Steve Forbes has run for president twice on a program of a "flat tax." Under a flat tax, there would be only one tax bracket for the federal income tax and most tax deductions and tax exemptions would be eliminated

Suppose that Forbes wins the 2016 presidential election. What would be the likely impact on the market for municipal bonds?

If interest on municipal bonds were no longer exempt from the federal income tax, the prices of municipal bonds would fall and their yields would rise. Reducing the marginal tax rate on high income tax payers—as would be done under most flat tax proposals—would reduce the incentive many high income people have for buying municipal bonds. This would also result in a decline in the prices of these bonds and a rise in their yields.