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'Fiscal cliff' bill spares municipal bonds, for now


From the January 4, 2013 issue of Public Power Daily

Originally published January 4, 2013

By Robert Varela
Editorial Director
The "fiscal cliff" legislation signed by President Obama on Jan. 2 leaves intact the federal income tax exemption for municipal bonds, but the issue is far from settled. The White House has signaled that it intends to continue to try to cut tax expenditures for high-income households in 2013, and earlier both President Obama and House Speaker John Boehner, R-Ohio, proposed limits on tax deductions and exclusions. The debate over the fiscal cliff was just the first of several major budget policy fights expected this year.

The fiscal cliff deal provides a "foundation" for pursuing "deficit reduction through tax and entitlement reform" and "leaves substantial scope for reducing tax expenditures for high-income households," the White House said in a Jan. 1 fact sheet.

"APPA staff will continue to work as hard as we can to educate members of Congress and policymakers about the value of the exemption for municipal bonds and the adverse impacts on ratepayers of a limit on the exemption," said APPA Senior Vice President for Government Relations Joe Nipper. "We strongly urge all APPA members to actively contact their members of Congress to drive home these points."

The next budget battle is likely to take place in February, when the federal government is expected to run out of borrowing authority under the current $16.394 trillion federal debt limit. The fiscal cliff agreement postpones deep discretionary spending cuts, but those cuts still are set to take effect on March 1. A stop-gap spending bill for fiscal year 2013 expires on March 27. And, finally, there will be continued pressure to at least consider broad-based tax reform in 2013.

The fiscal cliff bill repealed many of the large income tax increases—and postponed some of the spending cuts—looming in the New Year. However, it also included some breaks for particular industries, including a one-year extension of the tax credits for wind and biofuels. Investor-owned utilities avoided potential steep increases in the tax rates for dividends and long-term gains. Under the legislation, the maximum tax rate for both dividends and capital gains will be permanently set at 20 percent for couples earning more than $450,000 or $400,000 for singles.

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