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Trump victory threatens key muni tax break in hunt for revenue

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The tax break offered to municipal bond investors is coming under threat as Republicans are closer to taking control of both the White House and Congress.

President-elect Donald Trump has promised to further cut corporate taxes and even eliminate the federal income tax. If he goes through with those plans, lawmakers will need to find additional revenue to offset the cuts’ trillion-dollar price tag. The muni tax-exemption — estimated to cost the U.S. government less than $40 billion each year — has long been seen as a possible source of funding.

“The likelihood that the tax exemption is materially altered remains low, but the risk is probably at as high a level as it has been in the recent past given the size of projected deficits,” said Adam Stern, co-head of research at Breckinridge Capital Advisors.

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Donald Trump, Melania Trump, and their son Barron Trump during an election night event at the Palm Beach Convention Center in West Palm Beach, Florida

Eva Marie Uzcategui/Photographer: Eva Marie Uzcategu

With the Tax Cuts and Jobs Act of 2017 set to expire at the end of next year, Republicans will “decide how much they want to spend to extend, expand or make the TCJA permanent,” Andrew Silverman, an analyst at Bloomberg Intelligence, wrote in a note.

If they extend the tax cuts for a limited period, they’ll have more flexibility on whether to fund it by raising taxes or cutting costs, he added.

Back in 2017, the Trump tax cuts eliminated the exemption on bonds sold for a debt refinancing technique, crimping municipal bond sales in the years after that. And earlier this year, the American Enterprise Institute, a conservative think tank, floated repealing the tax-exemption on muni bonds, calling it an inefficient subsidy for local governments.  

The tax exemption of muni bonds, established in 1913, is the defining feature of the U.S. public finance market in which states, cities, towns, school districts, hospitals and other borrowers raise money to finance the bulk of the bridges, roads and tunnels. According to Emily Brock, director of the Government Finance Officers Association’s federal liaison center, 75% of infrastructure is built with muni bonds. Investors in such debt generally don’t pay taxes on the interest they earn, allowing governments to borrow at lower rates. 

State and local governments would need to turn to the taxable-bond market if the exemption is completely eradicated. That could “slow the pace of debt issuance and make the cost of capital more expensive for current tax-exempt borrowers,” said S&P Global Ratings analysts in a Nov. 7 report.

Brock said the burden to make up for any shortfall in public financing projects will fall on taxpayers, adding that “we haven’t seen evidence that the federal government is capable of meeting local infrastructure needs.”

To be sure, there is bipartisan support for the muni tax-break. The House Municipal Finance Caucus includes members of both parties. 

“We believe that there’s strong political support and justification for the muni tax exemption,” said Margot Kleinman, director of research for Nuveen’s municipal fixed income team.

As part of the tax overhaul in 2017, Congressional Republicans proposed restricting the sale of tax-exempt muni bonds for private-sector projects. That provision ultimately wasn’t included in the legislation.

Mikhail Foux, a strategist at Barclays Plc, said he’s not “overly concerned” about the repeal of the tax exemption because the cost of the subsidy is relatively low. But he said it’s possible that certain sectors, like education, may see their use of the financing tool curtailed.  

“Some parts of the muni market might end up on the chopping block, despite not generating sizable revenues for policymakers,” he wrote in a report Friday.

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10 states that procrastinate the most and least on taxes

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Complimentary Access Pill

Enjoy complimentary access to top ideas and insights — selected by our editors.

As the 2025 tax season continues and the April 15 deadline gets closer, many are still waiting to file their taxes. 

A study from IPX1031, a firm that focuses on like-kind exchanges, found that one in four taxpayers do not feel prepared to file their taxes in 2025, and determined which U.S. states have the most procrastinators by analyzing Google search data related to the tax filing deadline. 

For the third consecutive year, Wyoming has the most tax procrastinators, while Wisconsin has the fewest tax procrastinators, after coming in at No. 47 in 2024. 

Read more about the states that procrastinate the most and least on taxes (the lower the ranking, the more likely they are to wait to file their taxes).

