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Obama administration's fiscal cliff proposal would limit tax value of municipal bonds


December 3, 2012

By Robert Varela
Editorial Director
The tax value of municipal bonds would be limited under the Obama administration’s initial proposal to avert the "fiscal cliff." The plan offered to congressional leaders Nov. 29 by Treasury Secretary Timothy Geithner would cap at 28 percent the tax value of itemized deductions and certain exclusions, including the exclusion on municipal bond interest. The cap would raise an estimated $600 billion. Republicans rejected the proposal, with Senate Minority Leader Mitch McConnell, R-Ky., saying Geithner should be embarrassed to be presenting "laughable suggestions." However, GOP leaders did not discuss specifics.

Other parts of the administration proposal include an immediate increase in both top marginal income tax rates, as well as higher taxes on capital gains and dividends; a patch of the alternative minimum tax and the extension of targeted business tax breaks; an extension of the payroll tax cut or equivalent policy; a $50 billion stimulus package in fiscal 2013; and deferral of sequester of funds. A second stage of the proposal calls for tax reform consistent with a $1.6 trillion tax increase and $400 billion in entitlement program cuts.

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