What would a Clinton or Trump presidency mean for tax-exempt bonds? Both candidates have declared a desire to change our tax system, but will this mean any changes to the tax-exempt bond rules? Neither candidate has expressed a desire to change how the tax-exempt bond rules work, but their other policy goals may have an indirect impact on the market.

With the expectation that the candidates’ pre-election positions will have some bearing on future policy, let us first review what the candidates have said about tax-exempt bonds. This is actually quite easy, because neither candidate has directly addressed the issue. I have been unable to find any mention of tax-exempt bonds by either candidate, and this article from the Bond Buyer says that “[n]either Trump nor Clinton mention municipal bonds specifically in their tax plans.”

However, other parts of the tax and economic plans proposed by the candidates could impact the municipal bond market.

Both candidates would spend more money on infrastructure, which would presumably result in the issuance of more tax-exempt bonds. The Clinton website has an entire page devoted to “fixing-America’s-infrastructure,” and Trump wants to double what Clinton spends, which would mean spending an estimated $500 billion on infrastructure projects.

While the candidates agree on spending more money for infrastructure, the tax plans that they have proposed would likely have different effects on the tax-exempt bond market. Clinton has proposed imposing a tax surcharge on Americans making more than $5 million per year (see here). By contrast, Trump seeks to “[r]educe taxes across-the-board.” (see here). Raising taxes on high earners would likely increase demand for tax-exempt bonds, while reducing taxes would likely reduce demand for such bonds.

If you are wondering how much weight we should put on the candidates’ pre-election proposals, let’s remember that the words “candidate” and “candid” are both derived from the same word. This must mean that each candidate will faithfully follow through with those plans and pronouncements, right?