Tax-Favored Municipal Bonds May Be Swept Into Deficit Reduction Ideas

Legislation enacted Jan. 2 avoiding or delaying more than $600 billion in automatic spending cuts and tax increases shielded, but perhaps only temporarily, tax and other federal policy changes that could materially impair municipal securities markets, practitioners tell BNA. The favorable tax treatment associated with municipal bonds—enjoyed by taxpayers since the enactment of the Revenue Act of 1913—could be in jeopardy in the coming months or years as members of Congress look for ways to cut the nation's budget deficit. Municipal bonds losing their tax-favored treatment “is a very real threat,” Bond Dealers of America Chief Executive Officer Michael Nicholas tells BNA.

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