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Shaking Up the Market for Municipal Bonds

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The following is an excerpt from Randall W. Forsyth | December 16, 2017 | Barrons.com |

All politics are local, according to the famous dictum of Reagan-era House Speaker Tip O’Neill. But the municipal bond market has rarely been as roiled by national politics as it has been by the drama in Washington over tax reform.

On the face of it, the muni market should be a shelter from the storm over taxes. The chief attribute of bonds issued by states and localities is that their interest is typically exempt from federal taxation, and in the case of bonds issued in the investor’s home state, usually free of state and local income taxes, too. For those who feel they’re drowning in taxes, munis are their oasis.

But as with almost anything to do with taxes or with Washington—or both—it’s rarely that simple. The tax changes proposed by congressional Republicans were supposed to make everybody’s taxes lower and less complicated. Somebody’s simplification had to become somebody else’s loss of a tax break.

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