President Obama recently submitted his jobs bill to Congress. The bill, called the “American Jobs Act of 2011,” provides an array of solutions to the current economic crisis, including closing tax loopholes and reducing the funding for several federal programs such as Medicare and certain farm subsidies. One of the bill’s provisions that has unnerved the municipal bond industry is Obama’s proposal to limit the deduction of tax-exempt interest on municipal securities for higher income taxpayers.
Notwithstanding several predictions by pundits that the chances of the bill’s passage are slim, disclosure regarding its potential impact on municipal bonds began to appear in official statements within days of the bill’s introduction.
In its present form, the bill would limit the deduction of certain income and expenditures, including tax-exempt interest from municipal bonds, to 28% for individuals with $200,000 or more of taxable income ($250,000 for married couples). The provision would apply to taxable years beginning on or after January 1, 2013, and there would be no grandfathering for tax-exempt bonds currently held by tax payers.