Looking Towards 2025 – The Muni Tax Exemption

Insights from Gregg Bienstock, SOLVE SVP, Group Head, Municipals

The Muni tax exemption is (again) looking to be a hot topic in 2025. No crystal ball but some thoughts on the subject as we put the bow on 2024 and prepare for 2025.

• Overview: Muni bonds are, generally, tax exempt and the benefits flow to the municipalities that issue these bonds (savings v issuing in the taxable market), taxpayers (lower cost of borrowing for the issuer = lower cost to the constituency; community needs addressed) and investors seeking tax-free income.

• Slippery Slope: The Muni tax exemption—not a sexy, headline–catching subject—has been chipped away over the recent past (e.g., advanced refunding, PABs, etc.) to pay for Congress’ other “priorities.” Does the trend continue?

• 2017 Tax Cuts and Jobs Act: Set to expire at the end of 2025. The 10-year cost estimate to extend, as is, $4.6 trillion; estimates to extend and add for the campaign fodder (reinstating the SALT deduction in whole or expanding it, no tax on tips and social security, etc.), $8+ trillion over 10 years (depends who you ask/believe).

• The First 100 Days: Will most certainly focus on the big three: Immigration, Tariffs and Tax Policy. Zeroing in on tax policy: when will we have substantive information and bill(s) around tax policy given the “short” time to act, and if/how the government will seek to pay for it (yes, there are things that need to be paid for)?

• For purposes of this note, the operative question is: “Is the tax exemption on the chopping block and, if so, in whole (doubtful – my $.02) or in part (more likely)?” “In part” means the focus is on sectors or segments viewed as “not Muni enough.” See Slippery Slope above!

• Tax Exemption Benefits (in case missed above): Not just the 1% as some politicians would have you believe. Issuers, taxpayers, and critical projects from the State to the community level – the implications are staggering and beyond the scope of this note.

• 2025 Estimates for New Issuance: Most anticipate new issuance in the $525-$550 billion range. However, Tom Kozlik of Hilltop Securities has made clear that issuance can go as high as $745 billion if the tax exemption is seriously on the table, causing issuers to rush to the market to secure cheaper lending before the tax exemption goes away. While good for bankers and FAs, not so for the future (see Tax Exemptions above).

• While the potential for changes exists, the process is complex and involves competing priorities and agendas of Congress and the White House. The timeline and specifics will become clearer as legislative discussions progress.

• Stakeholders—issuers and taxpayers—must make their voices heard. The tax exemption is too valuable to municipalities and their constituents for DC to continue chipping away at its societal benefits. As several speakers at the BDA’s National Fixed Income Conference made clear, speak up. Don’t assume someone else will.

Wishing all a joyous holiday season and peace, health and happiness in the New Year.

About SOLVE

SOLVE is the leading market data platform provider for Fixed-Income securities, trusted by sophisticated buy-side and sell-side firms worldwide. Founded in 2011, SOLVE leverages its AI-driven technology and deep industry expertise to offer unparalleled transparency into markets, reduce risk, and save hundreds of hours across front-office workflows. With the largest real-time datasets for Securitized Products, Municipal Bonds, Corporate Bonds, Syndicated Bank Loans, Convertible Bonds, CDS, and Private Credit, SOLVE empowers clients to transform the way they bring new securities to market, trade on secondary markets, and value highly illiquid securities. Headquartered in New York, with offices across the globe, SOLVE is the definitive source for market pricing in Fixed-Income markets.