Every time I have mentioned the possibility of taxing muni bond interest as a potential risk factor, I get looked at like there’s a third arm growing out of my forehead. Look who has a head-arm now!

Municipal bond income is included in the cap under the new proposal, marking the administration’s first attempt to curb that benefit. That could hurt demand for state and local government securities, said lobbyists who work in the public finance sector.

The reason people don’t consider it a real risk is because the idea sounds so preposterously stupid. Taxing muni interest just raises the cost of borrowing for state and local governments – borrowers that are already strapped. Borrowers that are already laying off employees in droves because they can’t afford them. Remember, this proposal is part of a “jobs” plan that made the hiring of teachers, police and firemen an explicitly stated goal. Brilliant.