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Just because municipals avoided getting hit in the fiscal cliff showdown doesn't mean they're in...

Just because municipals avoided getting hit in the fiscal cliff showdown doesn't mean they're in the clear, writes John Wasik. WIth the debt ceiling debate warming up, D.C. will be looking for new sources of revenue, and income tax rates likely off the table, municipals are a ripe target.
Comments (2)
  • Guardian3981
    , contributor
    Comments (1954) | Send Message
     
    I think they would need to be really desperate for this.

     

    The issue with going after munis is if you taxed them all it would due is increase borrowing costs for states and local government. This would create a large state vs federal government war that I don't think the Fed can afford right now.

     

    Deep down the Federal government also has to know that if state borrowing costs go up then there is an even higher chance they will need to be bailed out by the Federal government.

     

    The one potential idea I could see them implementing is keeping muni income tax free but having it included in total income figures. So as an extreme example say someone made 100k a year in muni income and 20k working. Right now their working income is taxed at the low rate, they could try saying that the 20k is taxed at a higher rate.

     

    I'm sure there are alot of folks out there who force themselves into lower brackets by diverting capital into tax example or deductable ventures like munis.
    18 Jan 2013, 12:08 PM Reply Like
  • Tricky
    , contributor
    Comments (1583) | Send Message
     
    In addition to Guardian's comments, there is an even more fundamental problem. Back in the day, I did muni investment banking. I do not remember the particulars, but IIRC the tax exemption on muni's is a CONSTITUTIONAL issue. The feds would have a massive fight, joined by practically every state, city, county, school district (etc. etc.) in the country.
    18 Jan 2013, 12:21 PM Reply Like
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