Why do people invest in tax free municipal bonds?  It’s because they are tax free, at least up until now. That has changed.

Municipal Bonds are a financial resource for governments and citizens, a win, win situation for both.

The Social Security Administration (SSA) now imposes a tax  or Income Related Monthly Adjustment Amounts (IRMAA) on what use to be tax free municipal bonds. The new tax kicks in on those filing an MAGI or Modified Adjusted Gross Income of more than $170,000 in 2014. The  MAGI is defined by the SSA, not the IRS.

Lower incomes are only affected by potentially lower services. However, since investing in tax free income now is taxable, it reduces or eliminates the incentive of those who invest in municipal bonds. Without that incentive, government income may feel the impact.

Because the potential for lost revenue caused by the new tax (IRMAA), it’s hard for me to understand why the Association of Washington Cities (AWC) has not responded to the possible loss of revenue.

Affected citizens lose an investment choice and governments may find it harder to maintain or improve services.