The 2024 US Election and Municipal Bonds: What to Know

The upcoming U.S. presidential election is expected to be competitive, with various proposed tax policies that could impact municipal bonds. Key differences revolve around the Tax Cuts and Jobs Act (TCJA), particularly how personal income tax rates, AMT thresholds, and SALT deduction limits may change. High-income taxpayers could see increased taxes under Vice President Kamala Harris's plans, while former President Donald Trump may push for an extension of current tax cuts. This scenario suggests that higher personal taxes would enhance the appeal of municipal bonds due to their tax-exempt status.

The AMT's exemption levels, which drastically reduced eligible taxpayers from 5 million to around 200,000 under the TCJA, may remain due to concerns over widening eligibility. Changes to SALT deductions, capped at $10,000, may also affect municipal bond attractiveness: maintaining or lowering the cap would favor these investments.

Regarding corporate taxes, Harris advocates an increase to 28%, while Trump supports keeping it at 21%. A higher corporate tax rate could benefit municipal bond demand from banks and insurance companies. In terms of capital gains taxes, Harris's proposed increase for high earners could influence investor behavior, potentially decreasing muni portfolio turnover. Despite speculation on the federal tax exemption for municipal bonds, its removal appears unlikely, as neither candidate has shown clear support for such a measure.

Historically, while election outcomes have incited concern among municipal investors, actual market performance during election years suggests limited impact on returns, with positive outcomes often following elections. Current market conditions, including high yields and solid issuer fundamentals, present municipal bonds as an attractive long-term investment regardless of the election's result.