Republicans Hatch Plan That Puts Muni-bonds In Jeopardy

Ask any bank robber why he did it and he’ll likely answer…

“I’ve got bills to pay, and I needed fast money.”

Such is the twisted decision-making of people in desperate circumstances.

Today, I’ll prove that broke governments can behave just as irrationally as broke people.

As the U.S. debt nears $20 trillion, Republicans on Capitol Hill just hatched a plan to help pay down the debt — they’re threatening to cut the tax-exempt status of municipal bonds.

Yikes!

Under the current U.S. tax code, individuals and corporations that own bonds are generally required to pay taxes on their interest income. However, since the enactment of the federal income tax in 1913, interest on state and local bonds has been tax-exempt.

— TaxFoundation.org

If the Republicans follow through on their threat, the move could put an extra $617 billion into Uncle Sam’s pocket over the next decade.

Fantastic, right?

Wrong.

The muni-bond market is one of the last remaining lifelines of cash-poor urban centers around the United States.

Although largely unreported by the press, municipal bonds have financed revitalization projects to the tune of $1.65 trillion over the last 10 years.

Yet in a world where municipal bonds have lost their luster, how will local governments raise financing for schools, roads, bridges, damns, sewer systems, airports and other critical infrastructure?

Please understand that what’s happening is far from novel…

The first municipal bond was issued by New York City in 1812 to fund a canal.

It took 83 years for the Feds to desire a piece of the pie.

But the Supreme Court’s 1895 ruling — a ruling that protects municipal bonds from being taxed by the federal government — still endures today, despite many challenges throughout the years.

Let’s hope that municipal bonds can survive this latest challenge, too.

Either way, America’s infrastructure is in shambles.

You’ll recall that President Trump touted that he’d stimulate the economy through infrastructure spending.

I asked my senior analyst, Martin Hutchinson, for a status report on Trump’s claim.

Turns out, through his due diligence, Hutch uncovered quite an investment gem.