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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
|
1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Collateral Damage In the Muni Market |
Real Clear Markets - Oct. 5, 2011 - By Steven Malanga
The problem with class warfare is that, like actual warfare, it can be hard to avoid the collateral damage.
The Obama administration is learning that in the wake of news that the President's American Jobs Act contains a proposal to limit the tax breaks on a host of itemized deductions and adjustments to income, including the interest on municipal bonds for high income households. Much like opponents of higher corporate taxes, who claim that workers and customers wind up paying for the corporate levy, opponents of the President's proposal on muni interest (including local politicians from both parties) are now arguing that the real losers would be cash-strapped local governments that would be forced to pay investors higher interest rates to offset the lower returns from a fed tax. These critics aren't comforted by the knowledge that the Jobs Act in its present form stands little chance of passing. They worry that tax reform is coming sooner or later and that the president's proposal has put the tax exemption for muni interest on the reform table, where it may stay.
The president's bill would cap the tax benefit from itemized deductions and certain income inclusions at 28 percent. The administration has argued in the past that high-income earners gain more than other taxpayers from income adjustments and tax deductions like the ones on muni interest, charitable giving and mortgage interest. The Obama administration would like to keep upper income taxpayers paying higher rates on their income but limit the size of their deductions and exclusions. In the case of muni bond interest, the change would in effect install a 7 percent tax on municipal bond interest for households in the 35 percent tax bracket. If the Bush tax cuts were to expire and the top tax rate rise to the pre-Bush level of 39.6 percent, the tax on muni interest for those in the top bracket would increase to 11.6 percent.
The proposal has shocked the muni community, in part because in the days leading up to the release of the president's proposal he assured local government officials that the Jobs Act would funnel more aid to cities and states for spending on infrastructure. They didn't realize that he intended to do that in part by taxing their muni customers more, potentially raising local borrowing costs in the process.
There's more bad news for anyone who thought the administration might not be seriously pursuing this proposal. The Bond Buyer reported that the draft text of an administration deficit reduction package floating around Washington also establishes automatic continued cuts in tax deductions and income exclusions in the future if the federal budget doesn't hit deficit reduction targets. That could mean continually declining tax advantages for those owning munis and an overall climate of uncertainty for investors, who might not know the tax rate they'll be paying next year on the interest from a bond they bought this year. That would be unprecedented.
For the complete article.
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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