President’s Budget Proposal Caps Municipal Bond Tax Exemption


As reported in the Washington Post, President Obama released his budget today, which includes $3.78 trillion in spending and also includes reductions intended to replace the sequestration’s across the board cuts.  The budget furthers various goals of the Administration, as described in the Post,

. . . his budget seeks $50 billion in new cash for roads and public works, $1 billion for 15 new institutes to promote innovation in manufacturing and $77 billion to make free, public pre-school available to 4-year-olds nationwide. . . The cost of those initiatives would be covered through spending cuts and new revenues, including placing a $3 million cap on the value of individual retirement accounts and raising the federal cigarette tax from $1.01 to $1.95 per pack.

As previously reported on Conduit Street, one element of importance to county governments in the federal budget debate is maintaining the tax exempt status of municipal bonds.  According to Reuters, a White House summary indicates that in his budget proposal for fiscal 2014 Obama would limit the value of tax benefits for the top 2 percent of earners to 28 percent from the current 35 percent.  As described,

If approved, the cap would essentially drive down the appeal of municipal bonds often sold to wealthy investors who can exempt the interest from their federal income taxes. It risks pushing up the borrowing costs for state and local governments that use the bonds to finance bridges, roads and other capital projects.

For complete budget documents, see additional information from the White House.