By Deborah Levine
NEW YORK (MarketWatch) -- President Barack Obama's jobs plan included a provision that could limit the tax-exempt benefit of buying municipal bonds and possibly raise borrowing costs for state and local municipalities, said Chris Mauro, head of municipal research at RBC Capital Markets. However, "we don't view this proposal as an immediate threat to municipal bond tax exemption," he wrote in a note Tuesday. Such a change would have to be part of a broad-based tax reform that would take a "significant amount of time." Obama's provision would have the change effective at the beginning of 2013. "The provision, if passed, would reduce the attractiveness of municipal bonds for higher income taxpayers, effectively increasing borrowing costs for state and local governments," Mauro wrote. "We think that, while state and local governments are operating under severe financial stress, members of Congress will be hard-pressed to justify taking any action that would make it more expensive for state and local governments to finance new projects or refinance" existing higher-yielding debt.
