The shock waves from the recently passed health reform bill are still making their way around the country and the investment world, but one item that may be of interest to readers is how the investment income tax will work. According to several sources, the health care plan will levy a 3.8% tax on individuals who earn more than $200,000 annually and joint filers reporting more than $250,000. The tax would apply to income from interest, dividends, annuities, royalties, capital gains and rents. But according to several sources, the new legislation excludes income from municipal bonds.
I'm digging through the legislation now trying to find the specific reference and will update the article when I find it.
Comments
Robert Kane
March 23, 2010
Well that would be great if it holds true since it would increase the demand for munis especially as Build America Bonds are eclipsing new muni tax exempt issuance.
Note that the U.S. Supreme Court has reversed itself on this same issue. In 1895 they said federal government had no power under the U.S. Constitution to tax interest on municipal bonds. But almost a century later, the Supreme Court stated the Congress COULD tax interest income on municipal bonds if it so desired.
No doubt munis will be in demand. The question is how much default risk will be in play due to city & state obligations to pay platinum health care and pension benefits of their union public employees.
Good Luck
Robert Kane
www.bondview.com
Municipal bonds from a new view
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