6.2.  Tax Advantages of Municipal Bonds

Interest earned from holding corporate bonds is taxed at an investor’s ordinary income rate. Interest payments on most municipal bonds are not taxed at all. (Exceptions to this rule are discussed on page 11.) This can be a huge advantage for municipal investors, particularly for those in high tax brackets. Investors who pay a higher tax rate on earned income get a bigger tax break by buying municipal bonds.

Most of the benefit of issuing tax-exempt municipal bonds (roughly 80%) goes to the issuer, which can fina