MUNICIPAL BONDS

[dothedd]

Obama seeks to cut municipal bond tax breaks

Reuters – 2 hrs 0 mins ago.

WASHINGTON (Reuters) - President Barack Obama on Monday proposed limiting tax breaks given to high-income earners on the interest paid by municipal bonds, a change that could rock the $3.7 trillion market if approved.

In his fiscal 2013 budget, Obama reiterated his desire to cut tax breaks for families with incomes over $250,000, saying they should only be allowed to reduce their tax liabilities to 28 percent of income from the current 35 percent.

"It is very unfortunate that investors who bought tax-exempt muni bonds in good faith under the premise that they would be tax-exempt would be subject to at least a 7 percent tax under the proposed budget," said Chris Mier, a managing director at Loop Capital Markets.

Among the list of breaks, Obama included tax-exempt interest, the payments made by U.S. municipal bonds. Obama made a similar suggestion in legislation in September, and many of his proposals that could impact the municipal bond market have surfaced previously.

"The budget contains what looks like a number of recycled muni provisions," said Chris Mauro, director of municipal bond research at RBC Capital Markets. "There's no expectation that any of this gets passed in an election year. At best, it keeps the tax reform conversation going."

Individual investors who buy municipal bonds frequently have high incomes, and one of the debt's chief selling points is that they can exempt the interest from their federal income taxes. The long-standing practice allows states, local governments and authorities to offer lower interest rates on tax-exempt debt than they would on taxable bonds.

Investors buying a 10-year muni bond rated AA would need more than 80 basis points more in yield to get the same taxable equivalent as a 10-year AA-rated corporate bond using a top tax rate of 28 percent, said Richard Ciccarone, a managing director and chief research officer at McDonnell Investment Management.

"This could raise borrowing costs (for municipal issuers) because you have to make up for the tax equivalent cost," Ciccarone said.

By the middle of the day, the municipal bond market largely shrugged off the proposal, with many noting the budget must wend its way through a politically fractured Congress.

"I think everybody assumes it's dead on arrival," said Parker Colvin, managing director at Stone & Youngberg in San Francisco.

In the budget, Obama also proposed "an expanded and permanent extension" of the taxable Build America Bonds program created in the 2009 economic stimulus plan. But the Bond Dealers of America group said cities and states still "need a strong tax-exempt program."

The budget advocated allowing a wider universe of bonds, including BABs, to be refunded, as well.

"State and local bond programs have varied in the extent to which they expressly allow or treat refinancings," according to budget documents. Granting "a general authorization for refundings of state and local bonds not currently covered by specific refunding authority would promote greater uniformity, tax certainty, and borrowing cost savings."

Under Obama's plan, issuers would have only two restrictions on refunding bonds. They could not issue refinancing bonds with greater principal amounts than the original bonds, and the new bonds could not have average maturities greater than the debt being refunded.

This will be the third year in a row Obama has tried to make the BABs program, which expired in December 2010, permanent.

Republicans and Tea Party conservatives criticized the program, which paid issuers a federal rebate equal to 35 percent of interest costs, as rewarding profligate states while funneling taxpayer dollars to Wall Street underwriters. Over the last year, hopes for a revival of the program have all but died.

Obama proposed operating the BABs program for two years with a subsidy of 30 percent and then "extend it permanently thereafter at a subsidy rate of 28 percent."

Cities, states, schools and other issuers sold $181.5 billion of BABs from April 2009 through the end of December 2010, according to Thomson Reuters data.

"(I am) not sure how likely it is that any program related to the Recovery Act, no matter how good it is or was, is going to be re-instituted," said Thomas Kozlik, director and municipal credit analyst at Janney Capital Markets.

MOST STATE, LOCAL OUTLAYS FOR HEALTHCARE

Currently, 28 states owe more than $37 billion to the federal government for unemployment benefit loans and businesses in states with outstanding balances are facing a federal tax hike. The budget proposed suspending interest on the loans while postponing the tax hike for two years.

Obama's budget would "also raise the minimum level of wages subject to unemployment taxes in 2015," it said. "The higher wage base will be offset by lower tax rates to avoid a federal tax increase."

As the sweeping healthcare overhaul comes on-line, fewer people will lack health insurance, according to the budget. Obama would cut $18.1 billion through 2020 in "Disportionate Share Hospital" payments intended to support hospitals that treat low-income and uninsured patients.

Altogether, the budget "provides $623.7 billion in outlays for state and local governments in 2013, an increase of $20.2 billion from 2012."

Nearly half would go to healthcare, according to budget documents, with 17 percent for income security programs, 15 percent for education and social services, and 13 percent for transportation.

While Obama would keep the Community Development Block Grants used to combat blight and other urban problems, he would put only $3 billion into the program. The grants were nearly eliminated under his predecessor, President George W. Bush, and when he took office Obama pressed to take them back up to a little more than $4 billion.

