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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.

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