In the 4Q 2017 issue of our quarterly publication, we:

  • Explore a few of the more direct effects of new tax law on tax-exempt municipal bond market, focusing on four central issues: state and local tax deductions; lower corporate tax rates; private activity bonds; and advance refundings.
  • Look at how to break down the components of total return.
  • Provide a round-up of yields across the muni spectrum.

After only a few months of fanfare, Congress passed a tax reform bill and on December 22, President Trump signed into law the Tax Cuts and Jobs Act. At the outset, it bears mentioning that the last overhaul with such far reaching implications was the Tax Reform Act of 1986, which Congressman Dan Rostenkowski introduced in the House on December 3, 1985 and President Reagan authorized on October 22, 1986, almost eleven months, start to finish.  In contrast, Representative Kevin Brady, chair of the Committee on Ways and Means presented the Tax Cut and Jobs Act (the Act) on November 2, 2017, and just 50 days later, it became law. Municipal bond commentators have repeatedly expressed concern over the seemingly hasty process that may have deep and unintentionally detrimental implications.

While the Act touches a broad range of socioeconomic facets, we intend to limit our discussion on these pages to a few of the more direct effects the new legislation may have on the tax-exempt municipal bond market. In doing so, we sidestep a number of ancillary matters and focus our remarks on four central issues: the state and local tax deduction, lower corporate tax rates, private activity bonds, and advance refundings.

Please see important disclosures at the end of the article. 

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