Municipal Bond Forum
Clarifying cap idea
Q
In your article, “Exemption Defenders“, you mention the idea of capping muni interest income at 28%. What exactly does that mean?
A
James A. Klotz responds:
The proposal to cap the municipal bond tax exemption at 28% can be a little confusing.
Under that measure, muni bond holders in the 28% tax bracket would still receive their income completely tax free. The impact would be on those in higher tax brackets, such as 33%, 35% and 39.6%. Capping their tax benefit at 28% would effectively impose, respectively, a 5%, 7% and 11.6% tax on their municipal income.
As we have said, it’s an idea that would hurt the economy and job creation and a host of local, state and national officials are arrayed against it. In the unlikely event this ill-conceived proposal is adopted, municipal bonds would still provide high net worth investors better after-tax yields than any taxable fixed-income securities of comparable quality.
Start here.
Do you have specific criteria for bonds you’re looking for? Let us know and we’ll e-mail you bonds that fit your needs. There is no charge for this service.
The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.