States that procrastinate the most on taxes

Rank State
10 Maine
9 Montana
8 South Dakota
7 Rhode Island
6 Hawaii
5 Delaware
4 North Dakota
3 Vermont
2 Alaska
1 Wyoming

States that procrastinate the least on taxes

Rank State
50 Wisconsin
49 Ohio
48 Pennsylvania
47 Michigan
46 Indiana
45 Iowa
44 Missouri
43 Kentucky
42 Minnesota
41 New Jersey
map visualization

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Accounting

Guide to the saver’s match for financial advisors

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Tens of millions of lower-income retirement savers could soon get up to $1,000 in matching contributions toward their nest eggs each year — but they’ll need financial advisors’ help.

That’s the key takeaway from a report last month by The Morningstar Center for Retirement & Policy Studies and interviews with four experts about the “saver’s match” program, which is a provision of the sweeping 2022 Secure 2.0 retirement law that’s slated to take effect in 2027. As the replacement for the current “saver’s credit,” the match provides up to 50% in annual matching contributions from the federal government on the first $2,000 flowing into a saver’s retirement account for those with modified adjusted gross income of $35,500 or less for individuals or a maximum of $71,000 for couples.

READ MORE: The retirement savings race gap is wide and growing

Financial advisors often focus on high net worth clients whose wealth stretches far beyond that eligibility. However, they also frequently work with clients whose businesses sponsor employer retirement plans that must adjust their systems and raise workers’ awareness to enable them to fully tap into their benefits. Many firms and advisors also regularly participate in pro bono planning that aids people of any means with volunteer services. Amid persistent racial disparities in retirement savings and the continuing flow of Secure 2.0 provisions taking effect across the retail wealth management industry, professionals will play a pivotal role in ensuring that the saver’s match reaches its potential to boost millennial and Generation Z nest eggs by a mean of 12%, the report said.

“The impact is intuitively the biggest when people are changing their behavior, taking full advantage,” said Spencer Look, an associate director of retirement studies with Morningstar’s retirement center and co-author of the report. “There could be a big impact if we do that well as an industry and we implement this well.”

Advisors, employers and other parts of the 401(k) and retirement-savings ecosystem require some time to “not only to get the infrastructure, the plumbing in place,” but try to “target the potentially eligible participants in their plans and make sure they understand this is free money to them,” said Jack VanDerhei, the director of retirement studies with Morningstar’s retirement center and the other co-author of the study. For example, some of the eligible workers who aren’t currently 401(k) plan participants may need to set up their first individual retirement account in order to receive the government matching contributions. At the very least, advisors should know that the saver’s match and other parts of Secure 2.0 are “certainly going to influence the entire landscape going forward,” VanDerhei said.  

“It’s a given that, if the 2017 tax modifications are going to be salvaged in 2025, a number of retirement situations will come into play as far as taking looks at things like mandatory Rothification,” he said. “This is something that’s already been put in place and is going to be perceived by many as being a big help in terms of some of the retirement gaps going forward.”

What the study found

The current saver’s credit has reached fewer than 6% of filers due to design shortcomings like the requirement that they have an income-tax liability and a lack of knowledge among eligible savers, Morningstar’s report said. The researchers found “reasons to believe that the saver’s match will be more effective than the saver’s credit,” including the facts that savers will no longer be obligated to have federal income tax liability, that the money “will be directly deposited into their retirement accounts — a more tangible benefit that could encourage greater participation,” and that the law instructs agencies such as the Treasury Department to promote it, they wrote. 

“That said, the success of the saver’s match will largely depend on how effectively it is implemented,” Look and VanDerhei wrote. “To maximize impact, the government and retirement industry should reduce barriers and minimize savings friction wherever possible, within limits. Clear and accessible communication and education — including an awareness campaign — are also critical to ensure qualified individuals understand and use the program effectively.”

READ MORE: Secure 2.0 created emergency accounts. Will 401(k) plans use them?

The maximum match of $1,000 on top of the first $2,000 in retirement savings each year will go to taxpayers with modified adjusted gross income of $20,500 or less as individuals, $30,750 or lower for heads of households and as much as $41,000 among couples. For those with higher modified adjusted gross income, the matching contributions phase out at respective levels of $35,500, $53,250 and $71,000. Among millennials and Gen Z savers, roughly 49% of Hispanic households, 44% of Black Americans, 29% of white taxpayers and 26% of other racial and ethnic groups will qualify for some level of matching contributions. 

