Before you choke on the idea that muni bonds' tax status would change (from a tax exemption to a tax credit), a major overhaul of the tax code recently introduce in D.C. actually has a few good items. One is repealing the AMT and lowering corporate income taxes, which are the highest in the world. Also, the plan, introduced by Oregon Democrat Ron Wyden and New Hampshire Republican Judd Gregg, would close some loopholes in corporate taxes and create three individual tax rates (down from six), topping out at 35 percent. See this BusinessWeek story.
The Tax Foundation, a site that you should bookmark, notes that the plan, known as the Bipartisan Tax Fairness and Simplification Act of 2010, "flies in the face of what President Obama wants to do with the tax code in his new health bill, but it shows that serious Republicans and Democrats can compromise and put their names on important legislation together." The Tax Foundation has all you need to know about the plan on its Tax Policy Blog.
Of course, broker/dealers don't like the plan to change the tax status of munis. According to SIFMA">SIFMA : "Sens. Ron Wyden, D-Ore., and Judd Gregg, R-N.H., introduced legislation that would eliminate tax-exempt bonds starting next year, shift the tax exemption for municipal bonds to a tax credit and ban advance refunding of bonds. Market participants have voiced their opposition. 'Our experience over the last year or so with tax-credit bonds suggests that that's not really an effective way for the federal government to assist in state and local borrowing,' said Michael Decker, managing director and co-head of SIFMA's municipal-securities division. 'To replace a proven and effective means of borrowing with one that's proven to be really ineffective would be a mistake.'" The Bond Buyer (free content) (2/24)