Elizabeth Warren wants to tax those she calls ultra-millionaires. Bernie Sanders has targeted the top 0.1%. And Joe Biden is seeking to reverse President Donald Trump’s tax cuts.
On the whole, Wall Street may not be very excited about the tax-the-rich push that’s front and center in the Democrats’ efforts to unseat Trump next year. But a $3.8 trillion corner of the bond market could reap big gains if one of them wins the White House.
That’s because the value of tax-exempt state and local government debt tends to rise when taxes head higher as wealthy investors buy those bonds to hold down what they owe.
The securities delivered outsize returns after President Bill Clinton took office and went on to raise the top marginal tax rate. It happened again in 2009, before President Barack Obama allowed tax cuts for the highest earners to expire. Even Trump helped: to pay for his reductions, he capped state and local tax deductions, setting off a municipal-bond buying spree by wealthy Americas looking for ways to shelter their income.
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