bond interest in legislation in September 2011 and again in his
proposed 2013 budget in February.
Obama proposed limiting the value of the tax exemption to 28
percent from the current 35 percent for high-income taxpayers.
Advisers to Republican Presidential candidate Mitt Romney
have indicated that tax-free munis are on the table in terms of
tax reform, according to a previous report by the Bond Dealers
Observers don't expect significant movement on the issue
until after the end of the lame-duck session following the