President Trump Considers Historic Tax Reform

President Donald Trump has pledged to implement a plan for sweeping tax reform.  Cutting individual tax rates across the board and reducing the number of tax brackets from the current seven to three.

The question is how will this effect demand for municipal bonds?

Interest earned on municipal bonds is exempt from Federal income tax which has historically led to high demand from investors of all tax brackets, but particularly from individuals in the highest tax brackets.  The higher your tax rate, the greater the benefit received from the tax exempt status.   So, theoretically, if President Trump was to lower the highest tax bracket from the current 39.6% to 33%, as he has implied, demand for tax-free income should wane.
However while the tax benefit would shrink with lower overall tax rates, there would still be an advantage over other forms of taxable income.  Even taking a reduction in the marginal tax rates into consideration demand for municipal bonds should remain strong, at least over the short term.  Currently, the municipal market suffers from a strong supply and demand imbalance.  Reduced tax rates should help bridge the supply/demand divide in the short term, but over the long term and that divide diminishes tax reform may have a more dramatic impact on demand in the municipal bond market.

( Source : The Hill )

 

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. All bonds and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security. Supporting documentation for any claims or statistical information is available upon request. Municipals and tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security’s tax-exempt status (federal and in-state) is obtained from third-parties and Las Olas Wealth Management of Nat Alliance Securities LLC does not guarantee its accuracy. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.

Dean Myerow
Dean Myerow is a municipal bond market asset manager and along with partner, Sean Vesey the team structures institutional and high net worth investor portfolios at Las Olas Wealth Management of NatAlliance Securities LLC.

For 20 years Dean Myerow has been a professional in the field of municipal bonds. He has earned degrees from the University of Massachusetts School of Business and the University of Miami School of Law.

Check the background of this investment professional on FINRA’s BrokerCheck.


Author: Dean Myerow
<a>Dean Myerow</a> is a municipal bond market asset manager and along with partner, Sean Vesey the team structures institutional and high net worth investor portfolios at <a href="http://lasolaswealth.com">Las Olas Wealth Management of NatAlliance Securities LLC</a>. For 20 years Dean Myerow has been a professional in the field of municipal bonds. He has earned degrees from the University of Massachusetts School of Business and the University of Miami School of Law. Check the background of this investment professional on <a href="https://brokercheck.finra.org/">FINRA’s BrokerCheck</a>.

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