[Aman A.K.A. Ahamburger]

Great thread DOT!! This will affect a lot of people I would imagine, and it's important to know that Obama's plan is to tax everyone that makes over 250k a year so that he can keep funding his ideals.

U can move your debt thread here as well if you want B!

[The Virginian]

Who else would he tax? The unemployed?

Soon he's going to have too - Almost everyone will be unemployed! But even if he took every dime people make it still will not pay for his spending. Not counting entitlements ( SS; Medicare, Pensions) we still owe $68,000 for every man , woman and child in this country. You can't tax your way out of that.

[rovo]

Feb 14, 2012 9:09:01 GMT -5 @toughtimes said:

Sure he can tax the unemployed. Good luck with that. Tax the homeless too, while he is at it. Broke is broke.

You can "tax" the poor and unemployed. You do this by reducing the benefits they are currently receiving from the Gov. Just think of the benefits as a negative tax rate.

[Steady As She Goes]

My opinion ... even if he reduces benefits to the poor and unemployed ... AND raises taxes on the rest of society ... it still doesn't address the problem of uncontrollable government spending. You said it best toughtimes ... "Broke is Broke". If we're ALL broke ... then where does the money come from?

CUTTING the spending is the only solution.

[usaone]

Some taxes will go up.
Some benefits will be cut.

But the biggest impact to our budget defects will be a booming economy.

[Aman A.K.A. Ahamburger]

That is very true usawon, however, I agree that defect financing to fund social programs per the NEW DEAL is a terrible idea and needs to stop. Paul Warburg was against it for good reason, charity needs to fall on the RICH not the TAXPAYERS. Money from revenues, especially resources, needs to be saved as well as spent for improvements. Politicians have financed our future enough, if Alberta would have saved just 5% of it's oil revenue since the oil rush started in the 40's, they would have over 100 Billion in a heritage fund, instead of 14. It's time to let these assholes in charge(politicians) know that WE know more about finance than they think we do.

Friedman was a great economist, however his monetary views were totally askew.

[dothedd]

Feb 14, 2012 1:47:52 GMT -5 Aman A.K.A. Ahamburger said:

Great thread DOT!! This will affect a lot of people I would imagine, and it's important to know that Obama's plan is to tax everyone that makes over 250k a year so that he can keep funding his ideals.

U can move your debt thread here as well if you want B!

OK, Aham ...

I asked Moon if it was OK. She said she would move it tonight.

B

[dothedd]

Feb 16, 2012 6:05:59 GMT -5 @toughtimes said:

The true "New Deal" was an excellent idea since it built a transportation infrastructure, hydroelectric dams, parks, restored cropland and many other enduring treasures. During this period, rural America was electrified and an industrial base was put into place to allow our country to fight and survive two totalitarian regimes, the Fascists of World War II and the combined power of the Sino-Soviet Axis later.

My question is whether we are drawing on this positive history to blow shiny, shiny bubbles in the air.

Wasn't a BAD DEAL then, unlike today's DEALS FOR VOTES, campaign funding, and crony capitalism.


On July 2, 1932, on accepting the nomination as Democratic Presidential candidate, FDR made his famous promise of a "New Deal" for the American people. This policy was intended to make a drastic shift in the American society, which becomes clear, when we hear FDR himself. "Let us . . . highly resolve to resume the country's interrupted march along the path of real progress, of real justice, of real equality for all of our citizens, great and small. . . . There are two ways of viewing the government's duty in matters affecting economic and social life. The first sees to it that a favored few are helped, and hopes that some of their prosperity will leak through . . . to labor, to the farmer, to the small businessman. That theory belongs to the party of Toryism. . . . But it is not, and never will be the theory of the Democratic Party. "The people of this country want a genuine choice this year; not a choice between two names for the same reactionary doctrine. . . What do the people of America want more than anything else? Two things: Work; work, with all the moral and spiritual values that go with work. And with work, a reasonable measure of security--security for themselves, and for their wives and children. Work and security . . . are the spiritual values, the true goal toward which our efforts of reconstruction should lead.Throughout the nation, men and women, forgotten in the political philosophy of the government of the last years, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth. . . . Those millions cannot and shall not hope in vain. I pledge to you, I pledge to myself, to a New Deal for the American people. This is more than a political campaign, it is a call to arms. Give me your help, not to win votes alone, but to win in this crusade to restore America to its own people"

New Deal Programs:
Agricultural Adjustment Agency (AAA) Created in 1933 to bring farmers' share of nation's income back to level of 1909-14. Sought to provide an "ever-normal granary." Declared unconstitutional in 1936. Most of its duties taken over by Soil Conservation and Domestic Allotment Act. Reconstituted in 1938.
Central Statistical Board (CSB). Created in 1933 to coordinate federal and other statistical services. Duties absorbed by Budget Bureau in 1939.

