Muni Bonds to Be Taxable: Bipartisan Bill Would Change the Municipal Debt Market

The Bond Buyer has a rather important story:

­Municipal market participants are still weighing the implications of a bill that would eliminate tax-exempt bonds and shift the muni market wholesale to a tax-credit subsidy, with many warning it would hurt state and local governments still recovering from the recession.

Sens. Ron Wyden, D-Ore., and Judd Gregg, R-N.H., on Thursday unveiled the Bipartisan Tax Fairness and Simplification Act of 2010, which would fundamentally remake the tax code, including how the federal government subsidizes debt issued by state and local governments.

The senators issued statements highlighting the big-ticket provisions: halving the amount of individual tax brackets, making the top individual tax rate 35%, eliminating the alternative minimum tax, and establishing a flat corporate tax rate at 24%.

But the bill also proposed making all municipal debt taxable, and subsidizing it by providing individual investors with a tax credit equal to 25% of interest costs. It also would prohibit any advance refundings of municipal bonds.

You'll want to read the whole article.