Posted on 09/13/2011 7:22:44 AM PDT by maggief
Municipal bonds have always been synonymous with tax-free income. That would end if President Obama gets his way.
Under the jobs bill the President sent to Congress Monday, high-income individuals and families would no longer receive interest from state and municipal bonds free completely from federal income taxes, beginning in 2013. The legislation would also reduce the value of tax deductions for taxpayers in the highest bracket.
Specifically, individuals earning over $200,000 and families earning over $250,000 would effectively have the value of tax breaks against the top 35% bracket lowered to the 28% bracket.
(Excerpt) Read more at online.barrons.com ...
I don’t assume that local pols are borrowing responsibly. It’s the job of the local citizenry to keep their local pols accountable for their actions. Build a school, hopsital, stadium or skating rink or not, that should be the call of citizens in their local municipalities.
But I can tell you one thing, the Federal government will not do a good job of this. In this first case, they are more inefficient than local governments (and both are less efficient than the private sector). But secondly, as you have allluded to, this is nothing more than replacing local governance (with its attendant risk of corruption) with the intentional and far more pernicious corrupting influence of the Federal governemnt and Democrat party.
The whole deal with tax-free muni bonds is to make them desirable enough that municipalities and other can issue them at below market interest rates. And the only reason buyers are willing to buy bonds that bear below-market rates is that they can make that up with the tax breaks. With no tax break, then munis will have no advantage in the market and will have to bear interest rates comparable to corporate bonds to compete.
Thus what Obama gives with one hand (more Fed dollars for infrastructure) he takes away with the other hand (higher borrowing costs for those very same projects). Naturally, the burden of higher borrowing costs will fall on all entities while only Obama’s favored entities will receive the ill-gotten gains. Typical favoritism by the Obammunists. Financially, this whole thing is nothing more than a shell game, with a net-zero financial result, that is, a typical zero result for a zero President named Zero.
Why are muni bonds not taxed by the fed? Because the Fed doesn't want the state's to levy a tax on Federal bonds.
Why is tax free status important? It gives the government the advantage of paying lower rates than the competition.
In effect, this is the Federal government attempting to force investors out of muni bonds and into federal bonds. There will be retaliation.
There will be a negative effect, as both local and federal governments have to increase rates to attract buyers.
Why are muni bonds not taxed by the fed? Because the Fed doesn't want the state's to levy a tax on Federal bonds.
Why is tax free status important? It gives the government the advantage of paying lower rates than the competition.
In effect, this is the Federal government attempting to force investors out of muni bonds and into federal bonds. There will be retaliation.
There will be a negative effect, as both local and federal governments have to increase rates to attract buyers.
But The Sun King and his cronies will get a piece of all such projects from now on via their "Infrastructure Bank", and that's what's important.
The "Infrastructure Bank", if it ever comes to pass, will be the most massive boondoggle of all time. It will dwarf TARP, Porkulus, the S&L debacle, everything.
Very well stated post, precisely explaining a complicated game of more Federal control.
Indeed it’s the old GM bail out plan then you own them.
Hey Warren Buffett! Ask, for higher taxes, and you shall receive!
Thus what Obama gives with one hand (more Fed dollars for infrastructure) he takes away with the other hand (higher borrowing costs for those very same projects).
well said
His Democrat buddies who run Democrat cities will not be pleased. Floating bond issues is how they’ve managed to overspend their revenues for five or six decades now.
Hillary is going to run, and the party isn’t going to give her a choice in the matter.
Mayors in big cities are predominantly democrat. Obama seems indiscriminate now. Next he’ll announce a cap and tax on trial lawyer awards.
Amen. One of the best descriptions of him I’ve ever seen.
Heh. The Democrats are hitting themselves. Taxing muni bond interest would cut the socialists’ revenues and counteract the huge amounts of federal funding that they receive for regulating against real private businesses.
It seems like it’s working that way.
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