Senate zeroes in on muni tax exemption

The tax-exemption provided to investors in U.S. state and local government bonds faces a fresh challenge in Congress, where two senators are pushing a bill that would roll back the subsidy. Senators Ron Wyden, a Democrat from Oregon, and Dan Coats, an Indiana Republican, would swap the exemption for a credit as part of a broad package of tax-law changes introduced this week. Wyden proposed similar treatment of municipal bonds last year in a measure that failed to muster support. More recently, leaders of President Barack Obama's deficit-reduction commission also sought to end the exemption on interest earned from the securities, although the panel's recommendations also failed to win sufficient backing to move forward. Stripping municipal bonds of tax-exempt status would push up the cost of borrowing for local governments because investors accept lower returns in exchange for the favored tax treatment. --Bloomberg News--