A Muni Tax Plan that Only Makes Sense in Wonderland

Obama wants to tax municipal bonds in order to raise money to fund the proposed infrastructure bank and school building projects, which will then provide funds to municipalities that will no longer be able to afford to raise money for infrastructure and school projects, because the cost of municipal bonds will be too expensive thanks to Obama's infrastructure bank funding.

Sound like you've tumbled down a hole and are talking to a Cheshire Cat that looks like Obama?

Well you haven't eaten any funny mushrooms, Alice, and this is no dream.

Here's analysis from Citi -

US Municipal Strategy Special Focus

Why Is The Tax-Exempt Status Of Municipals Under Assault?

 The Administration's new Jobs Bill includes an unpleasant surprise for state and local governments

 Specifically, the bill would cap the value of the tax exemption for high-income investors at 28%. This change would, in our view, increase state and local borrowing costs significantly, and for the first time, create a retroactive change to tax exemption.

 While this provision is unlikely to be enacted in its current form, it cannot be ignored, because it could come back again as deficit reduction and/or tax reform moves forward.

 Ironically, one of the purported reasons for this change is to pay for an Infrastructure Bank, a less effective way to support state and local financing than the muni market itself.

 A key problem for supporters of tax-exempt financing is that the cost of such financing to the Treasury is consistently overstated. A recent study in the National Tax Journal explains why.

Read more analysis here.

Bottom line is that the Federal government wants to make the state and local governments spend more for borrowing so that it can raise tax revenue at the federal level to give back to the states with a bunch of strings attached. This at a time when states and local municipalities are already struggling.

Of course a new Federal bureaucracy will have to be created with a new unelected Obama-appointed bureaucrat with unlimited authority to run it. This is where the new jobs come from apparently.

Sounds like federal overreach to me. It's about as well thought out as the failed Cash For Clunkers plan.

If the Republicans have the Tea Party, Obama is the Mad Hatter trying to fix a watch with butter. Unfortunately the watch is our economy.