Municipal bonds are issued by states, local governments, school districts or public authorities to finance construction and other capital projects, such as bridges, buildings, sewers and stadiums.
The income stream from these bonds is not subject to federal tax. And, if a taxpayer buys a bond issued by their home state or city, it could be free of state and local income taxes too.
Hard numbers on how much income is excluded from such tax are hard to come by, but the Tax Policy Center estimates the impact is sizable.
"It doesn't make sense to buy muni bonds unless you are in a high tax bracket," Williams said.
More than a third of Americans lived in households receiving government assistance in mid-2010.