Civil Aeronautics Board (CAB). Created in 1940 to regulate economic aspects of United States air carriers; to help establish foreign air routes and services; to investigate civil air accidents. Succeeds the Civil Aeronautics Authority (1938).

Civilian Conservation Corps (CCC) Created in 1933 to succeed the agency known as Emergency Conservation Work; to provide employment and vocational training for needy young men through work in the conservation and development of natural resources. In Federal Security Agency until abolished in 1942.

Commodity Credit Corporation (CCC). Created in 1933 to make loans to producers to finance the carrying and marketing of agricultural commodities. Transferred to Department of Agriculture in 1939.

Electric Home and Farm Authority (EHFA). Created in 1935 to finance consumer purchases of electrical equipment in homes and on farms. Became part of Federal Loan Agency in 1939. Transferred functions to Department of Commerce in 1942; abolished the same year.

Farm Credit Administration (FCA). Created in 1933 to make long-term and short-term credit available to farmers and to farmers' cooperative marketing and purchasing organizations; assumed duties of Federal Farm Board (established in 1929).
Farm Security Administration (FSA). Created in 1937 to aid tenant farmers and to carry on rehabilitation work of Resettlement Administration.

Federal Alcohol Administration (FAA). Created in 1935 to administer the federal liquor laws. Duties absorbed by Bureau of Internal Revenue in 1940.

Federal Communications Commission (FCC). Created in 1934 to regulate interstate and foreign communication by telegraph, telephone, cable, and radio.

Federal Crop Insurance Corporation (FCIC). Created in 1938 to insure wheat producers against loss due to unavoidable causes and extended to growers of other crops. In Department of Agriculture.
Federal Deposit Insurance Corporation (FDIC) Created under the authority of the Federal Reserve Act of 1933 to insure the deposits of approved banks against loss in the event of bank failure.

Federal Emergency Administration of Public Works (better known as Public Works Administration) (PWA) Created in 1933 to reduce unemployment and to restore purchasing power through construction and long-range planning of public works. Absorbed by FWA in 1943.

Federal Emergency Relief Administration (FERA). Created in 1933 to relieve the hardships caused by unemployment and drought. Abolished in 1938, and its work carried on by WPA until 1942.

Federal Housing Administration (FHA). Created in 1934 to encourage residential construction, repair, and modernization by insuring loans and mortgages.

Federal Loan Agency (FLA). Created in 1939 to direct all agencies lending federal funds, except those making agricultural loans.
Federal Security Agency (FSA). Created in 1939 to direct all agencies concerned with social and economic security, educational opportunity, and national health; included Office of Education, Public Health Service, Food and Drug Administration, Children's Bureau, and Office of Vocational Rehabilitation.

Federal Surplus Commodities Corporation (FSCC). Created in 1935 to distribute surplus farm products to state relief agencies for the use of the needy. Merged into Agricultural Marketing Administration in 1942.

Federal Works Agency (FWA). Created in 1939 to coordinate all public construction.

Home Owners' Loan Corporation (HOLC). Created in 1933 to grant long- term mortgage loans on homes.

Maritime Labor Board (MLB). Created in 1938 to improve labor relations among seamen. Expired in 1942.

National Emergency Council (NEC). Created in 1933 to coordinate the work of the federal agencies. Abolished in 1939, and functions transferred to Executive Office of the President.

National Housing Agency (NHA). Created in 1942 to consolidate all housing activities.

National Labor Relations Board (NLRB). Created in 1935 to protect employees in their rights to self-organization and collective bargaining.

National Recovery Administration (NRA) Created in 1933 to draw up trade codes of fair competition. Declared unconstitutional in 1935.

National Resources Planning Board (NRPB). Created in 1939 to advise president on development of national resources; cooperated with state and regional planning boards. Abolished in 1943.

National Youth Administration (NYA). Created in 1935 to furnish part- time employment for needy high-school and college students; to provide part-time employment on work projects for out-of-school youth; to provide vocational guidance. Transferred to Federal Security Agency in 1939. Abolished in 1943.

Resettlement Administration (RA). Created in 1935 to administer rehabilitation and resettlement projects for the relief of farm areas. Abolished in 1937, and remainder of program completed by Farm Security Administration.

Rural Electrification Administration (REA). Created in 1935 to introduce electric service into rural areas not already served. Transferred to Department of Agriculture in in 1939.

Securities and Exchange Commission (SEC) Created in 1934 to license and regulate stock exchanges and to control public utility holding companies.

Social Security Board (SSB). Created in 1935 to administer the federal old-age retirement funds.

Surplus Marketing Administration (SMA). Created in 1940 by merging FSCC and Division of Marketing and Marketing Agreements. In 1942 merged in Agricultural Marketing Administration.

