Plans to tax munis won't fly, says BNY Mellon

Renewed proposals to eliminate the tax-exempt status of municipal bonds as a way to reduce the $1.5 trillion federal deficit are unlikely to succeed, said a report by BNY Mellon. Abolishing the asset class would drive up borrowing costs and further strain the budgets of muni issuers, leading to cuts in services and capital projects, according a report today by Standish Mellon Asset Management Company LLC, the fixed-income arm of the New York-based investment bank. A proposed budget submitted by Representative Paul Ryan, the House Budget Committee chairman, and a report from the Simpson-Bowles debt commission embraced by President Barack Obama in December 2010 both sought to eradicate the tax-exempt treatment of municipal bonds, the report said. “The urgent scramble to address the ballooning federal deficit will reasonably seek to uncover every scheme to broadly raise revenues, bringing all major tax expenditure loopholes under intense scrutiny,” wrote Steven Harvey, a senior portfolio manager, and Nathan Harris, a research analyst. “We believe it is unlikely that municipal entities will be penalized.” --Bloomberg News--