A proposed cap on the tax advantages of municipal bond interest looks dead now that "people who understand" the credit markets are weighing in on the issue.
The September stimulus package sent to Congress would have cut off the exemption on muni interest to 28% of all income for upper-middle-class families earning a joint $250,000 or more.
The bill failed. However, pushback from the local financing community got the White House to realize that making the tax treatment less attractive would hurt already-fragile demand for muni debt.
The proposal is now reportedly off the table.
Some influential think tanks and former congressional types have begged for ending the exemption on muni interest, arguing that the federal government simply can't pass up the revenue right now.
Muni advisors argued back that nobody in the government understands the way the asset class works.