As it searches for ways to reduce the federal deficit, the 113th Congress might pursue a tax code overhaul that could impair municipal issuance, if municipal-bond income loses its tax exemption. Policy makers have identified this exemption as a possible major source of revenue. President Obama has proposed changing the cap on municipal bonds' deductibility from the current top level of 39.6 percent to a rate of 28 percent.

While some in the municipal-bonds industry see this issue as a threat, Ballard Spahr public finance partner Kimberly C. Betterton stated, “The upshot is that this particular bill is not harmful and I definitely think it has the potential for being beneficial in the short term” to municipal bonds.

Related Practice

Public Finance