Using census data on those generations in terms of gender, marriage status and race and a simulation model called the “Morningstar Model of U.S. Retirement Outcomes,” Look and VanDerhei predicted that single women’s wealth at retirement could jump 13%, that of Black savers could grow 15% and Hispanic households could surge by 12%. Those figures assume that they get the highest matching contribution in 2027 and retire when they’re 65 years old, and that the program spurs more people to open retirement accounts and save more in order to take advantage. But even without behavioral changes, the saver’s match could boost the generations’ retirement nest eggs by 8%.

“When looking at the results from different demographic perspectives, we found that single women, non-Hispanic Black Americans and Hispanic Americans see greater benefits compared with other groups,” Look and VanDerhei wrote. “Moreover, our results show that workers in industries with a higher risk of running short of money in retirement are projected to experience a more significant increase in their retirement wealth under the new program.”

Help needed

The match necessitates “buy-in from everyone” across employees, employers, advisors, recordkeepers and governments, plus ample financial wellness education, according to Pam Hess, the executive director of the Defined Contribution Institutional Investment Association’s Retirement Research Center, which has worked on prior research about the potential impact of the saver’s match as part of a joint effort with the Morningstar center and the Aspen Institute Financial Security Program called the Collaborative for Equitable Retirement Savings. In addition, the findings of the latest study explain why more employers are considering how they could provide emergency savings, paycheck advances or low-interest loans, she said.

“Peoiple need help meeting their short-term financial struggles,” Hess said. “Employers are coming up with other solutions to help their workforce. You put those together with the saver’s match, and it could be really meaningful.”

READ MORE: 401(k) fees are lower but still hard to understand. Planners can help

Until the policy starts in 2027, advisors could get a head start by trying to increase the number of households using the existing credit, according to Catherine Collinson, CEO and president of the nonprofit Transamerica Institute and its division Transamerica Center for Retirement Studies, which found in a survey earlier this month that only 51% of workers are aware of the saver’s credit. The match “essentially reimagines and replaces and takes the saver’s credit to the next level, and the saver’s credit is available right now,” she said.

“Most people don’t wake up in the morning thinking about taxes everyday, unless it’s April 14 — the day before everything is due,” Collinson said, noting that many people also push back on the idea that they are among the “low-to-moderate income retirement savers” eligible for the credit. “The general public does not relate to that messaging, so this is where it’s so critical for financial advisors who can help to get the word out.”

More ways to get involved

On the other side of the equation, the sponsors and recordkeepers could use a nudge from the advisors to ensure they’re giving the employees the means to get the biggest match “systematically, in a way that is doable and viable,” Hess said. Right now, many employers simply don’t “have all the information they need to know who’s eligible and who’s not,” based on their modified adjusted gross income, she noted. 

“We know that engaging employees is really hard — getting that connection is increasingly hard in a noisy world,” Hess said. “First you have to figure out who qualifies, and then you have to get the dollars from the government into that account, which is not a connection that’s in place today.”

Advisors’ expertise could overcome some further barriers to participation based on the continuing problems that “there’s still a major trust issue going on any time the government gets involved” and some people may not understand how to open an IRA, VanDerhei said. They’ll also be able to point out that the match would benefit “a lot of people” to a certain extent, so it’s not just for those of the lowest means, Look said.

“Pro bono work, volunteering to help educate and talk through with people in the community who may be eligible is very, very important,” he said.

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GASB posts report on fair value standard

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The Governmental Accounting Standards Board today published a post-implementation review report on GASB Statement No. 72, Fair Value Measurement and Application.

The report, issued by GASB staff, says the fair value standard met the three PIR objectives: The standards accomplish their stated purpose, costs and benefits are in line with expectations, and the Board followed its standard-setting process. 

GASB logo at headquarters in Norwalk, Connecticut

The report concludes that Statement 72 resolved the underlying need for the statement, which involved valuation issues from a financial reporting perspective. It also concludes that the statement was operational and its application provides financial-report users with decision-useful information such as fair value measurements used in the analysis of governmental financial information and fair value-related disclosures.

Statement 72 is eligible to undergo more extensive PIR procedures, culminating in a final report.

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