"SAC Observations on Trump's Opening Tax Cut Proposal" -
The White House unveiled a tax cut proposal yesterday in advance of Trumpís 100-day anniversary on April 29th. The document was only 250 words long and largely devoid of details. It was a one page proposal of bullet points encompassing all of his campaign promises. In addition, none of the comments mentioned any scoring by Office of Management and Budgets or the Congressional Budget Office.

With that said, it is impossible to analyze the plan which covers both corporate and individuals in any detail at this time. However, for individual municipal bond investors, the plan as proposed appears to be most favorable for tax-free bonds. Our observations relate only to that aspect at this point, with no estimate of the final outcome or its impact on economic activity over the longer term.

The top marginal tax rate of 39.6% is being cut to 35% and the Obama medical device tax of 3.8% is being eliminated. While rates have dropped, so have the eliminated deductions offsetting the rate drops. It will double the standard deduction while eliminating most tax breaks including interest expense, and state and local taxes but excluding mortgage interest and charitable deductions. The alternative minimum tax bond restriction will be removed and the tax-free income of municipal bonds was not mentioned.

For residents of high tax states, the plan as proposed would make the hurdle for the out-of-state breakeven higher, as the state tax on out of state bonds would no longer be deductible, thus raising the state effective tax rate to the nominal rate.

We will continue to monitor the tax plan as it unfolds and provide an assessment on how the fiscal policy changes may affect your investments in the future. Please donít hesitate to contact us should you have any questions going forward.
Municipal Market Update - California Utilities
The California water utility universe is diverse both in size and scope, ranging from state agencies which provide statewide infrastructure to facilitate delivery and storage, to both regional and local entities which deliver it to intermediate or final customers. Many of these credits also operate electric utilities and issue bonds backed by both or either revenue stream. In addition, wastewater treatment facilities are sometimes funded by bonds backed solely by sewer fee revenue. Utility credits, in
general, have traditionally been considered very safe by the nature of their near monopoly status, essentiality of service, and ability to raise rates. In this context, water has been considered the marginally better credit as it is more essential, is less subject to competition, and has fewer impediments to raising rates. Bonds issued by the same agency backed solely by the electric revenue stream are usually rated one to two levels lower as a result.
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