WASHINGTON — The mere threat of including a 28% cap on the value of municipal tax exemption in a fiscal cliff deal has already caused municipal bonds to become more expensive for issuers and, if adopted, will fundamentally change the market, analysts and government groups warned Thursday.

Municipal Bonds for America (MBFA), a coalition of state and local government and Wall Street groups, sent two identical, three-page letters to congressional leaders and President Obama outlining the negative consequences of implementing such a cap. In the letters they strongly urged the leaders to preserve the tax exempt status of interest on municipal bonds.

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