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Is Trump’s tax reform a threat to muni bonds?

Our Blog May 08, 2017
James Dearborn, Head of Municipal Bond Investments and Senior Portfolio Manager

Does Trump’s proposed tax reform reduce the value of municipal bonds? We believe munis still look compelling.

The Trump Administration’s proposal to reduce corporate and individual income-tax rates has some concerned about how municipal bonds may be affected. It is important to note there are many unknowns about the proposal, which will differ from what is ultimately implemented. And the impact to munis could, in theory, be both positive and negative.

The knee-jerk reaction is that a lower tax rate will reduce demand for munis. But even at the proposed lower tax rates, after-tax equivalent yields on munis are still very attractive relative to other fixed-income opportunities. At the same time, the proposal to eliminate some federal tax deductions, including deductions for state and local taxes, may serve to increase demand for munis.

The elimination of the muni bond interest exemption is often discussed in the context of tax reform, but it was not included in Trump’s proposal. We do not expect this to be implemented as part of the tax reform process.

Watch James Dearborn discuss why he feels that tax reform is not a threat to muni bonds.

Download transcript

Columbia Threadneedle Investments and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.


James Dearborn

James Dearborn

Head of Municipal Bond Investments and Senior Portfolio Manager