Save the Tax-Exemption, A Call to Action for U.S. Public Finance
A convergence of risk has the potential to result in the elimination of new tax-exempt municipal bond issuance.
For the public finance community this analysis is meant to be a call-to-action.
This is a potential policy threat for investors to monitor, for now.
The rising U.S. debt-to-GDP ratio along with climbing interest costs are among the leading reasons why there is an even greater threat to the municipal bond tax-exemption today compared to recent decades.
Reinforcement of this increased threat was recently delivered in the form of Fitch Ratings’ U.S. downgrade (August 1) and the CBO’s July Monthly Budget Review (August 8).
The public finance community should escalate support for tax-exempt bonds by educating and informing D.C. lawmakers now, even though we may experience a federal budget cycle or two and a Presidential election before the true threat is imminent. If an educational process does not begin soon, it could be too late to save the tax-exemption by the time potential deficit reduction measures are proposed.