Tennessee Valley Authority (TVA) Created in 1933 to operate government- owned properties at Muscle Shoals, Ala.; to develop water and power resources of the Tennessee River watershed; to plan for the social and economic well-being of the valley.

United States Maritime Commission (USMC). Created in 1936 to develop a merchant marine to carry the domestic and foreign waterborne commerce of the United States on ships built, owned, and operated by United States citizens; succeeded United States Shipping Board and Merchant Fleet Corporation.

Works Progress Administration (WPA) Created in 1935 to relieve unemployment; later called Work Projects Administration. Abolished in 1942.

In Conclusion
With his New Deal FDR demonstrated that a strong government working for the common good and general welfare could end the Depression. FDR reduced unemployment by over 5 million in his first term. FDR was able to involve an increasing part of the American People, including minorities, to engage in national reconstruction. Support for FDR was evident in the next election when he increased his popular vote from 22.8 million to 27.7 million.

The Obama administration is a PUMP AND , IMO.

[Aman A.K.A. Ahamburger]

Right on B! Great post too BTW..

It's not that the new deal was bad, it's that it was funded wrong. That's why Warburg had a problem with it. The whole idea of what the the industrial revolution was built on was the increasing capital injection from wealthy Industrialists as we can see from the 500% increase in funding from 1880 on. Facilitation was the idea, not socializing.

[dothedd]

"FDR is probably best remembered for the New Deal," stated Perloff. "Of course, since a large portion of the work force was unemployed, there was not enough tax revenue to pay for these programs. So the government turned to its other source--borrowing.

In effect, the international bankers, having created the Depression, now loaned America the cash to recover from it." He added, "Naturally, the interest on these loans would be borne on the backs of taxpayers for years to come."

"The more things change, the more they stay the same”...

A bit off the subject, “but [insiders] were later able to buy back stocks at a ninety percent discount from their former highs, Warburg declared.”

Warburg (aka "Daddy" Warbucks) was notable for his March 8, 1929, warning of the disaster threatened by the wild stock speculation then rampant in the United States, foretelling the crash, which occurred in October of that year.

The history of the 1929 Depression is fascinating read.

[dothedd]

Edmund Burke 1729-1797 stated: "The only thing necessary for evil to triumph is for good men to do nothing."

[Aman A.K.A. Ahamburger]

Dot, not a joke.. I was trying to think of that quote above all day, it is SO true!

[Aman A.K.A. Ahamburger]

"FDR is probably best remembered for the New Deal," stated Perloff. "Of course, since a large portion of the work force was unemployed, there was not enough tax revenue to pay for these programs. So the government turned to its other source--borrowing.

That's exactly it DOT, and the money wasn't borrowed from international bankers it was PRINTED by the Federal reserve and sold off in bonds. Which is exactly what Warbrug wanted to avoid. The credit bubble in the 20's wasn't created my international bankers, it was created by stock speculation and overspending by the newly rich, now that is something that will never change, just look at China right now.

There were over 30,000!!! currencies in the USA before the creation the federal reserve.. Even with all that, bankers/industrialists were willing increase spending over 500% to keep the USA expanding after 1873.. Even though they would have to keep losing money in panic after panic.

The crazy thing is that a lot of these currencies were backed by state bonds, not gold, which the original federal reserve note was.

By 1907, I would bet that a huge fortune had been lost building the USA without a single currency and it would all be lost forever because the economy was really unstable going into the early 20th.

When the NEW DEAL came around, it was to be funded just like the Industrial revolution. Banks multiply it and people working for their cash. Just that the currency would have been stable.

But NO by then anti antisemitism was hitting heights in Europe and spreading and the International(Jew) bankers were not to be trusted. So, SOCIAL programs were set up to distribute the cash!! GIVING away money, not WORKING for IT.. You can't GIVE people anything they have to earn it or it doesn't work.

[dothedd]

Feb 18, 2012 0:27:26 GMT -5 Aman A.K.A. Ahamburger said:

Dot, not a joke.. I was trying to think of that quote above all day, it is SO true!

Indeed it is!

My favorite quote. It's posted on the wall above my computer screen so that I see it a 1000 times a day.

Happy that there are two of us in the world that appreciate it.

Be sure and checkout the H5N1 thread on my NVAX THREAD. Not good news for those of us that follow the related issues.

dot

[Aman A.K.A. Ahamburger]

I am just getting back around the boards a bit from last week I will check your board out toady, or tomorrow, thanks for all the time you put in over there DOT!!!

[beenherebefore]

As we know, any investment includes an analysis of risk vs reward, given the dire state of many City / State government, the risk is increased and given the state of Mr. O's goal, the reward is decreased.

What's wrong with this picture?

[Aman A.K.A. Ahamburger]

At least there is something in that picture that can be changed in the coming months.