One of its provisions to increase tax revenue would do significant harm to the municipal bond market
President Obama says that the jobs bill he proposed last week would help state and local governments retain jobs. In fact, it would spend $35 billion to prevent teacher and first-responder layoffs. That will help, but one of the ways he intends to pay for this and other provisions within his plan would create a headwind for state and local government budgets. By cutting tax exemptions for wealthy investors, municipal bond issuance would be more expensive.
As my colleague Megan McArdle pointed out yesterday, the President seeks to pay for his jobs bill by raising taxes on more affluent Americans. Anytime taxes rise, an economy's output will fall. So this would likely neutralize at least some of the economic benefit that the spending and tax break in the bill provide. One specific way to get more tax revenue he suggests would be to put a 28% floor on the tax rates of individuals making at least $200,000 or families making at least $250,000. To do this, he would limit tax exemptions. And one common tax exemption -- particularly for wealthier Americans -- is income generated from municipal bonds.